s s mundra : financing india ’ s growth – challenges and way ahead keynote address by mr s s mundra, deputy governor of the reserve bank of india, at a summit on “ financing india ’ s growth – way forward ”, organised by phd chamber of commerce and industry ( phdcci ), new delhi, 9 september 2015. * * * shri yaduvendra mathur, chairman & managing director, export import bank of india ; shri sunil srivastava, dy managing director, state bank of india ; shri alok shriram, president, phd chamber of commerce and industry ( phdcci ) ; shri sanjeev gupta, chairman, banking committee, phdcci ; delegates to the summit ; members of the print and electronic media ; ladies and gentlemen! i am grateful to the phd chamber for inviting me to deliver the keynote address on a very important theme “ financing india ’ s growth - way forward ”. i am happy to note the efforts being made by the phd chamber for promotion of industry, trade and entrepreneurship through its research - based policy advocacy role. the summit today, i feel, is an important step in that journey. i also understand that the phd chamber and crisil have combined to prepare a knowledge report highlighting key issues essential for financing india ’ s growth and i compliment them for their efforts. i trust that the recommendations made therein would positively impact the economic growth and development of the country. 2. in my address today, i intend to talk about india ’ s growth potential, suitable model for india ’ s growth, key challenges that undermine the achievement of the potential growth rate and the way forward in overcoming these challenges. let me ; however, begin with an overview of the global economic situation and where india stands at present. global overview 3. the global economy is presently dominated by four themes - the chinese slowdown, the impending rate hike by the us federal reserve, the large - scale slump in global commodity prices, especially oil and the continued sluggishness in the economic recovery. looking at the advanced economies ( aes ), growth is virtually stagnant in japan at 0. 8 % while the continental europe is slated to report only marginally higher growth at 1. 5 % during 2015. the recovery in north america, including in the usa is modest and uk is likely to witness a modest 2. 4 % growth during 2015. 4. the emerging and developing economies ( emdes ) have also been witnessing significant slowdown

position, they are also guided by the viability of the projects to be funded. risk aversion stemming from stress in financial assets has been one of the reasons for restrained bank credit growth in recent times. have borrowers been meeting their obligations? 17. i have raised the issue of borrowers ’ obligations on many occasions and at the cost of repeating myself, i would like to emphasise the point once more. while the quest to grow is understandable, the borrowers cannot exclusively rely on bank funds to finance this growth, without committing their own funds. the labyrinthine maze through which several large infrastructure projects have been funded point to extremely low or negligible levels of equity contributions leading to extremely high levels of leverage and virtually no skin in the game for the promoters. there is a very visible pattern here. the last few years ’ growth was largely on account of infra projects. these projects were launched by a handful of promoters with thin equity as i alluded to earlier. i suspect that this small group has run out of even such thin level of equity to contribute their fair share for revival of the stalled projects, not to talk about commissioning of new projects. so, it should be obvious to everyone that if momentum has to continue then they have to either find fresh equity on their own or make way for others who can contribute such equity both for the existing projects and also for new ones. 18. it is also pertinent to mention here that the present legal system does not facilitate an easy closure / takeover of unviable firms. in order to overcome such problems and to salvage value in firms in distress, it is imperative to take measures for an early enactment of a bankruptcy code. creation of a central authority for resolution of financial firms in distress also needs an early finalization. 19. high levels of debt accumulation by corporates has been encouraged in part by the availability of low - cost, abundant and flexible debt, facilitated by the search - for - yield environment created by the extraordinary policy measures undertaken in the us, uk, euro area and japan. several corporates have increased leverage, by borrowing in both foreign and domestic currencies. as corporates, you have to be mindful of global uncertainty, which is a given. the interconnectedness of markets lends itself to volatility. the entities with significantly higher unhedged forex borrowings are most likely to face maximum distress. governance reforms 20. india would continue to need external capital for growth and