The Indian economy has the potential to grow at 8-9 per cent per annum despite the constraints of the political system, said Lord Meghnad Desai in an interview to BusinessLine .

However, he expressed concern over the slow pace of structural reforms which, he felt, was crucial for the economy’s long-term strength.

On the farm loan waiver given by Uttar Pradesh government, Desai, who was a Professor at the London School of Economics, said it has been a trend as 80 per cent of the farms in India are uneconomical and the country failed to industrialise at a satisfactory rate due to lack of economic reforms.

Drawing a parallel with the launch of major reforms by the Margaret Thatcher government in the UK only after it secured a second term, Desai said the reforms in India would pick up pace if Prime Minister Narendra Modi gets a renewed mandate in 2019.

Favouring bank merger

When asked about his take on the recent merger of five associate banks — State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Hyderabad and State Bank of Mysore — with parent State Bank of India, Desai said the country does not need 29 public sector banks, instead the existence of just five large banks would be sufficient.

Consolidation, he felt, will help banks take advantage of economies of scale and help them recapitalise. Citing the example of bank consolidation in Spain as the way to deal with non-performing assets, Desai felt that more mergers will benefit the banking sector in India.

However, he stressed the need for political will for such steps to be taken.

On the monetary policy, he remarked that the recent step taken by the RBI to increase the reverse repo rate by 25 basis points will go a long way in absorbing the excess liquidity with banks in the wake of demonetisation.

The writer is an intern with BusinessLine

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