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How Aadhaar will be a game-changer in digital space, explains Uday Kotak


Aadhaar will be a game-changer for the Indian digital space, which will develop at a fast pace in the coming years in a way that is different from the one in the US and China, Uday Kotak, Executive Vice Chairman and Managing Director, Kotak Mahindra Bank said. Speaking on the financial sector at the CII annual session, Kotak said, “Digital space in India is going to be driven by the fact that we have Aadhaar, a platform that does the identity independent of any private platform. China didn’t have this; they effectively gave away the eco-system ownership to the likes of Alibaba and Tencent.” He said even the US, where players like Google and Facebook dominate the digital space, doesn’t quite have a system like Aadhaar.

According to Leo Puri, Managing Director, UTI Mutual Fund, while corruption has grabbed the headlines (following the US$ 2-billion fraud at Punjab National Bank involving jewellers Nirav Modi and Mehul Choksi), the real issue in the banking system that is saddled with a massive bad debt is the ineffective deployment of capital. Importantly, nobody has also quantified value destruction “from the systematic misallocation of capital. “We have continuously given funds to sectors and industries that have not given adequate economic returns on capital. We have allocated credit either on patronage or political priority or on occasional corruption. Public hanging of some bankers (in case of corruption) won’t help, as corruption is just a symptom of a larger systemic problem,” Puri said.

Sanjay Nayar, Head of KKR India, said the country needs to set up a bad bank to address the issue of huge NPAs in the banking system, even as the issue of privatisation of state-run banks remains a far-fetched thing. In fact, in the economic survey 2016-17, chief economic advisor Arvind Subramanian had made a case for a centralised Public-sector Asset Rehabilitation Agency (PARA) that would purchase stressed loans from banks and then work them out either by converting debt to equity and selling the stakes in auctions or by granting debt reduction, depending on professional assessments. However, the government is yet to endorse this idea. Making a case for allocating capital to right sectors, UTI Mutual Fund’s Puri said the issue of fiscal expansion to boost growth won’t be frowned upon by the markets and rating agencies if the system has a good track record of productive spending.

The country’s fiscal deficit is expected to have hit 3.5 per cent of GDP in 2017-18, against the earlier target of 3.2 per cent. The government is now aiming to reduce fiscal deficit to 3.3 per cent this fiscal, against an earlier target of three per cent. Public sector banks (PSBs), which have a 70 per cent share of the country’s banking space, have been struggling to recover from massive bad loans in recent years, which led the government to announce a massive Rs 2.11 lakh crore capital infusion into them over two years through FY19. The infusion was necessitated as PSBs’ gross NPAs surged from 5.4 per cent of gross advances in March 2015 to 13.7 per cent by June 2017. This led to a jump in their provisioning requirements to Rs 3,79,080 crore between FY15 and Q1FY18, much higher than the Rs 1,96,937 crore made during the preceding ten years. Highlighting the need for fast expansion of the economy, Kotak said India needs to grow at nine per cent annually over the next 20 years to achieve the current level of per capital income in China. While China’s per capita income is US$ 8500, India’s stands at just around US$ 1,800, he said. However, one need not be cynical due to the fact that the country is witnessing a steady formalisation of its economy, a culture of greater transparency and a good expansion of the financial sector, among other positives, said Kotak.

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