India’s $ 5 Trillion Economy The government wants to launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication (FAB), solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computer servers, laptops, etc. and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits. § Go to the Economic Survey 2018-19. It too states that “To achieve the objective of becoming a USD 5 trillion economy by 2024-25, as laid down by the Prime Minister, India needs to sustain a real GDP growth rate of 8 percent. International experience, especially from high growth East Asian economies, suggests that such growth only be sustained by a "virtuous cycle" of savings, investment and exports catalysed and supported by a favourable demographic phase. § “The key word for all these plans is investment – especially private investment. It is this investment that will create jobs, drive demand, create capacity and generate wealth. But investment is not something India can bring to its territorial jurisdiction easily. India needs foreign direct investment (FDI) urgently, and lots of it. Since FDI, unlike porolio investment, is long-term patent capital, entrepreneurs and bankers like to examine proposals very carefully. Bank Credit Towards a $ 5 Trillion Economy: India is now the 6th largest economy in the world and is on its way to become $5 trillion economy by FY25, based on an assumed 12% nominal GDP growth and 5% depreciation in Rupee § India is poised to spend a massive `100 lakh crore on infrastructure over the next 5 years § Bank credit needs to grow to `188 lakh crore in FY25 from `97.7 lakh crore in FY19, with an increase in incremental credit of `90 lakh crore during FY20-FY25. § PSBs could potenally supply at least `55 lakh crore of credit and `75 lakh crore of deposits mobilization in this period. Banks need to drive credit growth in agriculture, MSME, exports, retail, infrastructure and construction. Sector-wise Incremental Credit Requirement Agriculture - `8-10 lakh crore MSME and Exports - `18-20 lakh crore Infrastructure & construction - `10-12 lakh crore Retail - `25-28 lakh crore Issues to reach $5 Trillion Economy
Asset Quality - NPAs increased due to optimistic growth projections made during boom years, inadequate appreciation of inherent risks, delay in environmental and other clearances etc,. RBI's Asset Quality Review (AQR) exercise led to the elevated levels of Gross NPAs in the banking system. NPA cycle has peaked and GNPAs have started to decline and it stands at 9.3% as on Mar '19 as against 11 .5% as on Mar18Way forward - SCBs' GNPA rao may decline further to 9.0% in March 2020. § Allowing Foreign Portfolio Investors (FPI) to acquire stressed rupee loans directly instead of present system of going through an asset reconstruction company (ARC) § Allowing eligible ECB investors to fund acquisition of stressed companies both under IBC and outside IBC Capital Requirement - Need around `3-4 lakh crore of incremental capital for `50-60 lakh crore of incremental lending to manufacturing and services (excluding retail) in the next 5 years. § PSBs to explore multiple sources of capital – government, domestic and foreign lending. Recommendations -To fulfill the Vision of the Govt, PSBs will continue their role in the transformation of the economy. However, certain issues including asset quality, capital adequacy, HR, governance, transmission etc., need to be addressed. § To instill confidence in foreign investors, IBC might be tweaked to give clarity for various asset classes/creditors. § Corporate Governance in PSBs require attention. Address open issues such as appointment of top management, stability and expertise of management team, and skilling of manpower. § Keeping in view today's banking scenario of intense competition, HR policies of PSBs need to be changed to align them with the private sector
Asset Quality - NPAs increased due to optimistic growth projections made during boom years, inadequate appreciation of inherent risks, delay in environmental and other clearances etc,. RBI's Asset Quality Review (AQR) exercise led to the elevated levels of Gross NPAs in the banking system. NPA cycle has peaked and GNPAs have started to decline and it stands at 9.3% as on Mar '19 as against 11 .5% as on Mar18Way forward - SCBs' GNPA rao may decline further to 9.0% in March 2020. § Allowing Foreign Portfolio Investors (FPI) to acquire stressed rupee loans directly instead of present system of going through an asset reconstruction company (ARC) § Allowing eligible ECB investors to fund acquisition of stressed companies both under IBC and outside IBC Capital Requirement - Need around `3-4 lakh crore of incremental capital for `50-60 lakh crore of incremental lending to manufacturing and services (excluding retail) in the next 5 years. § PSBs to explore multiple sources of capital – government, domestic and foreign lending. Recommendations -To fulfill the Vision of the Govt, PSBs will continue their role in the transformation of the economy. However, certain issues including asset quality, capital adequacy, HR, governance, transmission etc., need to be addressed. § To instill confidence in foreign investors, IBC might be tweaked to give clarity for various asset classes/creditors. § Corporate Governance in PSBs require attention. Address open issues such as appointment of top management, stability and expertise of management team, and skilling of manpower. § Keeping in view today's banking scenario of intense competition, HR policies of PSBs need to be changed to align them with the private sector
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