​ET Awards 2018: Don’t throttle growth by squeezing liquidity, says FM Arun Jaitley

Finance Minister Arun Jaitley extolled the virtues of prudence — from the pricing of petrol and diesel to regulatory and fiscal policies — as the nation is paying the price for seeking shortcuts to growth after the global financial crisis. He also highlighted the need for adequate credit to industry and sufficient liquidity for higher growth, setting the stage for discussions at the upcoming RBI board meeting on Monday.
“If we have to improve on this (growth) we need a certain level of credit flow as far as entrepreneurs are concerned... see that liquidity is maintained,” said Jaitley, guest of honour at the Deloitte Economic Times Awards for Corporate Excellence in Mumbai on Saturday, addressing an audience that included the cream of India’s business world along with top government colleagues. “As a reaction to the sins of 2008-14 that were collectively committed… it will have to be done in a manner to restore banks, to restore the discipline as far as the banking system is concerned.” This doesn’t mean throttling growth by squeezing on credit and liquidity, he said.

The government has been pushing RBI to do more to ease liquidity and spur credit offtake in to bolster growth and encourage job creation. The Centre is looking for easier capital norms relaxations in the prompt corrective action framework.

“Banking being a domestic issue, it has an impact,” said Jaitley. “It is important to realise what is the problem. It can be explained in language that is simpler to understand. We witnessed a situation after Lehman Brothers... There was a tendency to keep growth moving on the basis of bank loans. From 2008 to 2014 is a chapter in the lives of public sector banks... We cannot wish it away, we have to learn from this so it never happens again.”

Bad loans ballooned after the RBI ordered an asset quality review (AQR) in 2015, revealing that nonperforming assets (NPAs) were about four times than disclosed. “When we came to power, we were told total NPAs were Rs 2.5 lakh crore,” said Jaitley. “AQR revealed it was Rs 8.5 lakh crore — it was all hidden below the carpet.”

While he doubted if all the programmes to restore the health of banks were working, Jaitley said IBC has been effective. The government is also keen that NBFCs are provided sufficient liquidity. He also signalled that levies on oil products may be reduced once tax base increases.