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Global Indians: Would K V Kamath be India’s Manmohan Singh-II?

  • K V Kamath may replace Nirmala Sitharaman as FM
  • May reform banking sector, reduce their NPAs to spur growth
  • Uday Kotak optimist, says its pain before pleasure

New Delhi: Over a decade ago, the ICICI Bank he headed was said to have posed challenge to a few American banks, in America, forcing them to shut down some branches. Now, he may be invited to make banking live-wire and help make India a USD 5 trillion economy by 2025.

Prime Minister Narendra Modi with his predecessor Dr Manmohan Singh

According to media reports, ICICI Bank’s former Chairman K V Kamath is likely to succeed incumbent Finance Minister Nirmala Sitharaman after Parliament’s forthcoming Budget Session for the fiscal 2020-21. Sitharaman will table her maiden full Union Budget on February 1.

A non-political man, Kamath is currently President of New Development Bank (NDB), of the BRICS countries, at Shanghai, China.

Concerned at the widening gap between India’s goal of $ 5 trillion economy by 2025, and the current ‘stagflation’, the NDA Government’s possible move to rope in Kamath may be a disruptive step and a game-changer, the way the PV Narasimha Rao Government in 1991 did by bringing in domain expert Dr Manmohan Singh as Union Finance Minister.

Former ICICI Bank Chairman K V Kamath with Prime Minister Narendra Modi.

Some hard decisions, which may cause short-term pain to some but bring cheers to many in the long run, seem unavoidable as the third generation of economic reforms wait to unfold. To many status quoists, reforms, any reforms, are initially unacceptable. Reforms usually take about decade to mature fully and yield the desired results. For instance, demonetization forcibly regulated indiscriminate flow of unaccounted (and black) money as a ‘parallel economy’, and GST made it difficult to evade taxes. Both these crucial steps, condemned by many initially, have matured now and will go a long way in putting the country’s economy firmly on rails.

To achieve the 2025 goal, India will have achieve a high export growth rate and economy will have to grow at an average rate of at least 8 per cent during the next five years. In fact, India’s exports will have to grow at an even higher rate. Plus, market demand, soul of any industry-based economy, can increase only if the people have money, and access to loans, to buy products and services.

Ever since Dr Singh heralded the reformist era, India’s national narrative has slowly shifted from the archaic ‘political economy’ of the Nehruvian socialist model, in which politics took precedence over economy, to the new era of ‘economic politics’. Despite initial opposition to abrogation of the discredited licence-permit-quota raj in the 1990s, most political parties gradually fell in line and, even if grudgingly, followed the same route of reforms; when in the driver’s seat, they did launch populism schemes but also silently discouraged or minimized subsidies, encouraged technological upgradation of procurement and delivery systems, migration of employment from public to private sector and from rural to urban areas for their socio-economic upliftment.

The NDA Government, headed by Prime Minister Narendra Modi, is currently facing problems somewhat similar to what Rao faced in the 1991-95 period and Dr Singh in the 2009-14 period: impact of existing structures’ collapse and inability of the government to properly channelize the released, bursting national energy into desired directions.

If the Gulf War, rising crude prices and depleting exports compounded India’s problems in the 1990s, the 2008 global recession gradually corrupted national economy in several sectors, despite an artificial growth in some others. Reckless subsidies, indiscriminate waiver of farm loans and increasing NPAs riled the economy further. In the UPA era, Dr Singh almost ‘allowed’ the corrupt political system he inherited to expose and hang itself, so fully that the Congress now finds it impossible to arrest its own irreversible decline at the national level, despite ‘green shoots’, here and there.

But there is little to worry, despite a discredited Opposition trying to be relevant by aligning with all sorts of nihilists, anarchists, Communists, Islamists, and other pessimistic losers, under the umbrella of some Secular Ayatollahs.

Recently, Kotak Mahindra Bank Chairman Uday Kotak has correctly diagnosed some of the reasons behind India’s current economic woes. In a media interview, he said: “We got to be clear. We are going through a cleansing and a purging process. Business in India happened in a particular manner for a long time and the rules of the game were different. The rules of the game have changed. Business in general has taken a little longer time to recognise the new rules of the game and it is moving towards survival of the fittest.”

He also observed that India is no longer throwing good money after bad, and, citing the IL&FS case, said the government and the shareholders took the tougher and the more difficult path of not pouring in good money after bad. This might have caused pain in the NBFC sector for a few quarters, but the decision would go a long way in regulating it.

“Any solution comes at a cost. Not recognising reality and kicking the can in the future creates a much bigger cost which may not be seen immediately. The question is which is the higher cost? A quick resolution, clean system or kick the can for the future? For good reasons, the policy makers have chosen that let us get to a cleaner system.”

Both Modi and Sitharaman are no quick-fix solution providers. They are expected to go slowly and resolutely to make Indian economy a cleaner and efficient system. They have exhorted banks to lend and promised that no genuine business decisions will be questioned. Despite this assurance, bankers have remained reluctant to lend, worried as they are about the NPAs they are burdened with from the UPA era. Circumspect, therefore, these bankers parked about Rs 4 lakh crore with the RBI’s reverse-repo window instead of lending or buying government securities.

The Modi Government’s aim of spending over Rs. 100 lakh crore on infrastructure sector in the next few years can be realized if the bankers start lending again to the private sector, purely on merit, without fear or favour. This investment could generate millions of jobs, put money in the consumer’s pocket, increase market demand, encourage supplies and innovation supplies, and further spur job growth in a long value chain…

It is here that Kamath’s role could be significant. Being a respected banker himself, he knows what ails this sector. It will be interesting to know if he follows a suggestion of former Chief Economic Advisor Arvind Subramanian, that the government should have a bad bank to take over the NPAs of banks and NBFCs. But to buy this ‘dustbin’ the government would have to shell out money, like a bond, and cut back subsidies, etc.

If given a free hand, Kamath could make banks fearless enough to go the whole hog in further reforming the sector. With political support, he can make sure they shed fears of the CBI breathing down their necks.

But banking is just one of the reforms…it is, however, engine of economy and has the potential to accelerate growth in the train that it pulls…

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