17/03/2020 - Indian Economy

KEY POINTS

·        The collapse of Yes Bank has told us that—following on the collapse of bank and non-bank credit, and the logjam on the IBC proceedings—the Indian economy has to face up to an urgent, drastic and far-reaching restructuring of banking and credit institutions in India.

·        PSU banks have shown that if it don’t have stock market discipline (since the government picks up your bad debts), bound to misallocate credit (to cronies of political parties), fail to do due diligence, behave like an informal cartel of nationalised banks.

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Private banks have also shown bad behaviour. Yes Bank was behaving in a way which should have attracted some regulator’s attention. But, neither internal controls nor external regulators stopped misbehaviour until it crashed.

·        Financial transactions costs of doing business in India must be one of the highest in the world. The government did pass the IBC, and it was expected that creditors would be able to recover their dues from borrowers.

·        There have to be clean lines of responsibility as to who regulates which sector. The judicial arm has to be made part of the reform strategy. It is the ordinary tax payer direct plus indirect tax payer who bears the burden of the badly regulated credit market.

·        It would be helpful to the economy if someone organised a Tax Payers’ Association that could sue the government for its failure to protect their interest

·        It needs someone who can reach out to the agencies exposed to the credit risk. India’s economy will generate prosperity only if it lets private sector play a fuller, grown-up and responsible role in the way the economy generates growth. But, the reform of financial markets is urgent.

Please review.