India needs to be watchful of the “transient” tendencies of trade protectionism emerging globally and the geopolitics surrounding the recent trade groupings, while keeping in mind that trade continues to remain an important engine of growth, said N K Singh, Chairman, Fifteenth Finance Commission. The future of trade policy should become clear from January onwards when the new US government outlines its stance.
Speaking at the Express e-Adda (detailed transcript to be published next week) organised by The Indian Express Thursday, Singh stressed that a lot more needs to done in the direction of banking and financial sector reforms and it is now the time to move ahead in privatising one or two state-owned banks.
At the e-Adda, Singh was in conversation with Shankar Acharya, economist and former Chief Economic Adviser; Anant Goenka, Executive Director, The Indian Express; and P Vaidyanathan Iyer, Executive Editor (National Affairs), The Indian Express.
“Who can disagree that trade must be an important engine of growth,” Singh said, while responding to a question from Acharya whether some of the recent tariff measures and India not joining the Regional Comprehensive Economic Partnership (RCEP) point towards protectionism, which can affect economic growth.
“…We should ask ourselves the question…has the world turned increasingly more protectionist? Have the comparative factor advantages and factor efficiencies of reaching a better place in the value-added chain yielded place to a different model of arrangement of the international economic order? Multilateral institutions, including the World Trade Organisation, are languishing. We may continue to believe that India believes in multilateralism and multilateral institutions, but the fact remains that suddenly it has become less relevant by the very people who practiced virtues of this going back on this,” Singh argued.
He said “we may have to wait till January” to see how the new US government outlines its policy on trade. “While certainly we cannot afford to be a protectionist country, we need to be active partners in the games of trade, we need to watch the transient nature in which the economics of value added chain plays itself out. We also need to be mindful of the ways in which geopolitics plays itself out,” he said.
On the banking sector, Acharya pointed out that during the term of the government led by former Prime Minister Atal Bihari Vajpayee, a proposal was drafted to reduce the minimum government ownership from 51 per cent to 33 per cent — which, if enacted, would have been a key reform. Singh agreed with Acharya’s assertion that banking sector reforms cannot happen overnight and the government can start by privatising one or two banks and see the outcome of that decision.
Singh, a former top finance ministry bureaucrat, said the proposal of lowering the government’s stake in state-owned banks to 33 per cent did not see the light of day as there was stiff opposition from the Congress party at that time.
“…The path forward would be at least in case of one or two banks to move forward to do away with the kind of present ownership structure, which we have inherited from a decision (of bank nationalisation) and if you look at, historically, maybe that decision may have served its purpose and we need to move on,” Singh said.
While Insolvency and Bankruptcy Code (IBC) and ending the culture of ever-greening of bad loans have been goods moves, a lot more reforms are required for the sector including completion of the ongoing amalgamation of banks, implementation of Indradhanush package of bank reforms, greater accountability for shareholders and greater autonomy for bank boards, Singh said.
Singh, who recently presented the Fifteenth Finance Commission’s final report to President Ram Nath Kovind and Prime Minister Narendra Modi, said the Commission has “sought to balance the objectives” of the Centre and states. No state government was happy with the 42 per cent award (of tax devolution) and wanted 50 per cent, while the Central government had a different view.
Singh was speaking days after the release of his autobiography, Portraits of Power: Half a Century of Being at Ringside, a riveting account of India’s economic trajectory and his key role in the shaping of policy.
The Express Adda is a series of interactions organised by The Indian Express Group and features those at the centre of change.
External Affairs Minister S Jaishankar, Union Minister for Road Transport and Highways and MSMEs Nitin Gadkari, Union Minister for Education Ramesh Pokhriyal Nishank, AIIMS Director Dr Randeep Guleria, former Chief Economic Advisor Arvind Subramanian and Uday Kotak, MD & CEO of Kotak Mahindra Bank have been guests at the e-Adda this year, as these discussions moved online during the pandemic.
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