Currently, the contribution of the digital economy is a low 4%, in China even 40%.
The government and planners expect the economy to become the third largest in the world by FY29, overtaking Japan with GDP of $7 trillion from the current $3.3 trillion.
The digital economy – digital infrastructure, e-commerce and other digital payments and services segments – may be the country’s biggest growth driver, contributing up to 25% of incremental GDP if India becomes a $7 trillion economy by FY29 . Currently, the proportion is a low 4%, Kamath told PTI in an interaction over the weekend.
“Up to 40% of China’s economy now comes from the digital sector and I see no reason why we can’t achieve that,” the former chairman of ICICI Bank quipped.
The chairman of NaBFID, the latest government-funded development finance institution, sees no reason to stop pushing infrastructure investments as the economy has much greater appetites for more expressways, highways, airports, seaports and high-speed trains, and he wonders if he has scope for a repeat of the banking crisis that hit lenders after the government pushed ahead with infrastructure in fiscal 2006/08.
“The economy has a greater appetite for infrastructure and we still have work to do in key transport infrastructure sectors such as expressways, highways, airports, seaports and high-speed rail networks. I would say on roads, we have to have more and more expressways, big airports and dedicated high-speed train stations for both goods and passengers,” Kamath said.
“More importantly, we can do more urban renewal projects. Why should we limit this to just the top cities? Let’s build more world-class cities and also upgrade the existing ones,” he said.
The economy needs more expressways, more airports and seaports to handle the demand of an economy that will double from its current size to the third-largest with a GDP of $7 trillion in the next five years, he said.
Nor does he see bank asset quality imploding again, as it did in the latter part of the last decade, when most infrastructure companies went bust from their excessive debt-fueled expansion.
When it was pointed out that the much-discussed NPA resolution – from over 12% to now below 5% – comes at a high cost to banks, having written off almost Rs 13 lakh crore since the IBC came into force as a recovery to date less than 30 %, Kamath said the progress made so far is the crowning glory, and as “we move forward and the IBC system improves, there will be further incremental gains.”
As for funding, he said while banks will remain an integral part of infrastructure funding, more sources offering longer-term funding need to be considered.
The NHAI has made a very good start with monetizing assets through InVits. The entire infra segment, including railways, should get into the monetization model, and this is the safest way to raise funds, he said.
On the digital front, Kamath said, the NaBFID is actively seeking to fund key areas in this space, such as data centers, smart cities, and so on.
Established in 2021 by an Act of Parliament with a capital of Rs.20,000, NaBFID made the first lending in December with a Rs.520 crore loan to the Banihal Qazigund road tunnel project in J&K. The company expects to provide around Rs 15,000 crore of financing by the end of this fiscal year.
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