NPAs may soar high in the next 6 months: Raghuram Rajan

The outbreak of the dreadful pandemic followed by the national lockdown, has hit the business sector hard, pushing many people into insolvency. So, our Former RBI governor has predicted that the level of the Non-performing assets(NPA) in the finance sector is going to witness an unprecedented increase in the coming six months...

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Our former RBI governor Raghuram Rajan on Tuesday admonished the nation about the likely increase in the non-performing assets of the banking sector in the next six months. He asserted that this growth is unprecedented, and the sooner the problem is recognized, the better it would be because here’s how NPAs can make it worse.

Virus hits business

The breakout of the COVID-19 pandemic and the ensuing lockdown to limit the spread of the virus has hit the business sector hard, making it difficult for many to repay debts.

During a session organized by NCAER at the India Policy Forum 2020, Mr Rajan said “The level of the NPAs is going to be unprecedented in six months from now and if we really recognize the true level of NPAs.We are in trouble and the sooner we recognize it, the better it is, because we really need to deal with the problem”.

Bold decisions, strong political will

He referred to the article named ‘Bold decisions, strong political will: Economic reforms are sustained, deep and pronounced under PM Modi’ by Finance Minister Nirmala Sitharaman which was published on Tuesday, and talked about ‘Jan Dhan’ success even though some other economists have contradicting views on it.

Mr Rajan went on to say that “We have difficulty in targeting transfers to people. We are still talking about universality because we can’t target. (As highlighted by Vijay Joshi, Oxford University) Jan Dhan does not exactly work as it is advertised.”

Nonetheless, he added a positive factor of the Indian economy, saying that the agricultural sector is doing well.

He also remarked that “Certainly, the government has come up with reforms. These are the reforms that have been talked about for a long time. They certainly can be beneficial for a significant portion of our economy if implemented.”

Deregulate food items

To deregulate food items like cereals, potatoes, pulses, oilseeds, onions, and edible oil, as a part of the reforming process of the farm sector, the government amended the sixty-five-year-old ‘Essential Commodities Act’. Apart from deregulating the production and sale of food items, this amendment supports ‘no stock limit’ on all produce.

Last month, the government issued a directive, allowing barrier-free trade for agricultural produce outside the recognized/notified APMC Mandis.

The ‘Farmers’ Produce Trade and Commerce (Facilitation and Promotion) Ordinance 2020’, professes to prohibit state governments from levying taxes on sale and purchase of any farm produce taken up outside the notified Mandis and leave the prices of the products at the farmer’s disposal. This will provide the farmers with some freedom to sell their produce at favourable prices.

Arising conflicts regarding transactions

The Sub Division Magistrate (SDM) and District Collectorate will deal with any arising conflicts regarding the transactions, within 30 days and not under the jurisdiction of civil courts.

At the moment, farmers are permitted to sell their agricultural produce at 6,900 APMC notified (Agriculture Produce Marketing Committees) Mandis situated in various states. The farmers are restrained from selling their agricultural produce outside these mandis.

Almost all of the 118 million farmers of our country are debt-ridden. And constraining their selling ability and market area worsens their condition, adding to the high-level competition and lack of proper storage facilities. So, the ‘Farmers’ Produce Trade and Commerce Ordinance 2020’ came about as a blessing for our producers, expanding the scope of agricultural growth and marketing. It will also help raise the financial condition of the farmers, enabling them to repay their loans along with interest and lowering the NPAs.

Also read: RBI retains repo rate, maintains accommodative stance to tackle inflation woes

NPAs are major backlogs for any economy. And in the current pandemic situation, nothing can stop the level of NPAs from increasing, given the drastic escalation of unemployment and pay-cut in the country. Being aware of all the aspects, as the former RBI governor stated, the government and we need to foresee and accept the NPA situation and act appropriately.

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