Amid the tug of war between ruling BJP and Opposition Congress over the higher growth numbers during the latter's tenure, Finance Minister Arun Jaitley on Monday termed the higher GDP prints and NPA pile to the indiscriminate lending before and after the 2008 global credit crisis. Addressing the AGM of bankers' lobby IBA through a video link this evening, Jaitley, who resumed office last week after a medical leave since April, blamed the NPA pile, which is about 12 per cent of the system, and the macroeconomic problems of fiscals 2013 and 2014 to the debt-driven growth and banks funding unsustainable projects during the previous regime.
"If we have growth which is engineered on the strength of a 31 or 28 per cent credit offtake in a given year, then history will certainly record it as some indiscriminate lending, which is bound to show its impact on the future," he said without naming the past Congress-led government. He also blamed the bankers for the NPA problem saying while they did lazy banking during this time by lending to unsustainable projects, the accounts turned problematic and bankers overlooked the issue and continued to lend to the same problematic accounts by ever-greening them.
"The result of such indiscriminate lending was that we ended up creating surplus capacities about a decade ago. We ended up funding projects which were unable to service the kind of debt that they created and some of them also included fraudulent practices. "The next error that we committed was that we started dressing up, and once you dress up, you start ever-greening.
And now we are struggling to find the right methodologies even for recoveries," the minister said. Stating that higher growth cannot be sustained without strong macroeconomic fundamentals, he said "if we start sacrificing macroeconomic fundamentals to temporarily push growth up, then we are hurting ourselves elsewhere and that is bound to strike back at the economy later."
"For managing the economy well, there has to be growth with fiscal prudence, growth with strong macroeconomic fundamentals and therefore growth with the normal reasonable credit offtake," he said. It can be noted that on August 17, the committee on real sector statistics, under the National Statistical Commission, had released a back-dated GDP series with 2011-12 as base-year showing the economy clipped past the magical 10 per cent-mark under the Manmohan Singh tenure.
While the economy clocked a 10.08 per cent growth rate in FY07, which is the highest since liberalisation of the economy in 1991 and the second highest since Independence when GDP recorded 10.2 per cent in FY89 when Rajiv Gandhi was the prime minister. The report compares growth rates between old series (FY05) and new series based on FY12 prices. As per the old series, GDP at constant prices grew 9.57 per cent in FY07, and at 10.08 per cent as per cent new series. The economy under both UPA terms (10 year average 8.1 per cent) outperformed an average 7.3 per cent under, the Modi government.
This has led to a barrage of claims and counter claims with BJP attributing the same to the near collapse of the economy in the next two years. Even Niti Aayog head Rajiv Kumar claimed that over 10 per cent growth rate during the Rajiv Gandhi government was debt-funded, leading to disastrous collapse of growth in 1990-92 forcing him to pledge gold reserves abroad to avoid a debt service default. This also later forced the government to claim that the back series data prints are not official estimates and that the ministry of statistics and programme implementation will release the official data later.