Image: Illustration: Minal Shetty; Imaging: Sushil Mhatre
Deepak Parekh, Chairman, Housing Development Finance Corporation
Deepak Parekh, 65, is India’s foremost infrastructure finance veteran with a career that has straddled both public and private sectors for four decades. A chartered accountant by training, Parekh joined Housing Development Finance Corp. in 1978 after stints in international banks. Soon, he rose to become HDFC’s managing director and later chairman. He brought the concept of home mortgage to the door steps of middle class Indians. For the government, he is the go-to guy for complex finance issues. The government honoured him with a Padma Bhushan in 2006.
We live in a world where comment is free but action is at a premium. The global financial crisis proved to be a bonanza for economic researchers and editorial writers who wasted no time in publishing reams of opinions on how to emerge out of the crisis and ensure it does not happen again. How many of these big ideas will translate into action on the ground, is anybody’s guess.
In India, in particular, there is no dearth of big ideas. Everyone seems to have an opinion on every subject. But we seem to develop cold feet when it comes to implementation. The next phase of our collective thinking on economic reforms should hence be focussed not on bringing out more reports but on achieving proper and timely implementation of the ideas we already have.
The financial sector has been crying out for reforms for quite some time now. Over time, we have developed a complex web of bureaucratic hurdles, multiple regulators and policy ambivalence on significant issues. Numerous committees have laid roadmaps for financial sector reforms dating back to the very beginning of economic reforms in our country in 1991, but many of these recommendations are still waiting to see the light of day. As someone aptly put it, “If you cannot commit yourself, committee yourself.” We need to break this logjam to get the decision-making process off the ground.
Take the real estate sector. It was severely affected by the global liquidity crisis during 2008. Prior to the crisis, developers committed a number of mistakes that included increasing prices to unrealistic levels. And now, with liquidity and market conditions improving, they are back to that old game. This sector also is marred by the lack of transparency and customers keep getting the short end of the stick. In an effort to bring in more transparency into the sector, the government has made a salutary attempt through a draft bill, the Model Real Estate (Regulation of Development) Bill, to bring into effect a real estate regulator. The draft bill seeks to grant approvals to projects on certain parameters, expedite all the approval processes mandatory for the projects to take off and rate developers on their financial strength.
But again, the bill is already being opposed by certain factions and getting the draft bill enacted will require a great deal of perseverance on the part of the government. The job of a regulator is not to choke business, but to ensure that the industry functions in a fair manner and that the objective of getting a single window clearance is achieved.
Next, look at the regulatory overlaps. Even as we speak, there are regulatory disputes in investment-led insurance products, power futures trading and so on. The principle of KISS (Keep It Simple, Silly) seems to have been forgotten. In this regard, the proposal for a Financial Stability and Development Council (FSDC) is a step in the right direction. The Council’s key objective should be to coordinate and diffuse regulatory conflicts and more importantly take a clear stance so individual customers are not caught in the crossfire. This is very important in the larger interest of financial stability. One hopes that this body becomes operational soon and that we do not hear the same story of how it should be fast-tracked couple of years down the line.
Another recommendation of note that has been put on the backburner is the development of a deep and liquid corporate debt market. Incremental reforms have happened, but at a snail pace. A vibrant and efficient debt market is vital for sustaining India’s economy as it will aid in financing the country’s infrastructure needs.
Similarly, regulators are well aware that financial inclusion is the key for India’s economic growth. A vast number of Indians have been left out of the financial economy of the country. The penetration levels and access to finance across the country are quite meagre. Six out of 10 Indian do not have access to a bank account. Home mortgage as a proportion to GDP stands at barely 7 percent and insurance penetration is under 4 percent. A large segment of the population with no access to the formal credit market is still heavily dependent on the moneylenders who charge usurious interest rates. Banks have made some attempt to tap the rural and semi-urban markets but their efforts have not been substantial or adequate. Financial intermediation is an important catalyst in attaining inclusive growth. Banks may also be able to verify and identify customers with the aid of the Unique Identity Project, which is expected to roll out this financial year.
Banks have admitted that one way forward for them to have a greater presence in rural areas is through financial literacy. As India has a young population, with more than 30 percent under the age of 15 years, the opportunity for the banking sector is immense. Financial literacy needs to be a priority for the banking sector as this younger population are potential customers in the next ten years.
We have to realise that a taxpayer ultimately bears the burden of delays. It is the public money that is going into a number of projects and policies which should be used judiciously and not be frittered away. India’s priority of improved governance, urban infrastructure, education and health can all be resolved only if all the stakeholders are proactive. India is in a unique position and has a golden opportunity to take its economy to the next level. So if we do not want to be labelled as one of those countries that missed the bus, then we have to act now and insist on a faster and more efficient process of policy implementation.
There is no point in lauding ourselves that India was minimally affected by the financial crisis. This does not guarantee that we will be able to withstand a similar external shock again. The time for getting into the implementation mode is now.
(This story appears in the 04 June, 2010 issue of Forbes India. To visit our Archives, click here.)