The bi-annual financial stability report released by the RBI indicates the economy is in some sort of gridlock which the government can resolve only if it is prepared to invest in infrastructure. The banks, the main source of funding for infrastructure, are in no position to do so as they are saddled with stressed assets totalling 11.1 per cent of their total advances as on March 2015.
According to the report, the SEBs alone owe them Rs 53,000 crore, which could turn into non-performing assets by September-end. The corporate sector, too, which should be investing, is highly leveraged with the collective debt of the 500 top borrowers totalling Rs 28,76,000 crore at the end of March 2015, according to Fitch Ratings. In this situation they cannot take on more debt; besides, they have idle capacity of approximately 30 per cent as demand is not picking up.
The report also flags inevitable global risks when the US Fed and European and Japanese central banks start reversing their quantitative easing programmes. Though India is better prepared than other markets to weather this crisis, fears still remain. But there are some silver linings. Commodity prices are still low. The monsoon has covered the entire country, proving the Met department wrong again. The current account and fiscal deficits are under control, and so is inflation. Many projects, held up by the Manmohan Singh government, are getting off the ground. All these will take time. Meanwhile, the Modi government should do everything it can to rectify archaic laws so that industries can take off.
