Political leadership to carry out deep reforms missing in India: Financial expert

The government has announced a Rs 21 lakh crore package to arrest the slide and also announced a spate of reforms in sectors like agriculture. (Reuters file image)

Gloomy economic prospects necessitate deep reforms but the political leadership which can carry out the task is “missing” in the country and is relying too much on the bureaucracy which cannot do the job, a senior financial sector expert said on Thursday. Ananth Narayan, a financial markets executive who has now become an academic, said there is an over-reliance on the bureaucracy for decision-making and the country is also missing technocrats having a deep understanding of stressed sectors like banking and power.

The comments come at a time when the already struggling economic growth is set to go into negative because of the COVID-19 pandemic, with some analysts pegging a GDP contraction of up to 9.5 per cent. The government has announced a Rs 21 lakh crore package to arrest the slide and also announced a spate of reforms in sectors like agriculture.

Narayan, who is now a faculty member at the city-based management institute Bhavan’s SPJIMR, said in the short-run there will not be adverse news flow on the economic front as the problems have been deferred, but warned that the problems like bad assets in the financial system will come to light next fiscal.

“Firstly there has to be an acknowledgment that there is a problem. If we start by saying that there are green shoots around us and everything is fine, I don’t think those reforms will come about,” he said, stressing on the need for deep reforms. “Second thing I would love to see in Delhi, to be honest, is something beyond just an empowered bureaucracy. I think we are missing out on political leadership and direction as far as the economy is concerned,” he said during a call organised by the brokerage Dolat Capital. “At the moment, a lot of decision making seems to be by bureaucrats, which to me, something which comes in the way of deep reforms,” Narayan added.

Narayan, who was recently appointed as the RBI’s nominee director on the board of the crisis-hit Yes Bank after bailout, said his “prognosis” for the economy is not so good but this is not the end of the world either and listed out areas in which reforms are necessary.

These include the financial services ecosystem, which will not collapse due to interventions from the RBI and the government, but is not capable enough of funding the growth aspirations, he said, adding the reforms ought to be “real” and need to go beyond “token privatisation” or another round of consolidation.

Similarly, sectors such as power, telecom, shipping and small businesses also need reforms, he said, adding that the country also needs to look at ways of producing enough locally in order to reduce imports. The recently announced restructuring scheme by the RBI is the best which the central bank could do, but there are not sufficient disclosures on both the moratoriums and loan restructuring, he said.

“…between now and the time restructuring is complete, we will not have data on real issues in the financial services ecosystem because there are no proper mandated disclosures around moratorium, which sector, etc. We will be flying blind for good period of time, may be until middle of next year, before know the true level of stress (is known), he said.

He added that encouraging banks and non-banking finance companies to raise capital without disclosing the true nature of the book is a ‘moral hazard’.