Privatise PSU banks to end scandals, curb NPAs: Arvind Panagariya

Privatisation of banks is perhaps the only way to averting the increasing number of financial sector scandals and mounting bad assets with public sector banks, a PTI report quoted former NITI Aayog vice chairman Arvind Panagariya as saying.

Panagariya, who is currently a professor of economics at Columbia University, says that there is no reason why the government should run banks. But has made an exception for State Bank of India (SBI), which is the main bank for government transactions.
Stating that the predominance of scandals and NPAs in PSBs is the one important reason for privatisation of PSBs, the economist called upon political parties serious of forming government in 2019 to include a proposal for bank privatisation in their manifesto.
"I firmly believe that privatisation of all PSBs except perhaps the State Bank of India should be on the election manifestos of all parties who wish to present themselves as serious candidates to form the government in 2019," he said in an interview to PTI.
Panagariya was referring to the recent banking frauds, including the nearly Rs13,000 crore scandal at Punjab National Bank (PNB) involving diamond trader Nirav Modi.
Besides, he said, efficiency and productivity at banks also demanded that the government relinquish its control of the large number of banks that controls bulk of the financial sector assets that has so far failed to provide the much-needed boost to productive investments.
Also, he said, despite substantial increase in deposits and credit state-run banks have failed to improve their market valuation.
Panagariya also noted that it is not always necessary that government should have full control over banks to achieve social objectives and sectoral lending targets. On the contrary, he said, private sector banks have performed better in delivering financial benefits to the targeted sections of society.
"The fact of the matter is that private sector banks have often performed better than public sector banks in delivering on their priority-sector-lending obligations," he pointed out.
Panagariya, a liberal in trade related policies, said that he would not hesitate to liberalise India's trade further rather than risk the United States under President Donald Trump closing its markets to Indian goods.
He, however, agreed with Nobel laureate Paul Krugman's recent comment that India story could end with mass unemployment, admitting that without any expansion of the manufacturing base the country cannot achieve economic transformation.
"I think manufacturing growth is essential for creating productive and well-paid jobs rather than escape mass unemployment," he said, adding that the economy is surely creating jobs.
"The problem we face is that it is creating very few jobs that fully exploit the potential of our workers," Panagariya insisted. Talking about overall economy, he said that India remains stable in macroeconomic terms.
"The GDP growth rate has been on the rising trend during the latest two quarters for which we have data—it rose from 5.7 per cent during the first quarter of 2017-18 to 6.5 per cent in the second quarter and 7.2 per cent in the third quarter. I expect the upward trend to continue," Panagariya asserted.
On the prospects of the agrarian sector, Panagariya said he always favoured cash transfers to rural BPL households in times of crop failures via Aadhaar-linked bank accounts. "In the medium run, the government strategy of raising farmer incomes through marketing reforms and increased farm productivity are right on target," Panagariya said.