“The economy has been resilient despite going through a major shock. The financial system has come off rather well, especially the banking system”, stated Shri Sanjeev Sanyal, Principal Economic Advisor, Government of India. He was speaking at the special plenary session on the 12th Financial Markets Summit “Building India for a New World: Role of Financial Markets”, organized by the Confederation of Indian Industry.

Mr. Sanyal further stated that all the efforts undertaken by the Indian Government in cleaning the banking system, from 2017 onwards, such as the use of Insolvency and Bankruptcy Code, creation of Bad Bank and other measures, helped in creating a robust banking system and build the foundations for long term growth. This helped banks and Non-Banking Financial Companies come off the Covid cycle rather well, he added.

With respect to issues relating to normalization of global liquidity, Mr. Sanyal stated that global policymakers are cognizant that they have to withdraw the excess liquidity at some point and that they intend to do this in a smooth and efficient manner. “The RBI is also conscious of this and excess liquidity is something we need to watch out for,” he added.

Speaking on the issue of accelerating growth of the Indian economy, Mr Sanyal stated that there is a lot of space on the fiscal side and the Government intends to use this fiscal space on capital expenditure as supply side approach to demand management. This will have multiplier effect on job creation and leave assets for future generation and not just debt. This will also ensure dividends for the Indian economy in the longer run as there is capacity in the economy to reaccelerate when the opportunity arises, he stated.

Mr. Sanyal mentioned other sectoral reforms that have been undertaken by the Government of India to support long term growth including opening up the Drone sector or the Cartography or the geospatial sector, removal of retrospective taxes, removal of outdated telecom regulations, among others. He further added that big reforms such as bilateral netting has created the space for the development of a Credit Default Swap (CDS) market, which in turn is critical for the creation of a corporate debt market.

The opening up of factoring is another area of financing that has huge potential to grow and is an important source of trade finance, stated Mr. Sanyal. This will be a critical source of financing, especially for the MSMEs and will also allow significant penetration of NBFCs as well, apart from banks, he added.

Mr. Nilesh Shah, Chairman, CII National Committee on Financial Markets and Group President & Managing Director, Kotak Mahindra Asset Management Co. Ltd moderated the session.

17 September 2021