The Chartered Accountant
The Chartered Accountant
The Chartered Accountant
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DECEMBER 2008 1032 THE CHARTERED ACCOUNTANT<br />
INDUSTRY-SPECIFIC<br />
All infrastructure projects should be brought under priority sector lending.<br />
Of course suitably the limit for priority sector lending should be hiked from<br />
40 per cent so that other priority sector lending does not suffer. As per<br />
present RBI guidelines all the infrastructure projects are not considered<br />
under 'priority sector.'<br />
middle or even junior level bankers in US (forget<br />
the top investment bankers) received in the past<br />
two to three years. I do not think they have done<br />
any great innovation as compared to the complex<br />
design of say a new fuel efficient /alternate fuel<br />
car. First, they should deserve and then desire as<br />
otherwise we will continue to see these financial<br />
debacles. Well I do not think the world can afford<br />
to take this type of financial debacle any more! I<br />
wonder how many senior citizens in India, who<br />
invested in equity mutual funds, lost their money<br />
in the recent stock market collapse! And perhaps<br />
they may not even live to see the recovery! Investment<br />
bankers should understand that they have a<br />
larger commitment to the society as they are dealing<br />
with public money.<br />
As a result of this financial mess, liquidity in India<br />
is drying up and the cost of borrowing, particularly<br />
for small scale industry is today higher<br />
than 20 per cent! If the banks own cost of<br />
funding is 13 per cent then they cannot lend it<br />
even to blue chip companies for less than 15 per<br />
cent! All these actions are already impacting the<br />
growth in India. Unless the rescue package in<br />
US and various actions by the European Central<br />
Banks work immaculately well and the money<br />
starts flowing in again to India, the volatility in<br />
rupee would continue and hurt the growth in India.<br />
We should not forget the fact India suffers<br />
from current account deficit and, therefore, if<br />
the inflow from abroad gets choked we will have<br />
repercussions on our economy.<br />
Imagine the number of roads and ports which<br />
India could have built with even part of this<br />
$ 700 billion package which perhaps would have<br />
made the investors further richer, as the money<br />
would have flowed for productive purpose<br />
While in the past US has definitely aided growth<br />
in several countries including India, which<br />
should be thankfully acknowledged, today they<br />
are responsible (may be due to few greedy bankers<br />
!!) for the mess they have created for themselves<br />
as well as for other countries. It’s time for<br />
them to introspect and act quickly to stem the<br />
crisis and ensure that greed does not result in<br />
one more financial catastrophe. <strong>The</strong> world cannot<br />
take it!<br />
While we want growth we want orderly growth. While<br />
we want change we want change for the better.<br />
Finally what should we do in our country in the present<br />
scenario where the growth is slowing down across<br />
all sectors and the bankers are wary of lending?<br />
Few suggestions which in my opinion are important<br />
in the present context :<br />
1. All infrastructure projects should be brought<br />
under priority sector lending. Of course suitably<br />
the limit for priority sector lending should<br />
be hiked from 40 per cent so that other priority<br />
sector lending does not suffer. As per present<br />
RBI guidelines all the infrastructure projects<br />
are not considered under 'priority sector.'<br />
2. Tax free bonds at 7 per cent to 9 per cent with<br />
a tenor of 5 years or more should be allowed<br />
to be issued directly by public and private sector<br />
companies (NTPC, BHEL etc.) which are<br />
in the exclusive domain of infrastructure development.<br />
Minimum subscription by individuals<br />
could be Rs. 1 lakh and maximum cap can also<br />
be prescribed.<br />
3. External Commercial Borrowing (ECB) should<br />
be allowed to be brought in and used both for<br />
redemption of high cost borrowings and for<br />
working capital purpose. To ensure that the<br />
money does not go to the places other than it is<br />
intended for (Stock market etc.) utilization certificate<br />
from the bank /CA can be insisted.<br />
4. Reform should be accelerated. While we missed<br />
the opportunity of raising money by diluting the<br />
Government holding in blue chip public sector<br />
companies when the market was on a growth<br />
path, we should not again slip. We should not<br />
forget the fact that India has revenue deficit, in<br />
addition to huge fiscal deficit and current account<br />
deficit. Our fiscal obligations keep piling<br />
up like tinder on a forest floor for various reasons,<br />
which is not healthy. Perhaps even now in<br />
certain essential sectors like power, we shoulddilute<br />
the holdings to provide for growth.q
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