In this second part of the video, Dr. Bibek Debroy talked about the challenges, the government is confronting with.
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00:00 Coming to the larger issues that economy is facing right now, this government came in
00:07 2014 and the moment that it came into the power, it was like on the objective was a
00:12 bank consolidation and that's why they went on a bank merging spree.
00:17 First five associate banks were merged with SBI, then Bank of Baroda merged with the Dena
00:21 Bank.
00:22 So do you think that it is an alternative to tackle NPAs and bad loans or is there any
00:27 other alternatives available?
00:28 So what's your take on that?
00:29 Wait.
00:30 Firstly, this is technically a new government.
00:36 Although it is the same political party, it is the same prime minister, so obviously there
00:41 is going to be a process of continuity.
00:44 This government came into being, although I said there is an element of continuity,
00:50 recently.
00:51 What this government plans to do, we still do not know.
00:57 We have some inkling of what this government intends to do through the president's address
01:04 in parliament, through the prime minister's address to different speeches by the prime
01:10 minister.
01:12 But strictly speaking, we need to wait for the budget because the budget apart from just
01:20 number crunching of receipts and expenditure is also statement of intent by the government
01:26 about how it tends to solve various issues.
01:31 So until the budget is announced, it is not my call nor is it my business to say what
01:38 I think should be done about NPAs.
01:42 The fact of the matter is, and I will repeat what I said a little while earlier, the growth
01:48 slowdown in the economy did not, and this is the great danger that people like Arvind
01:55 Subramanian make, this does not result from May 2014.
02:02 The growth slowdown had happened earlier.
02:06 The slowdown in employment creation, the lower labor intensity of production, it started
02:15 in the year 2004-05 and there are serious, serious structural reasons for these things
02:22 happening which we need to debate and any government including this government needs
02:28 to have a clear road map for resolving these structural problems.
02:33 What are these structural problems depends on the lens that you look at it with.
02:37 If you look at it with a production function kind of lens, you will say I need to make
02:42 labor markets more efficient, land, natural resource markets more efficient, I need to
02:47 make capital markets more efficient which is how the NPA issue comes in, I need to enhance
02:53 productivity that is one way to look at it.
02:55 The other way to look at it is to do a macro kind of thing and say that my choice is consumption
03:00 expenditure, public investments to what extent can I increase public expenditure because
03:06 after all there are fiscal consolidation, fiscal deficit reduction commitments, investments,
03:12 private investments, net exports, these are different ways of looking at it.
03:17 NPA issue is an issue that cannot be solved overnight because it has built up over a period
03:26 of time and you mentioned NPAs but there is also something else which may not be quantitatively
03:31 that important but nonetheless there is a problem that concerns NPAFCs.
03:37 Now whatever one does about the financial sector, it will take a while but so far as
03:43 the plan is concerned that is where I am ducking because it is not my call, I am just suggesting
03:47 let us just wait for the budget.
03:49 Raghuram Rajan: Sir, but the one fact that this government has the objective to make
03:54 less banks but healthier banks.
03:55 Dr. Raghuram Rajan: We do not know what this government's objective is.
03:59 You do not know, I do not know, let us wait till the 5th.
04:03 Raghuram Rajan: Sir, you mentioned about NBFC crisis, so my next question is about NBFC
04:07 crisis, how non-banking financial companies are really under huge distress after infrastructure
04:12 leasing and financial companies default and DHFL on the verge of being default.
04:16 How is it going to impact economy longer and whether this government is going to step in
04:20 to revive this sector because it is catering to the sector which is not being catered by.
04:24 Dr. Raghuram Rajan: Look, what the government is going to do, I will say the same thing,
04:28 let us wait till the 5th, not that far away, we can hold our patience for a little while.
04:34 So far as NBFCs are concerned, the NBFC is a very, very heterogeneous category.
04:41 All kinds of things get lumped together as NBFCs.
04:45 I do not think quantitatively the NBFC problem is as serious as the NPA problem, quantitatively.
04:54 I also happen to think that in terms of size, the NBFC problem is probably concentrated
05:04 in a few NBFCs.
05:05 I do not know what the number is but I would be very surprised if it is more than about
05:10 5 or 10.
05:12 So if one can ensure that these 5 or 10 NBFCs do not affect the entire system adversely,
05:21 I think one will have resolved the problem.
05:25 But I do recognize there is a problem with the financial sector.
05:28 I do recognize there is a problem with banks and now NBFCs not extending credit.
05:37 But all I said is let us just wait till the 5th of July.
05:40 [Squish]
05:40 [BLANK_AUDIO]