Nationalisation of banks a historical economic blunder: Subramanian

Says GDP growth rate from 2014-15 to 2015-16 will be greater than that of 2014-15 from 2013-14

Nationalisation of banks in the late 1960's was one of the biggest economic blunders made in independent India, Chief Economic Advisor Arvind Subramanian said on Monday.

Speaking at an event in New Delhi, Subramanian used the word "historical mistake" to describe the actions taken by the Indira Gandhi government to bring India's banks under central government control.

"Bank nationalisation in India was a huge historical mistake. We feel recapitalisation strategy should differentiate between banks. We feel one sise fits all strategy doesn't work for banks. While We need to shrink some bank we also need to diversify and give more licences," he said.

Speaking on a range of issues, Subramanian said that the government and the Reserve Bank of India, led by governor Raghuram Rajan, were on the same page on the monetary policy framework, as announced in the budget, and inflation targeting.

Subramanian also said that the gross domestic product (GDP) growth rate from 2014-15 to 2015-16 will be greater than that of 2014-15 from 2013-14.

The chief economic advisor also said that the committee under him will submit its recommendations regarding the revenue-neutral rate on Goods and Service Tax in four to six weeks.

Speaking on the trajectory of India's economic policymaking, Subramanian said that India has gone from socialism with restricted entry to capitalism with no exit and that exiting a non-viable venture should be made easier. He hoped that the proposed bankruptcy laws would help in the matter.

Some of the recent and proposed reform measures which Subramanian termed as "game changing" include the Goods and Service Tax (GST), Jandhan Aadhar Mobile (JAM trinity) for cash transfers, the recent transparent auctions of coal and telecom spectrum, the recommendations of the fourteenth finance commission, and gold liberalisation scheme.

"JAM has been tried to some extent for pension and salaries, and we had a fruitful experiment with LPG subsidies through direct benefit transfer," Subramanian said. He however added that although the centre was looking at expanding DBT to other petroleum products like kerosene, it won't be easy.

"In India, good economics can now become good politics. We saw an example of that in the 2014 elections," he said, adding that, "That, combined with increased competitive federalism, could bring about an androgynous change in the country."