Mumbai: High economic growth in the last decade riding on the back of elevated credit offtake due to ‘indiscriminate lending’ has led to the current bad debt crisis, finance minister Arun Jaitley said on Monday.
Speaking through video conferencing at Indian Banks’ Association’s (IBA) annual general meeting, Jaitley said when growth is engineered on the strength of a 31% or a 28% credit offtake in a given year, “then history will certainly record it as some indiscriminate lending, which is bound to show its impact on future".
Jaitley’s comments come at a time when the ruling Bharatiya Janata Party (BJP) and the Congress party are trading charges over the GDP back series data.
According to the back series calculations by a committee appointed by the National Statistical Commission, the economy grew in double digits twice—10.23% in 2007-08 and 10.78% in 2010-11—during the tenure of the Congress-led United Progressive Alliance (UPA) under former PM Manmohan Singh.
The calculations have been made by a sub-committee headed by N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy (NIPFP), within the committee on real sector statistics headed by Sudipto Mundle, emeritus professor at the institute. Further, the average growth rate in the 10 years of UPA rule was at over 8% against the 7.35% witnessed in the four-year tenure of the Narendra Modi government.
“I do not believe in a blame game because the blame game doesn’t resolve the roadmap for the future. But it is extremely important for all of us to learn the relevant lessons," he added.
He said that one lesson that he has learnt is when one desires to have a high growth rate, it must be accompanied by strong macro-economic fundamentals. “If we start sacrificing our macro economic fundamentals, in order to temporarily push up the growth, then we are hurting ourselves elsewhere," he said.
According to him, this is bound to strike back at the economy at some point of time. For the management of the economy, he said, there has to be growth with fiscal prudence, growth with macro-economic fundamentals and therefore, growth with the normal reasonable credit offtake.
He added that one of the key domestic challenges in the last few years has been the challenge to banking institutions.
“The result of this [indiscriminate lending] was that we ended up creating surplus capacities when we did that kind of discriminate lending about a decade ago. We ended up funding projects which were unable to service the kind of debt that they created," he said.
Jaitley added that the banking industry then started dressing up assets, and ever-greening them.