India Newsletter

23 August 2019

Taking cognizance of the bad liquidity situation in the financial sector and weak private investment in the economy, Rajiv Kumar, Vice Chairman, Niti Aayog said that since the government is faced with an "unprecedented issue", it needs to take steps that are "out of the ordinary". 

"This is an unprecedented issue for the government of India. For the last 70 years, we have not faced this kind of a liquidity situation. (The) entire 
financial sector is up in a churn and nobody is trusting anybody else. You may have to take steps that are out of the ordinary. I think the government must do whatever it can to take away some of the apprehensions of the private sector," Rajiv Kumar said during a discussion at the Hero Mindmine Summit. 

Pointing to the lack of trust in the market, Kumar said it is not only about 
trust between the government and the private sector but "within the private sector, nobody wants to lend to anybody else. Everybody is sitting on cash but they will not move". 

While blaming a large part of the problem on the high credit growth between 2004 and 2011, when it grew 27 per cent and resulted in a build-up of NPAs, he said it takes a lot for the government which has inherited all the "systems and inertia". 

Addressing the Summit, Chief Economic Advisor to the Finance Ministry K Subramanian said government intervention to bail out the private sector every time it goes through a "sunset phase" creates a "moral hazard" and is "anathema" for the market economy. 

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