Banking sector has to grow by 4-5 times for better GDP: Jayant Sinha

For accelerating and sustaining growth over the next decade from the present 7-8%, the country has to move from the US$ 2 trillion economy to US$ 4-5 trillion economy.

Speaking on the imperatives of financing growth, Mr Sinha, dwelt upon three broad areas which need to be addressed to facilitate the provision of public goods at the local, state and central level which in turn would lift people out of poverty and generate growth.

Elaborating further on the topic, he underscored the need for increasing the tax to GDP ratio from the current 15-16% to 20-25%. Presently, our tax to GDP ratio is the lowest among BRICS and OECD countries, he added.

Elaborating on the developing private sources of finance, Mr Sinha, stressed on creating a robust private equity and venture capital market in the country which is crucial at the time when India is poised for sustained, high GDP growth.  At present, ninety percent of the private equity market is from offshore sources and only 10 per cent is from the domestic market, he added. From the banking perspective, he mentioned that if GDP size is to double, the size of the banking sector has to grow by 4-5 times.

Mr Sinha was of the view that for banks to increase their size, there is need to put in place strategies and talent to improve the price to book multiples and improve their valuations. Besides, the changes in tax codes are being made to create a better private equity and venture capital market.

Speaking on the center state relations, Mr Sinha said that the government has increased the devolution of resources to the states and is further working towards resetting the fiscal architecture through the mode of direct tax, indirect tax and center state relations.

Apprising the audience of the government’s recent initiatives on the direct taxes front, he said that for individuals, the government’s endeavor is to provide tax concessions for long term saving. He further mentioned that the government is determined to make sure that tax compliance is dramatically improved and is taking steps to bring down parallel economy and ensure tax compliance. For corporates, the Union Budget has already announced the reduction of corporate tax rate from 30% to 25% by doing away with exemptions for making industry competitive.

In the area of indirect tax, the government is working towards bringing a clean and efficient GST which would be a game changer for the economy. It would increase tax base, improve compliance and thereby accelerate GDP growth by around 1 to 1.5%. Speaking on Center state relations, he stated that for facilitating the state and local bodies with funds for financing public goods, the government has already raised the devolution of funds to an unprecedented level of 42%.

Speaking further on the session, Mr Sinha said that the Union Budget has announced various initiatives for financing infrastructure such as creation of National Infrastructure Investment Fund, Mudra Bank and a Rs. 70,000 crore push to infrastructure especially for railways which would drive infrastructure investment.

During his opening remarks Mr Seshasayee said that for realizing our aspirations to achieve double digit growth, we need to expand our domestic savings and harness investments from outside the country to revive the investment cycle. At the same time we also need to have sufficient bankable projects in infrastructure for which we need robust financing institutions, he added.