Want to bail out banks? sell state assets: Rajan

AGENCIES
NEW DELHI

Stronger, better-managed banks should be given the capital they need to absorb losses as a matter of high priority, Raghuram Rajan, who left the RBI last year, told the media in an interview.
More than $150 billion of bad debt is crimping credit growth in Asia's third-largest economy, and the government and the RBI have been
trying to ease the burden on state-run lenders, which account for 70 percent of all lending.
The expected losses from the bad loans mean banks will need tens of billions of dollars of fresh capital, but the government does not have the money to fund such a bail-out.
One option would be taking on more debt, but that would run counter to Prime Minister Narendra Modi's aim of imposing fiscal discipline.
Asia's third-largest economy aims to trim its fiscal deficit to 3.2 percent of GDP in 2017/18, down from 3.5 percent the year before. India's success in narrowing its fiscal and current account deficit has helped to attract record levels of foreign investment.
"The whole point about the fiscal consolidation process is saying that you are making hard choices, so if you are staying within that you have to find other places where you either cut spending or raise resources," Rajan said.
But he said the government might sell some assets to raise the funds and that a strong performance by the country's stock market provided a good opportunity for divesting.
Rajan, a former International Monetary Fund economist, had a high-profile three-year term as the head of the RBI, playing a crucial role early in his tenure in stabilizing the currency.
He left last year and had refrained from making public comments about the economy until now.
Over the past few days, he has been in India to mark the publication of his new book, "I Do What I Do".
Speaking at his book launch, the former governor of the Reserve Bank of India stressed on boosting growth to provide enough jobs for what will be the world's biggest workforce.
"Remember that we have what we call the population dividend. A million new people entering the labor force every month," Rajan said.
"If we don't provide these jobs that are required, you have a million dissatisfied entrants. And that could create a lot of social mischief."
Rajan is right in this aspect. India will have the world's biggest labor force by 2027 and the millennial generation is crucial to anchor one of the fastest paces of economic growth.
However, fresh employment opportunities are scarce and the administration has lagged in training workers to help them survive the threat of automation.