High GDP growth in last decade due to indiscriminate lending led to current bad debt crisis: Jaitley

High GDP growth in the last decade, riding on the back of elevated credit offtake of 28-31 percent owing to ‘indiscriminate lending’, had led to the current bad debt crisis, said Finance Minister Arun Jaitley said on Monday.

His remarks come at a time when the Congress and the BJP are contesting over the GDP back series data.

The back series calculations by a committee appointed by the National Statistical Commission (NSC) show that the economy grew in the double digits twice — 10.23 percent in 2007-08 and 10.78 percent in 2010-11 —during the tenure of the Congress-led United Progressive Alliance (UPA) under Prime Minister Manmohan Singh.

Jaitley said when growth is engineered on the strength of a 31 percent or a 28 percent credit offtake in a given year, “then history will certainly record it as some indiscriminate lending, which is bound to show its impact”.

The finance minister was speaking via video conference, addressing the 71st Annual General Meeting of the Indian Banks' Association (IBA), held in Mumbai on Monday.

“I do not believe in a blame game, because a blame game doesn’t resolve the roadmap for the future. But it is extremely important for all of us to learn the relevant lessons,” he added.

The calculations have been made by a sub-committee headed by NR Bhanumurthy, professor at the National Institute of Public Finance and Policy (NIPFP), within the committee on real sector statistics headed by Sudipto Mundle, emeritus professor at the institute.

Further, the average growth rate in the 10 years of UPA rule was over 8 percent against the 7.35 percent witnessed in the four-year tenure of the Narendra Modi government.

Jaitley said that one lesson that he had learnt was when one desires to have a high growth rate, it must be accompanied by strong macro-economic fundamentals.

“If we start sacrificing our macro-economic fundamentals, in order to temporarily push up growth, then we are hurting ourselves elsewhere,” he said.

According to him, this was bound to strike back at the economy at some point of time. For the management of the economy, he said, there had to be growth with fiscal prudence, growth with macro-economic fundamentals and therefore growth with reasonable credit offtake.

"I would say we have created a system where we have reduced the ability of our bankers to find solutions because the regime under which they functioned was not a regime of accountability. Everybody must be accountable but we were holding them accountable even for honest decisions," the minister added taking a dig at the UPA regime.

Bankers must take commercial decisions

Some commercial judgments must be left to the wisdom of bankers itself, he added.

He also said one of the key domestic challenges for the last few years had been the challenge to banking institutions.

“The result of this [indiscriminate lending] was that we ended up creating surplus capacities when we did that kind of discriminate lending about a decade ago. We ended up funding projects which were unable to service the kind of debt that they created,” he said.