India Must Increase Share In Global Supply Chain, Says RBI Governor Shaktikanta Das

Reserve Bank of India Governor Shaktikanta Das said there’s a need for India to increase its share in the global value chain for better economic welfare.

The country's contribution to the global value chain is quite limited, Das said, while addressing a gathering organised by Confederation of Indian Industry on Monday. “Efficient supply chain can enhance economic welfare. Investment in sectors with strong forward and backward linkages in the supply chain can generate higher production, income and employment,” he said.

A 1% increase in the share of global value chain can increase the per capita income by more than 1% for a country, the governor said. It may be also be necessary to focus on greater strategic trade integration by early completion of bilateral free-trade agreements with the U.S., the U.K. and the European Union, he said.

Fierce competition from other developing economies is rapidly emerging as a challenge for India's position as an outsourcing hub, Das said, referring to India’s biggest export. Uncertainty related to work permits and immigration policies, concerns relating to privacy and data security need attention, he said. Creative destruction is an integral feature of a robust economy and the IT sector is best placed to manage the consequences, he said.

Need For New Infra Financing

Das said India needed better infrastructure financing instruments that can take care of the risk and remain invested in the projects for the long term.

"We are just recovering from the consequences of excessive exposure of banks to infrastructure projects. Non-performing assets related to infrastructure lending by banks have remained at elevated levels,” he said. “There is need for diversifying financing options for infrastructure projects.”

Promotion of the corporate bond markets, securitisation to enhance market-based solutions to the bad loan problem and appropriate pricing of user charges should continue to receive policy priority, he said.

Bond Market Conditions Improving

The RBI governor said there has been a marked improvement in the market conditions for companies issuing bonds to raise funds. Especially, the special liquidity operations conducted by the regulator since March have breathed a new life into the market, Das said.

“There was a lot of interaction between the RBI and finance ministry, because of which the government announced the schemes for first-loss guarantee of 20% and the new SPV whereby liquidity is targeted at lower-rated bonds,” he said. “I do see renewed activity in the bond market even below the AAA bond market and the position has improved."

The RBI will continue to remain vigilant of all the developments in the market and will not hesitate to act when necessary, Das said.