Step up infra investment to spur demand, revive economy: SBI chief

The data clearly shows that investment in the economy has come down, said the head of the country’s biggest lender
The investment in infrastructure needs to be stepped up to spur demand and revive the economy, said State Bank of India (SBI) Chairman Rajnish Kumar at a webinar organised by the All India Management Association on Monday.

The data clearly shows that investment in the economy has come down, said the head of the country’s biggest lender.

“If the capital expenditure is not happening and investment in the economy is not happening at the same pace, then obviously this is a demand issue,” he said.

In such circumstances, there is a need to create more businesses and entrepreneurs who have the wherewithal to invest in operations and borrow, he observed.

Asserting there is muted demand for loans, Kumar said banks are not risk averse, but are being prudent in these trying times to avoid a repeat of the post-2008 scenario when there was “dilution” in credit underwriting standards.

Non-food bank credit grew 6.7 per cent year-on-year in July, against a growth of 11.4 per cent in the same month last year, according to the latest data by the Reserve Bank of India (RBI).

Bank credit in July stood at Rs 91.48 trillion.

“There is serious infrastructure deficit. We have the National Infrastructure Pipeline over the next five years. If we get it right and fund that infrastructure pipeline (of Rs 110 trillion or $1.5 trillion), that itself can boost the economy in a big way,” said the SBI chief.

It is very important that the construction sector gets a fillip and creates the requisite infrastructure. Apart from creating jobs, it (construction sector) also improves the overall productivity. Infrastructural bottleneck is one of the challenges when it comes to the country’s export competitiveness.

Referring to a revival in spending, Kumar said, “You can give money to the people. But can you prompt them to spend? The psychological factor is at work (fear of Covid-19). It is very important that fear is removed from the minds of the people before they start to spend.”

On inflation, Kumar said this time it is supply-side driven because of the supply-chain disruptions.  “Right now, the demand is muted. Discretionary spend is muted. We have to do everything to keep our supply chains up and running. Inflation will come under control,” he said.

“There are certain sectors where you can push investment, even if Covid-19 continues for some more time,” he said, adding, “Somehow we can when we are in a crisis like the one in 1991. The country was pushed to the wall and many reforms were initiated. The resistance to reform breaks ups in times like this. The opening up of defence and mining sectors and reforms in agriculture have happened.”

To a question if further rate cuts will spur growth, the SBI chief said whatever reduction has happened till now has not been able to push investment so far. Interest rates have hit the lowest after the RBI slashed the benchmark lending rate to a historic low of 4 per cent.

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