The banking sector has paid the dues of the past decade and is now adequately capitalised. The sector is ready for another capital expenditure boom, said V Anantha Nageswaran, Chief Economic Advisor.

He was delivering a speech as the chief guest at the 186th Annual General Meeting of the Madras Chamber of Commerce and Industry (MCCI) on Friday.

"In the 1996-99 period, the Indian banking sector went through a period of balance sheet correction. In 1998 Pokhran nuclear test happened, followed by sanctions and two successive droughts, 9/11 attack and in 2001 tech sector collapsed. Despite all of this, the banking sector was cleaning up the bad debt problem during all of these periods," Nageswaran said.

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He added that in 2003, banks were in a good shape to lend and corporate in good shape to borrow. “That’s exactly what we have gone through in the last 6 years. It’s a repeat of what we went through between 1996 and 2002.”’

Covid, Ukraine crisis

Nageswaran said before the recovery could be sensed, the Covid-19 pandemic and the Russia-Ukraine conflict happened.

“Once these two clouds dissipate, the underlying conditions are propitious enough for us another capital expenditure boom in the remaining 6-7 years of this decade between 2023/24 and 2030,” the Chief Economic Advisor said.

He added that the Centre too is committed to the budgeted capital expenditure despite high oil bills and subsidies. Nageswaran said high tax collection has helped the Centre keep its capex spending intact. He also lauded the States for sticking to their capital expenditure commitments.

Nageswaran said the private sector investment is also picking up as both corporates and banks are done with their balance sheet cleaning in the last decade.

On rising US interest rates, Nageswaran said the Indian economy is in a much better shape to withstand the US Fed tightening. “Our macroeconomic risks are more manageable today than it was in 2012.”

Inflationary pressure

He said the inflation intolerance creeping in India is a good thing because the average inflation rate in the last 70 years has been around 7 per cent.

“There is a lot of hue and cry about inflation today which is a good thing. With monsoon happening and oil prices coming down in the last 2-3 weeks, we may have seen the peak of inflation in our country,” he said.

In his special guest address, V Sumantran, Chairman, Celeris Technologies, said the country needs to focus on mobility, electronics and defence sectors. On the electronics, he said despite making lot of smartphones, two-thirds of smartphone sold in India are from China and that trade deficit with China is highest ever.

Earlier, delivering the welcome address, Srivats Ram, President, MCCI & MD of Wheels India Ltd., said after and economically challenging period posed by the second wave of the pandemic last year, we had economic uncertainties in the form of global supply chain shocks, changing geopolitics and inflation. Despite all these, there are lot of positive signs of recovery of our economy but we have to keep a close watch on rest of the world to adopt and evolve in the coming year.

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