Foreign capital, remedy to India’s bad debt: says economist Abhijit Banerjee

There is a lot of discussion going on about whether private players should be allowed in the Indian banking sector or not? Nobel laureate Abhijit Vinayak Banerjee, an India-born economist who is currently the Ford Foundation International Professor of Economics at Massachusetts Institute of Technology, U.S., pointed out how foreign participation can save the exhausted banking sector of India. Banerjee said that Indian banks need a huge capital infusion to stay viable, which can come easily from foreign sources.

There is a lot of discussion going on about whether private players should be allowed in the Indian banking sector or not? Nobel laureate Abhijit Vinayak Banerjee, an India-born economist who is currently the Ford Foundation International Professor of Economics at Massachusetts Institute of Technology, U.S., pointed out how foreign participation can save the exhausted banking sector of India. Banerjee said that Indian banks need a huge capital infusion to stay viable, which can come easily from foreign sources.

“I think we have some ideological view that Indian capitalists are somehow good capitalists and foreign capitalists are bad capitalists. Country has enormous bad debt and we actually have no way of even writing it down, unless we get some capital inflow from abroad. I don't think anybody else will have the deep enough pockets to write down that debt," he added.

Banerjee said that Indian banks are not lending due to the lack of capital and the required capital infusion can come much easily from abroad than compared to India. "We have to understand that when credit was easy, the economy grew, but today our banking margins are among the highest, the gap between the borrowing rate and the lending rate of banks is among the highest in the world," he said.

Once we take on the view that banking sector needs more private ownership, restricting it to Indian ownership would be a mistake. Discourse over foreign capital can be dangerous and the apprehension towards foreign capital stems from an obsolete colonial mindset. "I don't think foreign capital is more irresponsible than Indian capital. This is a colonial mindset. It's been a long time since we've had a foreign rule over us, we are a $3 trillion economy now," the Nobel laureate said.