February 18, 2018

State of the economy in five charts

25 October 2017, 12:59 | Kara Nash

Finance Minister Arun Jaitley

Finance Minister Arun Jaitley

The government's decision to infuse Rs 2.11 lakh crore in public sector banks and spend Rs 14 lakh crore on infrastructure projects has received the thumbs up from India Inc.

Another major industry chamber Federation of Indian Chamber of Commerce and Industry (Ficci) said that it hoped that the Reserve Bank of India will also pro-actively seek to boost investment and consumer demand through an easing of the repo rate.

Under the road connectivity programme at a cost of almost Rs 7 lakh crore, the government will construct 84,000 km highways in the next 5 years.

To be clear, the "unprecedented" is to describe the headline amount announced by the government - easily the biggest recapitalisation programme announced to date - and not the idea of issuing recapitalisation bonds. The glide path of the fiscal deficit will continue to be maintained, says Arun Jaitley.

"We will report on the situation as they develop".

Officials privately admit they have struggled to revive private investment because state-owned banks, which provide much of the credit in the economy, are saddled with a mountain of bad debt that has crimped their ability to extend new credit.

Adding to this, Jaitley said that government has decided on the steps needed to sustain the growth momentum.

"This milestone announcement on recapitalising banks in one-go is a bold and courageous move and was indeed the need of the hour", said Rajnish Kumar, Chairman of the State Bank of India.

The money for the recapitalisation will come from a budgetary provisions of Rs 18,139 crore, recapitalisation bonds to the tune of Rs 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity (estimated potential Rs 58,000 crore). "Between 2008 and 2013, public sector banks engaged in indiscriminate lending, which led to the rise in non-performing assets", he added.

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Economists agreed the impact on fiscal deficit will depend on how the bank recapitalisation is executed.

The total revenue of GST paid under different heads upto October 23, 2017 for the month of September 2017 is Rs 92,150 crore.

In the last three-and-half years, the government has pumped in '58,848 crore capital in the public sector banks.

Government's response to slump in GDP growth.

At briefing titled "The India Story: Speeding Up For Take Off!' a presentation highlighted that the economy grew by 7.5 percent per year in the three years of BJP-rule since 2014. And job creation is the intention to push private sector investment and MSME funding", he said.

"The Cabinet decision to address a vital issue is very timely and welcome".

Giving a huge relief to the struggling banking sector, the government has today announced a mega recapitalisation plan under which, it plans to give ₹2.11 lakh crores to the banks.

"These measures would surely set the stage for revival of private sector investment", said Rawat.

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