Skip to main content

Waiving corporate loans is good economics; waiving farm loans is bad economics, bad politics?

By Devinder Sharma*
I fail to understand. How come farm loan waiver in Uttar Pradesh, Maharashtra, Rajasthan and Punjab is considered to be bad economics, bad politics whereas massive loan waiver for the big corporate is construed to be good economics, leading to economic growth.“Repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market,” former RBI Governor Raghuram Rajan had once remarked. Endorsing the viewpoint, the State Bank of India chairperson, Arundhati Bhattacharya on Wednesday said that crop loan waivers disrupt ‘credit discipline’ as ‘the farmers will wait for the next elections expecting another waiver.’
There is no denying that writing-off farm loans certainly makes some farmers habitual defaulters, expecting another waiver at the time of next elections. But let’s also look at what the Chief Economic Advisor has to say. Speaking at Kochi the same day, Arvind Subramaniam suggested that the government needs to bail out large corporate borrowers. “You need to be able to forgive those debts because this is how capitalism works. People make mistakes, those have to be forgiven to some extent,” he said, and added: “Political system has to be able to do that and bad bank is one way of trying to do that.”
If this is how capitalism works, I wonder why it doesn’t work the same way for farmers. If rich corporate can make mistakes and get a massive bail out, why do farmers who actually don’t make mistakes but are victims of economic policies that keep them deliberately impoverished, get a loan waiver. Are farmers not part of the same capitalist system? Unless, of course, farmers are considered to be children of a lesser god.
The policy of treating corporate defaulters with velvet gloves does not end here. Arvind Subramaniam goes on to say that ‘bailing out big corporate will surely lead to allegations of corruption and crony capitalism. There is however no other way to solve the problem but to write-off the mountain of debt’. If this is what growth economics is all about then Arundhati Bhattacharya too need to understand that crop loan waiver will surely bring ‘credit indiscipline’ among farmers but there is no other way to solve the problem. ‘Credit indiscipline’ among farmers, as she fears, is nothing different from the ‘credit indiscipline’ that corporate resort to.
Why then single out farmers for ensuring credit discipline whereas allowing the corporate defaulters, most of whom are willful defaulters, to virtually go on robbing the banks. According to the latest report of the Public Affairs Committee of Parliament, headed by K V Thomas, of a total of Rs 6.8-lakh crores of non-performing assets (NPAs), which actually is a euphemism for bank defaults, a whopping 70 per cent are those of big corporate houses, hardly one per cent of it belongs to farmers. Interestingly, much of these bad debts are predominantly of the large corporates – steel, power, infrastructure and textile sector.
And how much of it is likely to be written-off? Well, hold your breath. India Ratings, the credit rating agency, estimates that close to Rs 4-lakh crore, out of a total of Rs 7.4-lakh crore stressed loans that the big companies have accumulated over the five year period, 2011-2016, is expected to be written-off. Let’s also not forget, this is not the first time that the banks are going to write-off loans of big companies. Earlier too, close to Rs 10-lakh crores has been written-off or has been ‘restructured’ over the past decade. The question that needs to be asked is why does the corporate write-off keeps on coming back year after year? Did you hear the SBI chairperson blaming the massive corporate write-off at any stage for disrupting ‘credit discipline’?
Since writing-off corporate debts brings loud protests and charges of crony capitalism, the best way being suggested is to create a special bank where all these bad debts will be parked. Don’t forget, this is how capitalism works. And it clearly shows that capitalism only works for the rich and the powerful. Different strokes for different people. The banking laws that work for the rich defaulters do not work for the poor farmers. Writing-off the outstanding loans of the big companies is economic nirvana, whereas any waiver of small crop loans is termed as bad economics.
Despite the election promise of waiving farm loans in Uttar Pradesh (UP), news reports state that the waiver will be restricted to overdue cooperative bank/primary cooperative societies’ loans, which according to the state government are not more than Rs 8,500-crore. This is roughly 10 per cent of the unpaid dues of Rs 86,000-crore to commercial and cooperative banks. In Punjab, where too the Congress party had promised to write-off farm loans, the overdue loans in farming stand at Rs 5,150-crores.
Although Arundhati Bhattacharya clarified that the bank has not received any request so far to waive-off farm loans in UP or for that matter in Punjab, I fail to understand why the entire outstanding agricultural loans pending before commercial banks cannot be shifted to the proposed bad bank. After all, if the problem of bad debts of big companies can be resolved by creating a bad bank or a Public Sector Asset Rehabilitation Agency (PARA) why a similar approach can’t be adopted for the bad debts in the farming sector?
But then, it is obvious that capitalism does not work for farmers. A news report states that 32 farmers in Shivpuri in Madhya Pradesh defaulted on the Kisan Credit Card payments to the Madhyanchal Bank. Thetehsildar has seized the harvested crop. In another report, 19 tractors of as many defaulting farmers in Banda in Bundelkhand have been seized and will be put for public auction. The e-auction is scheduled for March 21. When was the last you heard of a similar e-auction of assets, including a stream of cars and vehicles belonging to the big companies which have defaulted the public sector banks? What to talk of public auction of assets, even the names of the big defaulters are being withheld. The government is trying not to ‘name and shame’ these willful defaulters.
This is how capitalism works. Bail out for big corporate becomes good economic. Waiving crop loans for farmers is termed as bad economics, bad politics.
---
Source: https://devinder-sharma.blogspot.in/2017/03/waiving-corporate-loans-is-good.html

