Niti Aayog Vice Chairman Rajiv Kumar said the economy is on the cusp of a major change and is about to witness growth which will be “sustained, high, clean and hugely inclusive.” The resolution of bad loans via bankruptcy courts would help banks improve recovery, he said while suggesting that the RBI should move towards having “lighter touch regulatory requirement”. In an interview with SUNNY VERMA, Kumar added that it is time for the Central and the state governments to consider cutting taxes on petroleum products. Excerpts:

It will be radically different, a complete departure from any five-year plan because the focus of the five-year plan was on allocation of resources. The development agenda is trying to say what are the objectives to be achieved in any sector; what is the current situation and the constraints in that sector and what are the policy measures needed and actions that should be taken. In that sense, the agenda may be indicative and marks a shift from central planning to indicative planning, as it is practiced now in most economies whether it is in Japan, China or Singapore. For this we had several rounds of meeting with all stakeholders, so it just doesn’t represent a government’s point of view, it represents the whole country’s perspective. We do not want to be confined to business as usual but look at some breakthrough ideas, which can help us make a paradigm shift in that sector. For example, in the energy sector, the Prime Minister has called for a massive ramp up of the renewable sector. How can we dramatically reduce our dependence on coal as the main source of primary energy – these are the kinds of ideas we will look at.

The government has taken some major steps to resolve the issues. The insolvency law is a major step because so far there was no instrumentality, no process with which private borrowers could be held responsible or asked to share the downside risks of the projects or the NPAs (non-performing assets). But that’s now done and that’s coming into play. These are early days but you can see that this is one of biggest reforms measures that the government has taken. It has brought in new rules of the game into the business and I suppose that all the future borrowers will be more careful and borrowing will not be reckless in future. Then the government announced the Indradhanush plan — Rs 2.11 lakh crore of capital infusion and the government is actively considering mergers and consolidations in public sector banks, modalities of which are being worked out, so there is significant effort on the part of the government to recognise this problem.

Over and above this, I have said in the past said that the PJ Nayak Committee recommendations should be re-looked at. They have some validity even at this point. I don’t want to say anything more than that except to say that I think an arms length relationship between the government and the public sector banks is going to be far more effective. The RBI also may want to re-look at how much micro regulation it wants to undertake, or can it have a lighter touch regulatory requirement so that the cost of compliance is reduced. That’s the direction in which I would want the banking sector to move.

Not lesser regulation. I hope everybody would agree that at the moment there is a tendency for very micro kind of regulation. I think that doesn’t make for sufficient delegation of responsibility and therefore it makes even the banking sector management, in the sense, over dependent on the regulator. To see the sector mature in future, we would want to have all the prudential regulatory norms but handle it may be with a lighter touch.

While the insolvency process is on, in many cases, there are questions over valuations, the type of bidders? There are also suggestions that the Committee of Creditors can actually auction the company under resolution to the bidder meeting the eligibility criteria?

It’s such a nitty gritty matter and I agree that the devil does lie in the detail, (but) I am not completely in control of this and I don’t know enough. I leave it to the head of the Insolvency and Bankruptcy Board of India, MS Sahoo. He is focused and a thorough professional that he will learn from his own experience and soon come with an optimal way of doing things. One can keep criticising everybody on every step. But look, it’s a historical process. For the first time, the promoters are sharing the downside risks in their projects, otherwise all this while the entire downside risk was the banks. By the time these 4,000 (insolvency) cases are finished, I am sure the system would have stabilised and the best system would have been known. The intention of the government is clear, which is that the cases need to be resolved quickly. The promoters need to understand that they have to share the risks, both downside and upside, and the banks should have the option to get the least haircut by putting assets out to those who want to manage it.

This is not a major headwind. The economy has worked when the oil prices were high at $120 per barrel. Here I would say that, as the prices went down, we imposed some taxes and as they are now going up, I think it’s time to consider removing those taxes because oil is a universal intermediate and can cause an inflationary spike. When the prices go high it affects the entire economy and the cost structure goes up. Given the revenue buoyancy, as is now shown in the April figures, both for the GST and the direct taxes, you have the fiscal space to do so. So, I think this the time now to actively consider reduction in those taxes so as to absorb some of the impact of higher prices. But again to repeat myself, $70 per barrel is still lower than $120 per barrel. Since the government has taken all steps to give itself fiscal space, it can now use it for this and I hope the states will also match the Central government’s reduction.