When creditors lose and depositors pay: The politics of debt write-offs

By Bhabani Shankar Nayak* 

Over the past decade, the economic policies of the government led by Prime Minister Narendra Modi have drawn increasing scrutiny from policymakers, bankers, and public-interest observers. A central concern is whether the state’s approach to corporate debt resolution, public-sector disinvestment, and social-sector spending reflects the right balance between enabling business recovery and safeguarding public funds.

Debt Resolution and the Public Purse

A recent decision by the National Company Law Tribunal (NCLT) has renewed debate over how India resolves distressed corporate debt. The tribunal approved a repayment plan of roughly ₹6.5 crore for the Essel Group of Companies and its chairman, Subhash Chandra—a Rajya Sabha member affiliated with the BJP—against admitted creditor claims of approximately ₹22,006.57 crore. Major creditors, including Axis Bank, RBL Bank, IndusInd Bank, IDBI Trusteeship (for Franklin Templeton), LIC Housing Finance, Union Bank of India, and HDFC Bank, reportedly opposed the settlement, yet the plan was approved as binding. If implemented, the agreement implies that more than 1,260 creditors could recover only a fraction of their claims. LIC Housing Finance alone stands to lose over ₹1,322 crore in public deposits.

Critics argue that such outcomes risk converting private-sector distress into a public liability, since many creditors are institutions that hold retail deposits and policyholder funds. Supporters of the Insolvency and Bankruptcy Code (IBC) framework, under which the NCLT operates, counter that haircuts are sometimes necessary to preserve employment and enterprise value, and that the alternative—liquidation—can yield even lower recoveries. The question, however, is whether the terms of resolution consistently protect public interest, or whether they disproportionately benefit promoters at the expense of depositors and minority stakeholders.

The Scale of Loan Write-Offs

Government data indicate that between 2014 and 2025, banks wrote off corporate loans worth roughly ₹9.87 lakh crore. Of this, approximately ₹7.21 lakh crore went to large corporations, ₹2.65 lakh crore to large business houses, and only about ₹1.67 lakh crore to agriculture and allied sectors. Over eleven years, total corporate loan write-offs have reportedly exceeded ₹19 lakh crore. Agricultural write-offs, already modest in comparison, declined further in 2024–25.

Banking analysts note that write-offs are a standard accounting practice used to clean up balance sheets, and that they do not necessarily mean the recovery process ends; banks can still pursue collateral or personal guarantees through other forums. Nevertheless, the skew in write-offs toward large industry, relative to the farm sector, raises legitimate questions about whose interests the financial system prioritizes. Moreover, much of the “agricultural” relief often flows to millers, fertilizer companies, and large landholders rather than to small and marginal farmers, suggesting that even ostensibly rural-targeted programs may not reach their intended beneficiaries.

Disinvestment and the Role of the State

From its first term, the Modi government has pursued aggressive disinvestment and asset monetization, arguing that the state has no business being in business and that privatization improves efficiency. Critics contend that the process has sometimes weakened public-sector undertakings before their sale, allowing private buyers to acquire strategic assets at valuations that do not fully reflect their worth. The broader concern is whether India is transferring long-term public wealth to private hands without adequate transparency or a competitive bidding process.

The government, for its part, maintains that disinvestment revenues fund infrastructure and social programs, and that a leaner public sector reduces the fiscal burden on taxpayers. The debate therefore hinges not on whether reform is needed, but on whether the current model ensures fair value, protects workers, and preserves assets critical to national interest.

Spending Choices and Social Infrastructure

Perhaps the most politically sensitive issue is the opportunity cost of these policies. India continues to face deficits in education, health care, housing, and rural infrastructure. Employment generation, seed and fertilizer subsidies, and irrigation remain pressing demands. When the state forgoes revenue through corporate tax relief, accelerated debt resolution, or below-market asset sales, it implicitly chooses not to fund these alternatives.

This is not a critique unique to the present government; previous administrations also grappled with non-performing assets and deficit targets. What distinguishes the current era is the scale of corporate debt resolution, the pace of disinvestment, and the concentration of relief among the largest borrowers. An objective assessment must ask whether these policies are producing the promised growth and employment, or whether they are primarily transferring risk from private balance sheets to public institutions.

Conclusion

India’s economic governance under the BJP-led government deserves scrutiny not because it is uniquely flawed, but because the concentration of corporate debt relief, the mechanics of NCLT resolutions, and the trajectory of public-sector divestment carry significant distributional consequences. A robust democracy should debate these choices without ideological caricature. The test of any administration is whether it can foster enterprise while safeguarding the savings of ordinary depositors, the livelihoods of farmers, and the long-term assets of the nation. On that standard, the record remains open to serious question.

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*Academic based in UK