NEW DELHI: Blaming high NPAs for India’s slowing growth, Former vice-chairman of NITI Aayog, Arvind Panagariya has said that the government made a mistake by not paying attention to his warnings regarding Non-Performing Assets (NPAs) when he was with the government think tank. He also warned that this remains a challenge since the matter has not been addressed yet.
Panagriya was speaking at a session of The New Indian Express’ Express Expressions, a series of conversations with people of eminence, and was in conversation with Prabhu Chawla, Editorial Director, The New Indian Express group and author and columnist Shankkar Aiyar.
Panagariya noted that despite pushing hard during his stint at Niti Aayog, he could not prevent the slide. “Let’s take 4.2 per cent growth (FY2019-20). And that is the result of one key mistake that the government made, and I had rallied for that mistake not to have happened because I was there at Niti Aayog at that time. But I wasn’t successful,” the Columbia University Professor said. He attributed the mistake to the poor understanding of NPAs by the Department of Financial Services.
“By late 2013, I was convinced that the NPAs are very large, that they were just hidden as restructured loans and the government needed to move. That was one of the key problems I mentioned that the government needed to solve. After coming to Niti Aayog, I again internally pushed for it, but sadly, you know, the Department of Financial Services had no understanding,” he said. Panagariya also said that then RBI governor Raghuram Rajan just addressed the symptoms.
“Then Governor of RBI (Raghuram Rajan) also was playing along, largely. So, he just addressed the symptoms. He did the right things in terms of making the hidden NPAs to become explicit, but then he did not take the actions that were required at the time. He delayed.. and action did not actually start till early 2017 when credit growth completely collapsed. And that is when the urgency was felt and then I think that the order was issued from the very top,” he noted. Panagariya thinks the problem has not gone away, especially in light of recent restructuring measures.
“I think we have finally paid for that and that weakness remains. So, we went into Covid with significant weakness in the economy and that will still have to be addressed,” he said. However, despite the challenges, he remains bullish about the Indian growth story. “The onslaught of Covid may colour somebody else’s vision, not mine. I think the long term prospects for India is very positive. Covid has brought the growth rate down to negative of almost 24 per cent for the particular quarter for which the latest data have been released. But that is in line with what has happened elsewhere. And if you also look at which sectors have shrunk more and which have not, you can see the footprint of Covid all over. So, I don’t read that as saying anything about the long term prospects of the country,” he said.
However, he admitted that India could have been a lot better prepared to handle the pandemic. “But unfortunately, you know, we did not prepare ourselves. So, when it began to show up in January, February, we had no masks, we had no PPEs. Some basic preparedness was lacking. So, I would say that that preparedness was a bit of a problem,” he said. With the central bank going ahead with restructuring of bad loans, he added that financial market weakness remains a major challenge. “We will need to fix the stress in the financial markets. I think that will have to be priority number one as we come out of Covid,” he said adding that “privatisation of profits and socialisation of losses” needs to stop.
“I think financial sector reforms are very critical, within which I would privatise most public sector banks. If the government is hesitant, keep the State Bank of India, it’s a bank that is well run, the government is running it well. It’s also the largest bank and that, I think, should suffice for social goals,” he noted, adding that reforms in trade and labour were also needed. He also pushed for aggressive asset monetisation. “This was my mission, but at the end of the day, it still has not happened,” he said.