Stronger governance of banks needed to curb NPAs; need roadmap to ease govt mandate on banks
New Delhi : India needs to activate “stalled engines”, including private investment and rural demand, to sustain 7.6 % growth rate in the coming years, World Bank said. The country’s economy expanded at a faster pace in 2015-16 even as a number of its growth engines stalled, it said.
“Agriculture — having faced two consecutive drought years — rural household consumption, private investments and exports have not performed to potential,” said the India Development Update, a twice yearly report.
It also said that to remain on this path and sustain 7.6 % growth in 2016-17, the challenge for the Indian economy is to activate the stalled engines — agricultural growth, rural demand, trade and private investment, while ensuring that demand from urban households and public investments do not run out of fuel.
The update expects economic growth to be at 7.6 % in 2016-2017 followed by a modest acceleration to 7.7 % in 2017-2018 and 7.8 percent in 2018-2019.
World Bank’s country director in India Onno Ruhl said: “There are good reasons for confidence in India’s near-term prospects.”
“However, a pickup in investments is crucial to sustain economic growth in the longer term.
The most significant near and medium-term risks stem from the banking sector and its ability to finance private investment, which continues to face several impediments in the form of excess global capacity, regulatory and policy challenges, in addition to corporate debt overhang, according to the update.
“Accelerate the ongoing structural transformation of the sector toward one that is more market-oriented and competitive, for example by providing a roadmap for relaxing government mandates on banks,” the report said.
The World Bank said the non-performing asset issue needs to be handled through recapitalisation of state-owned banks and by providing them tools to manage stressed assets.
The recently approved bankruptcy code is helpful in this regard, and once it is implemented it will help unleash the productivity that Indian firms need in order to create jobs, and become globally competitive,” Ruhl added.
