By Arun Srivastava
Conjectures are making rounds in the political circles about Amit Shah and Narendra Modi salvaging the electoral prospect of their party and ensuring its return to power after the 2019 general elections. The assumption is that they will manage to carry the urban middle class voters with the economic gains of the NDA government. Observers, however, articulate disquiet about the deteriorating state of the economy in recent months. They feel this will leave a deep scar on the economic face of the government.
The RSS is busy evolving a strategy to turn the negative sentiment into a positive factor. No doubt the basic indices have been speaking against the Modi government, but the RSS ideologues are creating the ground to pass the blame on to the big business houses, which according to them worked against the country and the NDA government.
While the recently released second volume of the Economic Survey admits that there are distinct signs of a deceleration in real economic activity, the game plan is to harp on the growth rate between 6.75 and 7.25 per cent during the financial year. The argument would be as to how the growth rate can increase if the economy was decelerating.
The economy entering into relatively low-inflation regime will help the government to create an illusion about the health of the economy. But there has been little attempt to revive investment activity. Loan waivers to distressed farmers have not yielded the desired result. In fact, the benefit has primarily accrued to the rich farmers. The Modi rule has seen the miseries of the economy multiplying, with systematic failures aggravating and the industry going into a meltdown. Seventy-eight of the largest companies in India are facing dissolution under the Bankruptcy Code. While the big businesses have run up huge amounts of loan defaults, the case of the small companies is not different as they have doubled the defaults in the past year.
Between 2008 and March 2015, around 300 of India’s largest companies borrowed Rs 4.5 lakh crore ($680 billion) abroad, mostly with maturity periods ranging from three to 20 years. Between March 2014 and March 2015, borrowings increased by $181.9 billion. This raised India’s outstanding external debt by 38 per cent to $580 billion.
Former RBI governor Raghuram Rajan had some time back observed that one of the biggest problems besetting the Indian economy was the stress on bank balance sheets. The bad loan in India’s banking system is estimated at over Rs 9 lakh crore – with large business houses accounting for a substantial portion.
Rajan had urged the government to refrain from setting ambitious credit targets or waiving loans. “Credit targets are sometimes achieved by abandoning appropriate due diligence, creating the environment for future NPAs,” he had cautioned.
A week ago finance minister Arun Jaitley announced the merger of three banks –- Bank of Baroda, Vijaya Bank and Dena Bank, which were declared non profitable more than three years ago. About the timing of this merger amid the falling value of Indian rupee, Jaitley said government business doesn’t come to a standstill even if you have global challenge of high crude oil prices and strengthening of US dollar.
Vijaya Bank MD Sankara Narayanan shocked everyone by claiming that he learnt about the merger only after the finance minister’s press conference, which suggests that no serious thought was applied before announcing the merger. Jaitley clarified that lending was becoming weak, hurting corporate sector investments. Also, many banks were in a fragile condition due to excessive lending and ballooning NPAs.
Rajan, who identified the problem of high non-performing assets (NPAs) in the banking system and initiated the clean-up process in 2015, told the parliamentary panel that the problem of mounting NPAs happened mainly due lack of due diligence by the banks while granting loans between 2006 and 2008.
These three banks were found to have lent out huge bad loan to the corporate borrowers. It is also a fact that banks in their over-enthusiasm sometimes lend money on the basis of project reports by the promoter’s investment bank, without doing their own due diligence. Rajan told the committee “One promoter told me about how he was pursued then by banks waving checkbooks, asking him to name the amount he wanted”.
The BJP has changed the dynamics of the monetary functioning. In the past the bad loans were sanctioned by the bankers at the behest of politicians. The problem has acquired a much bigger dimension in the last four years. This was best witnessed recently in the Punjab National Bank (PNB) fraud case. (IPA Service)
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