Everyone, including former Finance Minister, P Chidmbaram, expresses concern, bordering on panic, that GDP growth for the quarter has fallen to an annualised 5 per cent rate. Never mind that, in a TV interview in 2013-14, PC himself, defended the fall to 5 per cent, then, by stating that it was a decent growth and nothing to be alarmed about! That is duplicitous.

The government responded to the slowdown with a series of measures, including a merger of 10 banks into four larger ones. Yes, India needs larger banks.. But merging 10 of them into four larger ones is akin, without preparatory groundwork and stomach for tough decisions, to applying band-aid over a gaping wound needing surgery.

When companies merge, they do so in order to affect cost savings, post merger, through synergies. For example, if the merged entity has two branches in the same locality, one of them can shut down, saving costs. That means having a retirement scheme in place to reduce duplicate staff. Yet, the Finance Minister has stated there will be no job losses.

Secondly, the NPA problems were caused because of telephonic instructions given by politicians to lend to crony capitalists. There is nothing to suggest that this is over. In fact, with larger balance sheets, NPAs arising from corny capitalism (sorry, crony capitalism) will only get worse. There must be an assurance that bank management will be free to take lending decisions themselves.

Thirdly, the work cultures as well as technology platforms of the banks being merged, may be different, and will require huge efforts to iron out differences. If the technology platforms are different, integrating them would take very long; even if they are the same, it can take 2-3 years.

Non-performing loans

The mismanagement by banks has resulted in a huge problem of non-performing loans. This is likely to get worse. The IBC resolution process is taking far too long to resolve (450 days instead of 250 in March 18), and the per cent of recovery after resolution is now only 15 per cent compared to 70 per cent according to a Credit Suisse report.

Today several sectors are in stress. Automobile sales are down (M&M reported a 25 per cent drop in August and this will impact not only employment (direct and indirect) but will also impact auto component manufacturers, and makers of inputs, such as steel and paint, that are used.

Added to that are other sectors not faring well such as telecoms (price war launched by Jio), real estate, steel and many others. Core sector production growth in July is down in eight core industries to 2.1 per cent. These constitute 40 per cent by weight in IIP.

Basic structural reforms

So what is needed is not cosmetic surgery, like merging banks without addressing core issues, or merging BPCL with IOCL, as proposed. What is needed is basic structural reforms such as speeding up the judicial process, not flip-flopping on policy matters, and making sensible economic decisions. If a reduction in workforce is necessary, eg, to help sell perennially bleeding Air India, then a liver transplant is necessary and a tough decision must be taken.

If tough decisions are taken, India can attract enough money and grow to a $5-trillion economy. If not, we will get there, ultimately.

The writer is India Head — Finance Asia/Haymarket. The views are personal.

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