2 min read.Updated: 27 Apr 2020, 02:23 AM ISTN. Vaghul
The complex challenge of reviving India’s economy connects business with society, policy, technology, science and medicine, among other spheres of human endeavour, says Krea University vice-chairman Kapil Viswanathan. In partnership with the university, Mint invited luminaries of its governing council to share their perspectives on the best way forward for the country. This is the first edition of a knowledge series initiative
The timely action taken by the government and the sense of discipline and determination shown by India in dealing with the coronavirus crisis has justifiably evoked praise from the international community. The same sense must be shown in the reconstruction of India’s economy. The extraordinary situation we are in calls for some unusual steps, which would not fall within the norms of conventional rescue packages.
First, the banking system is expected to face massive loan defaults, resulting in a steep increase in non-performing assets and threatening the stability of the banking system. The approach of “one size fits all" cannot work in this context. Decisions on loan restructuring have to be taken on a case-by-case basis, depending on the viability of each business. Therefore, the norms laid down by the Reserve Bank of India for the recognition of non-performing assets, as well as capital adequacy requirements for banks, would need to be suspended until normalcy is restored.
Second, some businesses may have become unviable due to incompetent managements. In such cases, some hard decisions may have to be taken to change managements or consolidate these businesses with other viable companies in order to ensure that their productive assets are not lost to the economy. There are reports that the government might suspend the operation of certain provisions of the Insolvency and Bankruptcy Code. If so, this would be a commendable move. Bankers, however, should ideally be empowered, individually or as a consortium, to take decisions without recourse to courts for a stipulated period of time.
Third, it is necessary to ensure that all projects that are incomplete are completed within a specified period. This should apply particularly to the infrastructure and real estate sectors, where the employment potential is huge. Whatever reason there is for the delay—be it non-availability of funds, lack of government clearances, incompetent management or litigation—must be addressed promptly and decisively. The government may have to do whatever is necessary to instil a sense of confidence and courage among bank officials by assuring them full protection for decisions taken in good faith.
Finally, the present crisis has also reinforced the need for us to be self-reliant in developing new technologies and new product ideas to deal with the paradigmatic changes that are taking place in the 21st century. To give a fillip to innovation, it is necessary to create a very large sovereign innovation fund.
N. Vaghul is former chairman of ICICI Bank and the chancellor of Krea University