Chairman and managing director of the Hiranandani Group Niranjan Hiranandani said if liquidity issues in the market are not addressed, all other efforts taken to revive the economy would fail.
“I expected the slowdown situation to improve by June. But it has prolonged mainly due to liquidity issues,” he said in an interaction on Thursday.
Mr. Hiranandani also said that the current slowdown was driven by local factors as against the meltdown caused by the global financial crisis in 2008.
“The financial crisis was a global phenomenon imported into India. However, we were able to come out of it much faster. The situation was almost overcome by the end of 2009,” he said. Mr. Hiranandani, who is also the senior vice-president of industry body Assocham, said that the current slowdown started with the demonetisation process in 2016. “It was followed by reforms such as GST, IBC, RERA, Benami law. Though, individually these measures were very good, it created a tsunami-like effect together, which was a negative factor,” he said.
Mr. Hiranandani pointed out that banks had stopped lending to industry, real estate, MSME and for car purchases and had been, instead, lending to NBFCs, which in turn, were giving loans to end customers.
“Post the IL&FS crisis, the system has broken down. Now, there is excess liquidity in the system, but banks are not lending,” he claimed.
Mr. Hiranandani said banks were currently not lending to NBFCs as their ratings had gone down, which was understandable.
“They [banks] are not lending in the market because they are not comfortable with the economy and don’t know what to do. With the enforcement agencies going after bank officials, they don’t want to take lending decisions,” he said.
Mr. Hiranandani suggested that the transfer of ₹1.76 lakh crore surplus by the RBI to the government should hit the market in the next couple of weeks through investment in infrastructure and other projects. He added that this would would kick-start the economy.
The RBI’s mandate asking banks to link their lending rates on floating rate loans to retail, personal and micro, small and medium enterprises (MSME) borrowers to an external benchmark from October 1, was an excellent move, he noted.
“This will lead to automatic transfer of benefits of lower interest rates to customers,” Mr. Hiranandani said.
He also pointed out that giving thrust to housing and infrastructure, textile, tourism and MSME sectors would help solve the unemployment crisis and drive growth.
