Amitabh Kant Advocates Lowering SLR to Boost India's Manufacturing Growth

Amitabh Kant, the former chief executive officer of NITI Aayog, has highlighted the need for India to lower its statutory liquidity ratio (SLR) as a strategy to strengthen the country’s manufacturing sector, particularly the labor-intensive segments. He emphasized that while current incentives provide short-term relief, a long-term focus on reducing the cost of doing business is essential for sustained growth.

SLR is the minimum percentage of net demand and time liabilities (NDTL) that banks must maintain in government securities, cash, or gold before extending credit. Presently, the SLR stands at 18 percent, a figure Kant described as excessively high for India’s economic context. He argued that this elevated requirement restricts the flow of credit to the manufacturing sector, thereby raising borrowing costs and limiting expansion opportunities.

In an interview with PTI, Kant remarked, "I am a great believer in bringing [the SLR] down because flow of credit to manufacturing sectors will be the key in the long run." He noted that while the production-linked incentive (PLI) scheme has helped stimulate manufacturing activity temporarily, it cannot replace structural reforms that address fundamental challenges like credit accessibility and cost.

Since reaching 18 percent, the SLR has remained at this level for several years. This policy stance ensures government borrowing needs are met but also limits the amount banks can lend to private enterprises. By requiring banks to hold a significant portion of their assets in safe government securities, the current SLR reduces the availability of credit for sectors crucial to economic development, such as manufacturing.

Kant stressed that lowering the SLR could help decrease the cost of credit, making borrowing more affordable for manufacturers. This, in turn, could encourage investment in capacity expansion, modern technology adoption, and workforce development. Enhancing credit availability is particularly important for job-intensive manufacturing industries that require substantial working capital and capital expenditure to thrive.

India’s manufacturing sector plays a vital role in the country’s economic ambitions, including generating employment and increasing export competitiveness. However, this sector faces multiple challenges such as high input costs, infrastructure constraints, and limited access to affordable finance. Policy measures that improve the credit environment can address some of these headwinds.

The government introduced the production-linked incentive (PLI) program to incentivize manufacturers with direct financial support based on output milestones. This initiative has attracted investments in areas like electronics, pharmaceuticals, and automotive components. Nonetheless, Kant pointed out that incentives alone cannot sustain long-term growth without parallel reforms targeting the broader business ecosystem.

Reducing the SLR is one such reform that could unlock additional funding channels for manufacturers. It would allow banks to deploy more resources towards lending, easing liquidity constraints faced by businesses. Lower borrowing costs could help small and medium enterprises expand operations, invest in innovation, and create more jobs.

While Kant did not specify an ideal SLR level, his suggestion aligns with calls from industry experts and economists who advocate recalibrating the ratio to balance government financing requirements with private sector credit needs. A lower SLR might also encourage diversification of bank portfolios and stimulate economic activity beyond government securities.

In summary, Amitabh Kant’s recommendation to cut the statutory liquidity ratio reflects a broader push to enhance India’s manufacturing competitiveness by improving credit flow and reducing financial bottlenecks. This approach complements existing government programs aimed at boosting industrial growth and employment generation. As India seeks to position itself as a global manufacturing hub, adjustments to financial regulations like the SLR will be critical components of its development strategy.