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  3. Need to take steps to remove stress in private sector to deal with economic slowdown: Rajiv Kumar

Need to take steps to remove stress in private sector to deal with economic slowdown: Rajiv Kumar

23 Aug 2019 Evaluate

Terming the stress in the financial sector as unprecedented, Niti Aayog vice chairman Rajiv Kumar has said that the government needs to take steps which eliminate apprehension from the minds of private sector players and encourage them to step up investments. He added this stress in the financial sector has resulted in an economic slowdown in the country. He also said private investments will drive India out of the middle income trap. He said nobody had faced this sort of situation in the last 70 years where entire financial system was under threat. Explaining further, Kumar said some of the steps have already been announced in the Union Budget to address stress in the financial sector and give a push to economic growth which hit a 5-year low of 6.8% in 2018-19.

Elaborating how stress in the financial sector has led to a slowdown in the economy, the Niti Aayog vice chairman said the entire episode started with indiscriminate lending during 2009-14 leading rise in non-performing assets (NPAs) post 2014. He said rising NPAs reduced the ability of banks to do fresh lending and added that the space was occupied by the shadow banks with credit growth of 25%. The NBFCs could not manage this high loan growth leading to defaults by some of the large entities triggering slowdown in the economy eventually.

He said the whole nature of the game has changed after demonetisation, the Goods and Services Tax and the Insolvency and Bankruptcy Code. The earlier period where you had 35% cash sloshing around, it has become much less now. All of these put together it is a fairly complex situation. There is no easy answer. On the issue of delay of payments by the government and its departments to private sector in lieu of goods and services availed from them, he said, it could be one of the reasons for the slowdown but the authorities are making all efforts to expedite the process.

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