Clipped from: https://economictimes.indiatimes.com
‘Banks won’t be blamed as we are going to take the loss’
You must have been under a lot of pressure given the bad news in terms of the economic activity and the pressure on GDP growth. Many forecasts have also come which are saying that this phase for the world is not only going to be worse than the 2008 financial crisis but even worse than the depression of the 1930s.
Yes, this is an exceptional year and I am not sure if the magnitude of the problem has been measured by anybody as yet. So we are in a totally unchartered territory. But the only comfort is that all of us are in it together. So I would think at least in India, our systems and institutions are strong and the Prime Minister has been leading from the front, spending time to understand things, taking inputs and also consulting with people in great detail and then responding by appealing to the people. His appeals have been taken seriously by people.
In fact, PIB has been putting out data comparing India based on its population to 15 different countries all of whom are affected seriously by the pandemic and whose population if put together and taken as a whole is equal to India. We are seeing what has been the impact of the pandemic in India versus the pandemic in each of those countries with 15 different governments attending to each of their countries. So the point that I am trying to make is that these are totally new areas and a new terrain and all of us are walking into it. But the biggest support is of the people of India who have been responding to the Prime Minister’s appeals and largely adhering to all the protocols which have been given to ensure that the pandemic is contained. There have been some aberrations, but that’s expected when you are dealing with a population of our size. Overall, there has been such cooperative and responsible behaviour. Therefore, I will wait and see as we go on the impact on the economy.
Many people are giving forecasts and there are talks of a V-shaped or W-shaped recovery. But the fact is that the latest is also looking at a deceleration in the negative to about 5% and added to that of course is the problem of unemployment. Estimates of the CMI shows an unemployment rate of about 23%. How do you see that kind of a challenge in a country like India which was already going through a slowdown and GDP numbers?
You are right in defining the various challenges which have all come up together, especially when after prolonged and steady intervention by the government all through last year, some time in early January all of us were heaving a sigh of relief when green shoots started appearing. Industry also is coming forward to do quite a few scaling up and investing and trying to get back. The entire world is in this pandemic which has literally shaken all the economies and the government itself has to shut down.
First, we have to look at the economy. Can we see it get back to doing some work post the lockdown getting lifted as a lot of exemptions have been given even as the lockdown is still in place? The categorisation of various zones has happened and we are certainly getting information about how many enterprises have started opening up and starting to work; somewhere it’s 10% and somewhere it’s 25% and this is happening all through May. Therefore at this stage, my focus is on getting people back to business. When I say people back, I am not talking of the migrant workers. I am talking about the enterprises trying to restore things. That will also mean eventually how they are going to settle their problems about the need for workers. Is it going to be local, or is it going to be backed by migrant labour or is it going to be mix and match? If it is going to be migrant-backed, do they know how they are going to have to come back? Will we document them? Will all of us be ready to have a proper accounting of who is coming from where and where are they going to be, how skilled are they and are they with their family; we should have proper documentation of this big force which is contributing to the economy.
We should have way some data at state level and data at the centre. We should learn from this pandemic from the point of view of economic revival. Of course the human side of it is a very big issue on which I am sure all of us have enough things to think about and better ourselves but on this economic revival, I think so much is dependent on reset in businesses. I did say this to CII when I addressed them yesterday.
There was a euphoria on the day the Prime Minister said that there would be a Rs 20 lakh crore package for the revival of the economy and this was the fifth largest in the world and people had a lot of expectations from this package. Are you satisfied with the response that you have got from the industry and from various sectors? Many are saying that the reforms that you are talking about is great but it is something that is going to happen in the medium and the long term. What about tomorrow morning where most industries do not have money to pay salaries or get their raw material; working capital is a big problem. What about that?
If you actually look at the package, we may not have named sectors and we did not want to and our intention was not to name sectors. Yet the way in which the package has been designed, every enterprise whether big or small or medium who actually has something to do with the bank can approach the bank and take additional working capital. They can also have an increased term loan without additional collaterals. What is the intent behind this? The intent behind this is that when they restart, they will have some fixed cost to take care of and only then going forward this will come of help because this fixed cost has been taken care of; like how do they buy raw materials.
