CAN GOVTS FAIRLY CLAIM INNOCENCE--INDIAN NPA PROBLEM

CAN GOVTS FAIRLY CLAIM INNOCENCE--INDIAN NPA PROBLEM-FINANCIAL EXPRESS 11TH DEC2017

http://epaper.financialexpress.com/c/24422941

ARE GOVERNMENTS INNOCENT IN PUBLIC POLICIES??

Many decrees of governments all over the world, though they may be issued in public interest, defy the innocence of public interest. Has there been any review that how government’s policies prevailing at the time when the loan was under consideration and subsequently after the disbursal have been changed by the governments themselves to the detriment of the repayment of the same loan by the debtor.   Then these very governments castigate blame on corporates and banks for NPAs or stressed loans faulting liberal or wrong appraisals for promotors or gold plated loans for political funding of projects and businesses. This is not to imply that there are no black sheep businessmen and bankers—but these could be “some” and not all.  

To isolate themselves from any blame and blemish, these policymakers devise new policies with moral and ethical norms e.g. promotors of these failed projects cannot bid for their sick units.  Thus governments become the “Do-Gooder” and the rest villains of the first and last resort. But even with the new decrees some proxy promotors will again emerge locally or some foreign associates will bid discreetly. That will lead to a fresh round of investigations after the bidding. The business world is too complex to be appropriated by a few in the bureaucracy.

 Authorities also need to introspect that how much their own policy decisions –modified and changed –from time to time have created irrevocable indebtedness to the industry which gets transmitted to the banks and other financial institutions.

Swaminathan Aiyer in his article in Times of India of 26th November writes—“Railway minister Piyush Goyal said last week that the railways would be completely electrified by 2022, phasing out diesel locomotives. Earlier, transport minister Nitin Gadkari decreed that all car production would have to be electric after 2030, heralding the end of petrol and diesel cars. Yet petroleum minister Dharmendra Pradhan wants to double India’s oil refinery capacity, and later take it to 600 million tonnes from today’s 230 million tonnes. Do these ministers talk to one another?”

Then Swami concludes – “If bankers are not very careful in financing refinery expansion, they will end up with massive bad debts…. “Why invest in this sunset sector”? But who will question the government on the bona fide of the decision of refinery expansion --when the banks are stripped off of their wealth.

How much shock treatment all corporates—small, medium and large-- suffered because of suddenness and unpreparedness of demonetization? Are not complexities of GST bones stuck in the throat of the economy?  Will it not create more stress in the business and banking sector?

On 27th November 2017, Sunil Mittal of Airtel stated "My estimate is about $40-50 billion have been written off by various companies, many of whom are international investors. It (the write-offs) is largely due to Jio...the pricing. Having such a long, free promotional period and in some sense, decided by laws of the land in their favour, is unheard of. In my opinion, in Europe or US, this would have been stopped. It would have been seen as predatory”.

Then there are instances where Government suddenly prefers to induct new technology – certainly a progressive decision—just like in Electric Vehicles. But where will the current investment in petrol/Diesel sectors go?? Should this new EV investments be made at a measured pace or instantly??

And in some cases government opposes the induction of new technology. Take the case of GM seeds—we have refrained from quick adoption. Had GM soy seeds introduced –it may have led to the crash of Soy and Soy oil prices in the country –which may not be palatable to farmers and the mills!!

In 2008, UPA Government banned export of non-basmati rice as knee jerk reaction—that had no justification or rationale. There was no scarcity of rice within the country. Many Sortexed rice units were set up in those years—2004-08-- in AP-Kakinada –with the state of art technology. Funds of more than Rs.1000crores were invested by the banks. The promotors were in tears for three years until the ban was lifted in September 2011. None will point finger at the Government on the adhocism. For the last seven years Rice has been the only viable export from Agri –commodities.

One can go on with such issues e.g. On stocking of 2 million pulses by the government agencies last year and now remaining unsold; creation of National Food Security Act of 2013 and building huge stocks of grains in preceding years –but now NFSA is virtually abandoned. None is accountable for decisions which were more political, than based upon economic rationale, and sunk funds of tax payers.

If a visit is made in any of the Government office—generally the secretaries and their subordinates are either preparing cabinet notes on new policies or preparing replies to the parliament questions. The former creates the problem afresh and the latter are the answers to the problem surfaced from the previous policy profiles.

Though governments are not innocent players in policy making, the inter se-competition within the industry and the rapidness of technological changes are also responsible for the rise and fall of businesses and resulting consequences in the financial sector—called twin balance sheet problems.