Fashioning A Banking Turn: Finance Minister Arun Jaitley

India’s domestic macroeconomic situation has improved significantly over the past two years, but the banking sector has continued to face challenges due to the lack of any meaningful recovery in asset quality, capital constraints and sluggish profitability. However, I firmly believe that, with support from the policy and regulatory environment, 2016 will be the inflexion year for the banking and finance sector, especially as corporate sector balance sheets improve.

Revitalising public sector banks (PSBs) has been a key focus area for policymakers. The Reserve Bank of India (RBI) and the Central government have put in place key enabling measures in the Indradhanush scheme, and are working in unison for the expeditious resolution of distressed assets, improving the overall operational efficiency and ensuring that banks have adequate capital (within the budget constraints) for growth and expansion.

India’s transition from a state saddled with a crisis of confidence in 2013 to being the bright spot in 2015 is not by chance but by design. Going forward, the upcoming budget session of Parliament will be very important for creating short- and medium-term wins.

There is a need to boost savings in the economy in order to enhance the inherent economic strength of the financial sector. It will be worthwhile to adopt the Gear (growth, efficiency, attractiveness, reach) approach to augment the savings rate.

First, enhance growth to increase per capita incomes. It will be important to increase disposable incomes by raising the personal income tax exemption slab to Rs 5 lakh. This could be a one-time correction and the slab could thereafter be linked to inflation and reviewed every three years.

Two, focus on improving the efficiency in financial transactions. The use of plastic currency and e-transactions (via the internet and mobile phone) will not only improve the ease of transactions but also enhance the saving propensity among citizens. Every 1 per cent reduction in the currency in circulation is likely to add 0.4 per cent to the savings rate. This could also help in curbing the flow of black money.

Three, make financial savings attractive by providing tax incentives. For instance, the tax exemption limits under Section 80C could be doubled to Rs 3 lakh. This will deepen the mutual fund and equity markets. Similarly, there’s a need to increase inflation-adjusted post-tax returns for bank deposits by reducing the lock-in period eligible for tax rebate to one year from five years. Other me-asures could be to enhance the threshold for mandatory tax deduction at source (TDS) on interest income to Rs 50,000 a year from the current level of Rs 10,000. It will also be useful to roll back TDS on recurring deposits to encourage wider adoption, as this is a product that promotes the habit of regular saving. Further, just like the other pension products like the EPF and PPF, even the National Pension Scheme should enjoy “EEE” (exempt, exempt, exempt) tax status.

Four, expand the financial reach. The government could consider converting India Post into the postal bank of India, a full-fledged payments and savings bank, to leverage its rural penetration for greater financial inclusion.

Apart from boosting savings, India’s top priorities this year should include the passage of the GST bill, further rationalising direct taxes, tax sops for start-ups and the introduction of key structural reforms in terms of real estate, labour, and micro, small and medium enterprises. The farm sector, too, needs significant focus on irrigation and technological support. The bankruptcy bill will also turn out to be a gamechanger for spurring economic activity and confidence. The advent of the JAM (Jan Dhan, Aadhar, Mobile numbers) trinity is a silent revolution that will transform India in the coming years. While the Jan Dhan Yojana will further

the objective of financial inclusion, the Aadhaar platform will furnish the much-needed basic digital intelligence and mobile phones will leverage this through innovative payment systems, such as Immediate Payment Service or IMPS.

Micro measures will help, but the banking and finance sector also needs the next generation of reforms to enable it to finance India’s aspiration of 9-10 per cent GDP growth on a sustainable basis. I am hopeful that economic clairvoyance will triumph over political myopia in 2016.

One thought on “Fashioning A Banking Turn: Finance Minister Arun Jaitley

  • January 30, 2016 at 12:02 pm


    Global Corruption watchdog , Transparency International , just released its report for year 2015
    Out of 168 countries surveyed , India ranked at position 76
    That was an improvement from position 85 in year 2014
    Jose Ugaz , Chair , Transparency International , made following remarks ,
    ” Corruption can be beaten if we work together to stamp out the abuse of power bribery and shed light on secret
    deals . Citizens must together tell their governments , they have had enough
    Leaders in India and Sri Lanka had fallen short of the bold promises they made to combat corruption ”
    Can India leapfrog 75 positions to rank # 1 in 2016 ?
    Yes , it can – and with very little Judicial / Administrative / Legislative effort !
    HOW ?
    By implementing following suggestion which I have been making for past one year :

    As each currency note of Rs 500 / 1000 , is getting printed , embed it with microscopic
    RFID chips ( with this , current cost of a RFID chip will fall from 50 paise to 5 paise )

    Besides communicating with each other , these chips will also transmit their existence
    location , through internet , to cloud-based servers of Income Tax Department

    This will form a ” NETWORK OF CURRENCY NOTES ( NoC ) ”

    You may like to call this Internet of Currency ( IoC ) , a sub-set of IoT !

    # IP ADDRESS SYSTEM ( IP V 6.0 )

    Each Rs 500 / 1000 currency note must be assigned ( at the time of printing ) , its own
    unique Internet Address , using IP V 6.0

    This IP address should be linked with the unique Serial Number printed on each note.

    Since IP V 6.0 , will be capable of assigning ” 2 * 10 to the power of 128 “, no of IP
    addresses , there is no danger of running out of addresses , even if we decide to extend
    this idea to Rs 100 currency notes !

    Here are the most important BYE – PRODUCTs :

    * No more possibility of FAKE / FORGED / COUNTERFEIT , currency notes ( currently estimated @Rs 2500 Cr )

    * No thief would ever want to steal such currency notes which continuously announce their location

    * No one would want to make any ” Cash Deal ” . All payments will become official only !

    * Plastic currency notes will last 10 times longer !

    * Who will buy GOLD biscuits , using RFID embedded notes ? No need for PAN card !

    * No giving / No receiving of bribes ! No disproportionate assets ! THE END of CORRUPTION !

    * END of BLACK MONEY !

    This reform will enable the Central Government / Income Tax Department , to :

    * Continuously trace the movement of each of these higher denomination currency notes

    * Instantly locate any place ( using Google Map based GPS ) , where there is an
    accumulation of more than Rs 1 Crore worth of currency notes

    Such accumulation will be made to appear as a TAG CLOUD on the web site of IT Dept,
    like thousands of balloons floating on a map of India , capable of being drilled down to
    within 1 Sq Meter ! Of course , visible only to IT officers ; not to general public !

    On each balloon , will appear a number announcing , ” Amount of Cash here – Rs ” !

    This will vastly simplify the task of Anti Corruption Dept / Enforcement Dept etc
    Of course , RBI will need to allow 6 month’s time to the owners of current paper currency notes of Rs 500 / 1000 , to get these exchanged with new plastic notes before withdrawal of the old notes from circulation

    Implementation of this suggestion , does NOT require passing of any BILL in Lok Sabha or being held to ransom in Rajya Sabha !

    And it can be implemented in India , within ONE YEAR


    Just blast this ( FREE ) , to Central – State Ministers / Secretaries / MPs / MLAs etc , from page :

    Influence Policy Makers /

    hemen parekh
    30 Jan 2016

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