So it was important for us to make sure that we brought in something where we are not naming it sector-wise but anyone who wants to access can get it and that is how the order is also coming out and that is how the cabinet has given its approval. It should be automatically available for anyone who approaches the bank and in fact I have even informed the banks and I am meeting with the banks tomorrow to say please make sure that you will contact the enterprises yourself because at the branch level, they know who their clients are and they would do it and I must say that the banks had done this in a limited way between September and October of 2019 when we went on an outreach programme. Therefore, they know what we are trying to tell them and they are willing to do that. So after being contacted, it will be up to the client or the enterprise to say yes, thank you, I want it. Or only on his refusal will that benefit not be extended.
In other words, I am saying give it to everybody unless that person or the business himself says I do not need it. So we are not excluding anybody. We are saying give it as much as possible to as many people as who want it and not restrict them by size or the sector to which they belong. So you may name any number of sectors and tell me you have not named them. Yes, I have not named them but the scheme is designed in such a way that they can definitely go ahead and take that facility from the bank. For the bankers, to be fair to them, they have really been going forward to address the issue even as we were talking last year about how to improve liquidity.
Now in between we have heard a lot of people say the banks are not going to take the risk and give this loan. They are not willing to take the risk. So how are we going to handle it? We have had extensive discussions with the banks and with RBI and only then we have come up with this guarantee scheme. So the risk which the banks have to face when they are extending this loan is now guaranteed by the government. So in case it results in a failure because of Covid, the blame is not going to be on the banks or on who is going to take the loss; we are going to take the loss. So I want to assure all businesses please go ahead in approaching the banks to take the loans. Please have the money in your hand to restart the business because item-wise and sector-wise, if I start looking for a facility to reach them, it might be very difficult for me to do it.
Even if banks have set aside the money, the customer is not coming forward to take the loan. He does not know what the interest rate is and the bank does not know what the interest rate is. The bank is saying we are waiting for some signal to come from the centre. There are many gaps as far as the total information for this to be converted into reality is concerned. How do we bridge that gap?
You are absolutely right. But what I want to highlight is the sense of urgency in this matter is well understood by the government. I started announcing things last Wednesday and finished by Sunday. Cabinet meetings normally happen on Wednesdays. Yesterday’s cabinet has already approved all this; so within a day or two, the banking department will issue a notification to very clearly tell the banks what is the rate of interest in which you are going to give the loan and how are the other details going to be worked out.
But is it going to be concessional? The reason I am asking you this is there are many international bodies and so many agencies; whether it is banks in India and all have done their sums and all have come out and said that out of the Rs 20 lakh crore, the fiscal provision that you have made comes at in the best case scenario to 1.3% of the GDP and not 10% that was stated. Do you think it is going to be enough to sort out the supply side which has come to a standstill? But even above that, what about demand because people right now are saying what do we produce, for whom do we produce? Where are the people in the market and where are the markets open at all?
I do not want to get into an argument with anybody, but the fact is I have also not fudged what I have given out. I have also not claimed something which is not true. I have also not said this is what I have done which is completely controversial and people are going to ask me a question and everything what I have stated is completely open and subject to any kind of scrutiny and that is why I also keep repeating I am absolutely conscious of two things. I am dealing with public money. It is the government of India’s money, it is the people of India’s money.
I have to be accountable in the way in which I am going to use it and I know I am using it in an extraordinary circumstance where people need the help and it is people of India who need the help. So there should not be any hesitation and I also have to say all this and more in the parliament. So will I do a job which is going to cause any worries or raise any questions? I do not want to quibble with them on that ground, but then how tight is the supply side-demand side argument? You think anything which is given on the supply side is going to stay like that in a water tight box when I pay enterprises to buy their raw material, to pay their fixed costs, to pay the wages? Is that not going into the hands of people from which demand is going to get spurred? Yes, these are very convenient ways in an economic study; very convenient ways to understand these are supply side and these are demand side. Are they water tight? Do they not flow into each other?
When and where?
It is happening right in this package. PM Garib Kalyan that is happening; what was MNREGA before, Mahatma Gandhi Rural Employment Guarantee Scheme. What is that? Is it not money in the hands of people? EPF is their money and it is not my money and it is going into the hands of