Industry extends cautious welcome to PSB recapitalisation

Wants greater details on PSB recapitalisation; says govt. can ease fiscal deficit

October 24, 2017 10:41 pm | Updated 10:41 pm IST - New Delhi

 Chandrajit Banerjee

Chandrajit Banerjee

Industry bodies, economists and lawyers, while largely welcoming the Centre’s announcements on measures to boost the economy including recapitalisation of public sector banks (PSB) and spending on infrastructure, sought greater details.

Madan Sabnavis, Chief Economist, CARE Ratings, said in a statement, “These are good moves which will help to boost public investment, which in turn should help private investment increase.” However, he added that “the exact route of (PSB) recapitalisation has to be spelt out...”

Referring to the government’s statements that the 'recap bonds' concept has to be worked out and that it was possible that these bonds may not involve cash flow, he said, “We would need to see how this works out.” He said going by the International Monetary Fund, such bonds may not be included under fiscal deficit — as it does not add to the spending. The government has to take a call on it, he said, adding, “Hence it would not crowd out private investment.”

Multiplier effect

In a statement, Chandrajit Banerjee, Director General of the CII, said, “The Government has imparted a huge boost to bank recapitalisation... which is likely to kickstart the credit cycle and facilitate private investments.”

He said the Government’s decision to enhance spending on roads and highways in a strategic manner including port connectivity and border and cross-border roads will have a big multiplier impact on economic growth.

Pankaj R Patel, President, FICCI, welcomed the emphasis on increasing public spending. However, he added that FICCI believes the government can afford to ease the fiscal deficit to GDP ratio from the stated 3.2% to 3.5% without any serious negative macro-economic consequences. According to FICCI, inflation of around 4% would facilitate acceleration of growth with increased public spending, he added.

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