Banking sector should grow four-fold to double GDP

The Dollar Business Bureau The Minister of State for Finance, Jayant Sinha, on Monday, said, India needs to turn into a US$ 4-5 trillion economy for accelerating and achieving a sustainable growth over the next decade, according to a Confederation of Indian Industry (CII) release. Stating that India’s present ‘tax to GDP ratio’ is the lowest among BRICS and OECD countries, Sinha called for an increase in the ratio from the current 15-16% to 20-25%. There is also a need for encouraging the private sources of finance to help the country in achieving a sustained and high GDP growth, he added. In this regard, Sinha stressed upon the need for creating private equity and venture capital market in India, while informing that 90% of country’s private equity market is coming from offshore sources and only 10% from the domestic sources. The Minister also said, “If the GDP size is to double, the size of the banking sector has to grow by 4-5 times.” For the banks to increase their size, there is a need to put in place the strategies to improve the price to book multiples and improve their valuations, Sinha opined. The Minister of State for Finance also informed that the changes are being made in tax codes to better create a private equity and the venture capital. Highlighting the government’s efforts towards providing tax concessions for long-term savings, Sinha said the government is committed to improve tax compliance and informed that the necessary steps are being taken to bring down parallel economy and ensure tax compliance. On the facilitation of tax issues for corporates, Sinha referred to the Union Budget 2015-16, which had announced the reduction of corporate tax rate from 30% to 25% by doing away with exemptions for making industry competitive. He further informed that the government is working towards bringing an efficient GST and exuded confidence that the GST will be a game changer and would increase tax base, thereby accelerating the GDP growth by around 1-1.5%. Speaking on the Centre-State coordination, Sinha stated that the Centre has already raised the devolution of funds to an unprecedented level of 42%, helping the States and local bodies in financing public goods. Various initiatives like creation of National Infrastructure Investment Fund, Mudra Bank and an Rs 70,000 crore push to infrastructure especially for railways, would bring in lot of investments for infrastructure projects, he added.    

This article was published on April 7, 2015.