(LiveMint)
India has the ability to realize its economic growth potential of 8.5% per year, chief economic adviser Arvind Subramanian said in an interview, laying down two caveats for it to do so.This is presaged on India overcoming challenges posed by weak demand and the twin balance-sheet problem of highly leveraged corporate entities and bad-loan-ridden banks, Subramanian said.
“And here the recapitalisation of the public sector banks that the government has recently announced is a very critical step forward,” he said, a day after Moody’s Investors Service on Friday upgraded India’s sovereign rating for the first time in 14 years. Earlier, Subramanian pointed out, the centre and the Reserve Bank of India (RBI) had undertaken a rejig of the institutional framework for bankruptcy resolution.
The cleaning up of corporate balance sheets would revive investment demand and healthier banks would stoke a similar pick-up in credit offtake.The chief economic adviser, however, cautioned that this has to be followed up with some hard-nosed reform initiatives in banking. “Here, shrinking the fundamentally unviable banks, ensuring/creating risk assessment capability in the PSBs (public sector banks), and bringing in more majority private sector ownership will be terribly important reforms,” he said.
