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Opinion: Faster Bank Recapitalisation To Improve Liquidity Situation

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The first and most important issue to address in the upcoming Union Budget is the liquidity crunch seen in the industry. The rising cost of capital is resulting in a slowdown in the economy. Despite the rate cuts, there has been a lag in transmission of the benefit of lower interest rates to the industry.

The distress in rural demand and the ongoing agrarian crisis are taking a toll on the agriculture sector that is directly or indirectly giving employment to 50 per cent of the population in the country. The direct benefit transfers, waivers and an increase in short-term loans up to Rs 1 lakh without interest for five years were some of the promises government made. Hence, a more detailed view and implementation of these schemes will be an important aspect to watch out for.

Leakages should be fixed on the Goods and Services Tax (GST) front, which would improve the GST collection numbers given that there cannot be much changes in the tax slabs.

Laws should now encompass a broader base to increase the GST numbers so that the government is able to improve its spending, as it is now needed to revive the economy. Improved spending from the government would lead to some boost for the private sector.

Bank recapitalisation should be done aggressively and in a faster way. There is also further consolidation needed in the banking space. Faster recapitalisation would improve the liquidity situation and ease the pressure on the micro, small and medium enterprises (MSME) space.

(Mustafa Nadeem is CEO of Epic Research)

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Source: NDTV Profit