New Delhi: Reserve Bank of India (RBI) Governor Shaktikanta Das Monday said a big push for certain mega infrastructure projects could “reignite the economy”, but stressed the need to find non-bank funding options.
Addressing the national council of the Confederation of Indian Industry (CII), Das said India’s infrastructure gap remains large but pointed out that banks, still saddled with infra related non-performing assets (NPAs), may not be best placed to finance these projects.
“As in the case of the golden quadrilateral, a big push to certain targeted mega infrastructure projects can reignite the economy. This could begin in the form of a north-south and east-west expressway, together with high-speed rail corridors, both of which would generate large forward and backward linkages for several other sectors of the economy and regions around the rail/road networks,” he said.
“Both public and private investment would be key to financing our infrastructure investments,” said Das.
The RBI governor advocated the need for finding alternative sources of financing of infrastructure projects.
“…we are just recovering from the consequences of excessive exposure of banks to infrastructure projects. Non-performing assets relating to infrastructure lending by banks has remained at elevated levels. There is clearly a need for diversifying financing options,” Das said.
He added that the National Investment and Infrastructure Fund, promotion of the corporate bond market, securitisation of stressed assets and user charges are some of the solutions to finance infra projects.
Early completion of bilateral FTAs with US, EU and UK
The RBI governor also pushed for early completion of bilateral free trade agreements (FTAs) with the US, European Union and United Kingdom, pointing out that strategic trade integration, besides diversifying imports, is also important.
Shaktikanta Das said India’s participation in global value chains (GVCs) remains low compared to other ASEAN countries and this needs to be addressed. He said the shift of GVCs following Covid-19 creates opportunities for India.
“The higher the GVC participation of a country, the greater are the gains from trade as it allows participating countries to benefit from the comparative advantage of others in the GVC. More than two-thirds of world trade occurs through GVCs,” he said, adding that it can also boost per capita income.
A GVC is the entire range of activities from manufacturing to sale of a product undertaken by multiple firms.
Extreme risk aversion can be a problem
Shaktikanta Das went on to add that the RBI remains extremely vigilant and is prepared to take all necessary steps.
“Questions abound about flattening of the Covid curve, arrival of the elusive vaccine, protection of lives and livelihood, and the shape of economic recovery — these questions haunt us day in and day out. There are no credible answers as yet. The only thing that is certain for now is that we must fight on relentlessly against this invisible enemy and eventually win,” he said.
On the issue of banks opting for purchasing only AAA rated papers of companies including non-banking finance companies (NBFCs), Das said banks are exercising their commercial judgment.
“To be fair to the banks, there is an extent to which the credit risk can be assumed by banks. Banks will have to evaluate the risks in the various investments they are making and I think it is a commercial judgment on the part of the banks,” he said. However, Das conceded that extreme risk aversion can also be a problem.