25 Jun 2019 20:32 IST

NDA 2.0 should deal with rising NPAs, NBFC crisis

There is an urgent need for the government to sell off or shut the loss-making PSUs

On May 23, NDA recorded a landslide victory for the second term and Prime Minister Narendra Modi again proved to be the most popular leader in India. The NDA won 353 seats, which provide it enough power to carry out its policies without any interruptions by the Opposition parties in the Lok Sabha.

Unemployment

As per government data, unemployment rate in India in 2017-18 was 6.1 per cent. Though India’s GDP is growing at an average annual rate of 7 per cent but this can be termed as jobless growth. Artificial intelligence and machine learning are taking away most of the low-skilled jobs and more such positions will become obsolete in the future.

As per industry experts, around 90 per cent of the Indian youth are unemployable. They have the degrees, but lack the skill-sets required. It is time the government paid attention to revamping the education system to make it more work-oriented. More focus should be laid on practical knowledge, instead of classroom theory. The syllabus should be frequently revised, as per industry demands.

The NPA crisis

Public sector banks are suffering huge losses due to rising NPAs. This has forced the government to put many of the PSBs under the PCA framework, which has halted lending activity for these banks. There was some relaxation after Shaktikanta Das’ appointment as the new RBI governor but, more needs to be done. In the NDA 1.0 tenure, there were two big mergers, SBI with its associate banks and Bank of Baroda with Dena Bank and Vijaya Bank, which makes the total count of public sector banks to 19. There is an urgent need to merge more banks into a few big banks as most of these PSBs lack the necessary infrastructure to compete with their private counterparts. After the merger, big banks should be properly capitalised to get them back on track. Focus should be on profitability.

NBFC issue

At present, many big NBFCs such as DHFL, are suffering from liquidity problems which have drastically reduced the valuation of these companies. In the past five years, NBFCs have shown strong growth. To maintain that growth they started borrowing money on a short-term basis for lending purposes. As most of the loans were given for a longer period, this has created an asset-liability mismatch as NBFCs started defaulting payments on commercial papers and debentures.

The Modi government must resolve these issues on a priority basis. Proper monitoring of big NBFCs should be done to prevent any kind of future defaults. Placing some government representatives on the boards of these NBFCs could prevent similar kinds of problems in the future.

Plaguing agrarian sector

More than 50 per cent of the Indian population is dependent on farming. After the Green Revolution, nothing significant has been done in this sector. This year, there is a disinflation in farm-gate prices which forced farmers to sell their produce at a low price and buy other things such as pesticides and fertilizers at a higher rate.

As a consequence, farmer suicides have increased as many of them are unable to pay their debt. Farm loan waivers and pension schemes are there to provide some short-term relief but without strong reforms, the issues won’t be resolved. There is a need to impart new skills in farmers so that they can reduce their dependence upon farming.

Disinvestment

The government must take a decision to sell or shut down the loss-making PSUs. Companies such as Air India, MTNL and BSNL have become cash burning machines with no sign of profits. A public-private partnership can be helpful as this will improve the performance of these companies.

NDA wants to make India a $5-trillion economy by 2025, but such a target cannot be achieved by ignoring any of the above factors.

(The writer is a student at IFMR, Krea University.)

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