Need to unshackle banks, insurance sectors from ‘over protection’, says Finance panel chief

Our Bureau New Delhi | Updated on July 27, 2020

NK Singh also calls for rule tweaks in Bankruptcy Code

Asserting that banking and insurance sectors remain “overprotected” in the economy, the 15th Finance Commission Chairman NK Singh on Monday made a case for Indian policymakers to visit these sectors with the same kind of liberalisation process as was seen in rest of the economy in 1991.

“When we opened up the Indian economy in 1991, one of the sectors that did not really receive fundamental reform initiatives by way of liberalisation and opening up was banking and insurance. It remains overprotected even till this day,” Singh said in his virtual address to All India Management Association’s Council on the impact of Covid-19 on Indian economy.

On ownership of banks, Singh highlighted that although the circumstances behind nationalisation is well-understood, the fact remains that the daunting objective of nationalisation has proved to be somewhat elusive and even opaque.

Recap plan

“If government is to have ownership of banks, we need to have far more decisive banking recapitalisation plan. Over next five years, huge public outlay will be needed to keep PSBs properly and adequately recapitalised considering the erosion in NPA,” he added.

Singh also stressed the need to look at changes in rules and regulations around Insolvency and Bankruptcy Code (IBC) so as to deliver timely outcomes and much faster resolution of pending bank cases.

He highlighted that Indian policymakers are currently faced with an impossible trinity — Covid-19 pandemic, defence security and economic recovery.

Singh said that the current pandemic is an ongoing one and is far from over with the number of deaths being significant. He said that the last word is yet to be written on the stimulus package even as lot is being said about its inadequacy, timing etc.

“The government has kept its options and ammunitions for rollout at the right time. This is even as many in the government feel that the appropriate time to go full throttle is now. The government is cognisant of this this and it could act sooner than later,” he said.

V-shaped recovery

On economic recovery, Singh said that he expects a V-shaped recovery in Q3 and Q4 largely due to base effect although for the overall fiscal year the growth trajectory would still be negative.

On health sector financing, he said that current aggregate spend of Centre and States on health sector was unacceptably low at less than 1 per cent of GDP.

“This needs to be significantly enhanced and thinking (in 15th Finance Commission) is in that direction,” he said.

The skewed pattern in availability of health workers across the country within budget constraints is another distortion that needs to be addressed sooner or later, he added.

Published on July 27, 2020

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