State Of The Economy 2016

A long way to go

Capex revival & NPA clean-up take a backseat as Jaitley bites the fiscal austerity pill

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Kashti chalaane walon ne jab haar ke di patvaar humein, lehar lehar toofan mile, phir bhi dikhaaya hai humne, aur phir ye dikha denge sabko ki in halaat mein aata hai dariya karna paar humein.

Arun Jaitley’s couplet in Hindi while presenting the Budget was in context of the turbulent times facing the economy and how he expects the nation to emerge unscathed. Though Jaitley’s rendition received a resounding thumping of desks in the lower house of Parliament, the Street was far from impressed as the Budget had failed to address the twin challenges facing the economy: spurring a revival in the capex cycle and a comprehensive resolution for the bad loan problem. Not surprisingly then, the benchmark Sensex ended 152 points lower at 23,002, after a bout of volatility that saw the index plummet 600 points intra-day. The nearly 800 point bounceback that followed the next day saw minimal public sector bank participation.

With non-performing assets (NPAs) of around Rs.4 lakh crore, the Reserve Bank of India (RBI) has been quite vocal about why state-owned banks need to take a tough call by acknowledging the severity of the problem and clearing their books. “If the bank wants to pretend that everything is alright with the loan, it can only apply band-aids,” RBI governor Raghuram Rajan had remarked at the recent CII banking conference. But clearly the owner of the banks doesn’t seem to agree with the governor’s view and is instead opting to recapitalise banks with public money. Only this time, the allocation of Rs.25,000 crore appears minuscule given the magnitude of the problem. 

In fact, the outlay for FY17 mentioned in the Budget is part of the Indradhanush package announced last year by the minister, which will see the exchequer pumping in Rs.70,000 crore as equity over four years (FY16-19) even as it examines options to bring down its stake in some banks below 51%, like in the case of IDBI Bank. But given that the cumulative gross non-performing assets of the 24 listed public sector banks, including State Bank of India and its associates, stood close to Rs.4 lakh crore as of


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