Comments

TRENDING

Mystery around Gujarat PSU 'transfer' of Rs 250 crore to Canadian firm Karnalyte

By AK Luke, IAS (Retd)*
While returning from a Board meeting of the Oil India Limited (OIL) in Ahmedabad some time in 2012, two officers of the Gujarat State Fertilizers and Chemicals Ltd (GSFC), Nanavaty and Patel,  saw me off at the airport. They said they were proceeding to Canada in connection with a project GSFC had entered into with a company there. As we were running late, I hastily wished them the best.

Savarkar in Ahmedabad 'declared' two-nation theory in 1937, Jinnah followed 3 years later

By Our Representative
One of the top freedom fighters whom BJP and Prime Minister Narendra Modi revere the most, Vinayak Damodar Savarkar, was also a great supporter of the two nation theory for India, one for Hindus another for Muslims, claims a new expose on the man who is also known to be the original proponent of the concept of Hindutva.

J&K continues to be haunted, as parts of India 'degenerate' into quasi-Kashmir situation

By Rajendran Narayanan*, Sandeep Pandey**
“Jab har saans mein bandook dikhe toh baccha kaise bekhauf rahe?” (How can a child be fearless when she sees a gun in every breath?) remarked Anwar, a gardener from Srinagar, when asked about the situation in Kashmir. On November 30, 2019, a walk through an iron gate in a quiet neighbourhood of Srinagar took us inside a public school. It was 11 am when typically every school is abuzz with activity. Not here though.

Indians have made 119 nations their ‘karma bhumi’: US-based Hindu NGO tells Rupani

Counterview Desk
In a stinging letter to Gujarat chief minister Vijay Rupani, the US-based Hindus for Human Rights (HfHR), referring to the report citing his justification for the Citizenship Amendment Act (CAA) – that “while Muslims can choose any one of the 150 Islamic countries in the world (for residence), India is the only country for Hindus" – has said, he should remember, Hindus have made several countries, including USA, their home.

Tata Mundra's possible closure? Power ministry's 'pressure tactic' on consumer states

By Bharat Patel*
Tata power has announced to the Union Ministry of Power that Tata Power may be forced to stop operating  its imported coal-based Mundra Ultra-Mega Power Project (UMPP) after February, 2020. It is not only unfortunate but also criminal that irreversible damage has been caused to the fragile ecosystem of Mundra coast for a project that will have a running life of only seven years.

Population control? 10% Indian couples want to delay next pregnancy, but fail

Counterview Desk
Shireen Jejeebhoy, director at Aksha Centre for Equity and Wellbeing, previously senior associate at the Population Council, India, argues that the debate on the country's population was fuelled by Prime Minister Narendra Modi’s Independence Day address to the nation, where he drew attention to “concern” about the challenges posed by this ‘exploding’ population growth, needs to centre around the promotion of rights and education, instead of the language of explosion and the threat of coercion that this term implies.

Upendra Baxi on foolish excellence, Indian judges and Consitutional cockroaches

By Rajiv Shah
In a controversial assertion, top legal expert Upendra Baxi has sought to question India's Constitution makers for neglecting human rights and social justice. Addressing an elite audience in Ahmedabad, Prof Baxi said, the constitutional idea of India enunciated by the Constituent Assembly tried to resolve four key conflicting concepts: governance, development, rights and justice.

What about religious persecution of Dalits, Adivasis, asks anti-CAA meet off Ahmedabad

By Rajiv Shah
A well-attended Dalit rights meet under the banner “14 Pe Charcha” (discussion on Article 14 of the Indian Constitution), alluding to Prime Minister Narendra Modi well-known campaign phrase of the 2014 Parliamentary elections, “chai pe charcha” (discussion over cup of tea), organized off Ahmedabad, has resolved on Wednesday to hold a 14 kilometres-long rally on April 14 to oppose the controversial Citizenship Amendment Act (CAA), enacted on December 10-11.

Kerala governor turned History Congress into political arena, 'insulted' Prof Irfan Habib

Counterview Desk
In a signed statement, office bearers of the Aligarh Society of History and Archaeology (ASHA), Prof Syed Ali Nadeem Rezavi (president), Prof Jabir Raza (vice-president), Prof Manvendra Kumar Pundhir (secretary) and Prof Farhat Hasan (joint secretary), have said that Kerala governor Arif Mohammad Khan had sought to insult veteran historian Prof Irfan Habib, 88, at the 80th session of the Indian History Congress, even as turning it into his “political arena”.