Amidst concerns over growth slowdown, the government on Tuesday announced ambitious plans for bank capitalisation to boost the economy, spur investments and create jobs, as well as a highway construction project.
Stressing that the macro fundamentals of the economy are strong, Finance Minister Arun Jaitley announced the ₹5.35 lakh crore BharatMala Pariyojana to construct 34,800 km of highways and an aggressive ₹2.11 lakh crore capitalisation plan for public sector banks. The decisions were taken at Union Cabinet meeting earlier in the day.
“There has been a lot of discussion within the government and with the Prime Minister. India has been the fastest-growing major economy for the last three years and the attempt is to maintain high growth rate in the coming years,” Jaitley said.
Capital infusion in PSBs To be carried out over two years, starting this fiscal, the capital infusion in PSBs envisages recapitalisation bonds, which are expected to raise ₹1.35 lakh crore; an additioal ₹76,000 crore will come through budgetary support and by tapping the market by diluting government equity, said Rajiv Kumar, Secretary, Department of Financial Services.
“At present, budgetary support will come from only the ₹18,000 crore already allocated under the Indradhanush scheme for bank recapitalisation,” Jaitley said. This is unlikely to impact the fiscal deficit, he added. “This will depend on the nature of the recapitalisation bonds and the manner in which they are dealt with,” he said, adding that the structure of the bonds would be finalised soon.
Chief Economic Advisor Arvind Subramanian said recapitalisation bonds count as debt, but it depends on which agency issues it. “Under the accounting practice of the International Monetary Fund, these are below the line and not part of the deficit, but in our own accounting, it is part of the deficit,” he said.
Jaitley reiterated that the capital infusion initiative would be accompanied by more banking sector reforms. “There will be a differential approach to capitalisation. It will be based on performance and potential of banks,” Kumar said.
The government hopes that the capitalisation plan will propel micro, small and medium enterprises through enhanced access to markets, and help finance such firms in 50 clusters. “While Ministries concerned will spearhead and provide momentum, banks will undertake speedy processing of loan applications,” said an official release, adding that banks will have to compete for loans through the revamped udyamimitra.in portal. Non-performing assets of banks have increased from ₹2.75 lakh crore in March 2015 to ₹7.33 crore as on June 2017. The government had launched the Indradhanush scheme in 2015 to infuse ₹70,000 crore in state-run banks over four years to meet their capital requirement in line with Basel-III global risk norms. Banks were allocated ₹25,000 crore in 2015-16 and 2016-17 each; another ₹10,000 crore each will be infused in 2017-18 and 2018-19.
BharatMala project The BharatMala project envisages an outlay of ₹5.35 lakh crore over a five-year period till 2021-22. “While ₹2.09 lakh crore will be raised as debt from the market, ₹1.06 lakh crore of private investments would be mobilised through public private investments and ₹2.19 lakh crore is to be provided out of accruals to the Central Road Fund, Toll Operate Transfer monetisation proceeds and toll collections of NHAI,” said Finance Secretary Ashok Lavasa.