Economic Survey calls for AQR immediately after withdrawal of forbearance

The Survey pointed out that economic growth has a greater impact on poverty alleviation than inequality
Last Updated 29 January 2021, 13:21 IST

An asset quality review (AQR) exercise must be conducted immediately after the forbearance is withdrawn, the Economic Survey 2020-21 has said.

Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery, not a staple diet that gets continued for years, the Survey, which was tabled in Parliament on Friday, stated.

Banks exploited the forbearance window for window-dressing their books and misallocated credit, thereby damaging the quality of investment in the economy, the document pointed out. Gross Non-Performing Assets ratio of Scheduled Commercial Banks has decreased from 8.21 per cent at end-March, 2020 to 7.49 per cent at end-September, 2020.

However, the Financial Stability Report (FSR) released by the Reserve Bank of India has indicated that banks' gross non-performing assets may rise to 13.5 per cent by September 2021, from 7.5 per cent in September 2020.

It further said that India, the fifth-largest economy in the world has never been rated as the lowest rung of the investment grade (BBB-/Baa3) in sovereign credit ratings.

India’s sovereign credit ratings do not reflect its fundamentals, it added.

The Survey pointed out that economic growth has a greater impact on poverty alleviation than inequality and India needs to focus on growth to lift poor out of poverty.

Covid-19 pandemic emphasized the importance of healthcare sector and its inter-linkages with other sectors -- showcased how a health crisis transformed into an economic and social crisis, it said.

It has also recommended a regulator for the healthcare sector must be considered given the market failures stemming from information asymmetry

"An increase in public healthcare spending from 1 per cent to 2.5-3 per cent of GDP can decrease the out-of-pocket expenditure from 65 per cent to 35 per cent of overall healthcare spending," it said.

India's lockdown strategy prevented 37 lakh Covid-19 cases, 1 lakh deaths.

On reforms in tax administration, the Survey said, it had begun a process of transparency, accountability and incentivised tax compliance.

(Published 29 January 2021, 12:34 IST)

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