Amid Slowdown Alert, Finance Minister Arun Jaitley Promises To Do What Is 'Necessary'

A massive effort to recapitalise state-run banks to boost its capacity to lend to businesses, particularly small and medium enterprises, is likely to be the centrepiece of the revival plan being drawn up at the finance ministry.

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Amid Slowdown Alert, Finance Minister Arun Jaitley Promises To Do What Is 'Necessary'

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Finance Minister Arun Jaitley has underscored the need to take urgent steps to revive economic growth

NEW DELHI:  A massive effort to recapitalise state-run banks to boost capacity to lend to businesses, particularly small and medium enterprises, is likely to be the centrepiece of the revival plan being drawn up by the NDA government, sources have told NDTV. The blueprint that is being finalised by the finance ministry comes against the backdrop of growth slipping to a three-year low in the first quarter of this financial year.

Finance Minister Arun Jaitley on Wednesday said the government would take "necessary" steps to put the economy on a high growth trajectory but would not get into the specifics. Mr Jaitley said the plan will be unveiled only after "consulting" Prime Minister Narendra Modi.

The faltering economy has exposed the government to sharp attacks by opposition Congress party which has been consistently taking jibes at the ruling coalition for what it calls is the government's failure to create enough jobs.

The economy grew by just 5.7 per cent in this financial year's first three months; the lowest since PM Modi took office in May 2014. Industrial output posted a small improvement in July but this isn't good enough because 15 of the 23 manufacturing industries still recorded a contraction.

The finance minister had spent hours with top ministerial colleagues and senior officials yesterday to discuss ideas to revive the slowdown-hit economy.

The meeting was also a message; that the country's political leadership acknowledged the problem and was determined to take - as one participant called it - "urgent steps" to achieve higher economic growth that would also create more jobs.

Sources said the finance ministry would need to hold some more discussions before firming up how to make money available to the banks. It is estimated that nearly Rs 1.3 lakh crores would be required for recapitalisation of the industry burdened by bad loans due to slower growth and mandatory capital requirements.

The options suggested at the meeting include a major disinvestment programme that would retain a clear majority for the government and issue recapitalisation bonds using the excess, idle cash lying with banks. Another suggestion was to get the central bank to relax the Basel III target for banks to reach a minimum capital adequacy ratio of 11.5 percent by March 2019.

The basic idea is to have the banks lend more to the small and medium enterprises that the government hopes would drive the economy. This sector is the largest employer next to agriculture and contributed nearly 31 per cent of the country's GDP in 2014-15.

At the meeting, the ministers are also learnt to have signalled their  unhappiness at the numerous hiccups being faced by businesses in the implementation of the Goods and Service Tax and told the bureaucracy to get its house in order.

 

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