GST may add 1-1.5% to GDP; NPA resolution plus pvt capex to add extra 1%: KV Kamath

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Architectural changes like monetary policy being set by MPC and not just the RBI governor, the setting up of GST Council, as well as the move towards digitization – all combined would definitely be a big reset of Indian economic space, which would lead to an optimistic year for the country, is the word coming in from KV Kamath, President, New Development Bank.

Along with other developments in the country, we are set for good growth for the economy, he said.

Moreover, strong political stability gives a momentum to growth and the current government has been driving growth in a very significant way. So, one can surely be significantly more optimistic in terms of growth going forward, he said.

“India should aim at 8.1 percent GDP growth versus 7.1 percent currently,” said Kamath in an exclusive interview to CNBC-TV18, adding that he was confident that the government and its leaders would drive towards achieving this.

New Development Bank is the bank set up by BRICS countries and Kamath is in India for second Annual General Meeting of the bank.

Globally too, economies are showing signs of improvement and more so the BRICS countries, says Kamath.

Talking about the bad loans, he said recognition of bad loans was the first step, which was successfully done by RBI. The second step is finding a resolution for the bad loans and lastly, capitalisation of banks, said Kamath, adding that currently, we are in the second stage. Finance Minister is setting some tough timelines to solve the issue which is very important, he said.

Once the resolution is done, there would be a need to restore the health of assets to put them into productive use, he said but first, a resolution is must to have a workable, viable entity.

On the GST front, he agreed with the experts that it would add 1 to 1.5 percent to the gross domestic product (GDP). Moreover, if NPA issues are resolved and private capex picks up then it would add more 1 percent to GDP.

Below is the verbatim transcript of the interview.

Latha: From your perch, you will be better able to judge global growth. Do you expect that year 2017 is going to see better global growth than in the past many years?

A: I think global economy is showing signs of improvement this year and within that subset the emerging markets are doing well and within the emerging market subset the BRICS countries are all showing good signs of improvement this year.

Latha: We appear to have come out of the demonetisation hiccup with minor injuries. How does economic growth look for you in the year ahead, the year that starts tomorrow?

A: We have come out of demonetisation and remonetisation. I would say that we have come out very well and this should allow for a clear track in the coming year and we should look at doing well. Of course the goods and service tax (GST) and other steps that the government has taken, all these together augurs well for the coming year in terms of growth.

Latha: Your own area – banking – that\’s been the one which has not been attended to. The bad loan issue is chocking the flow of funds and maybe growth. What would your advice be to the government in a way in which it should tackle it?

A: Resolution of bad loan, we have had this chat several times; basically you have to look at three contexts. One, recognition and the recognition part of it has been done and we have to thank the Reserve Bank of India for sitting at the table and getting banks to recognise the actual scenario, second, resolution and third, if there is any capitalisation or cleanup.

I would think that we are in the second stage now which is resolution and I suddenly see urgency. I heard the finance minister talk about the need to urgently move on resolution. He is setting some tough timelines and I would fully support that we need to have a time on programme to resolve assets. Once we have resolved, by resolution I mean what haircut the sponsor has to take, what the lender has to take and how does it all work out in terms of restoring the health of that asset put back to productive use. Thereafter you can think about what to do with that asset; keep it in the hands of bank or if there are buyers in whichever context to sell it off to those buyers, but we have to get to the next step of resolution so that you have a workable, viable entity.