Vax or bad bank, policies seem to favour the privileged

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Vax or bad bank, policies seem to favour the privileged

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Read more on - Polity | Economy | Schemes | S&T | Environment

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• The story: India experienced a pandemic starting March 2020, and that was a unique chance to explore a simple question - is Plutocracy woven deep into India’s political architecture? As we know, India’s political class gathers its votes in the name of the poor and welfare promises. But a closer inspection reveals that many of its delivery platforms are aligned with the powerful, wealthy and the privileged. 
• Details and examples: A relevant example (of plutocracy) is the government’s vaccine delivery model, which was mandatorily done via a digital app in a nation that truly does not offer cheap bandwidth and proper digital access to crores of rural citizens. Add to that the shrinking vaccine supplies. It is clear that those who made the policy, had the private sector in mind. It was good that finally the Supreme Court came into picture, and quizzed the government on its vaccine policy, for its inequity and unevenness. Finally, the PM himself appeared on TV, on 7th June, and announced a changed policy.
• Taxation: India's tax structure is a window to the government’s overall policy thinking. 

1. High petrol and diesel prices are among the larger contributors to the government’s tax revenues during 2020-21. This was when India’s corporate sector was reporting its highest profits but paying lower taxes, as a result of corporate income tax rates slashed since Sept 2019.
2. The problem with oil taxes is that it taxes everybody, rich and the poor, because it feeds into all commodities and finished products transported by burning diesel. Low corporate taxes, on the other hand, benefit only a few.

• Bad bank for PSBs: Another big example (of plutocracy) may soon well be the new ‘bad bank’ getting created in the public sector, the National Assets Reconstruction Co Ltd, to solve the problem of bad loans in the commercial banking sector. The plan is that a handful of public sector banks (PSBs) will sell their dud loans, which they have no hope of recovering, to this bad bank at a discount (a haircut).

1. If the original loan was Rs.100, the bank will agree to ‘sell’ the loan to NARCL at Rs.50, getting Rs.15 in cash and the balance in security receipts with the bad loans as underlying assets.
2. Now, the fair value of bad assets is not yet a settled debate. But PSBs selling their assets to another public-sector company shields both parties from future investigations of ‘suspect’ transactions. The government is now creating new financial institutions in the public sector at a time when it wants more privatization. 
3. What happens finally? The PSBs, having wiped their books clean, can lend afresh to the original borrowers who no longer appear as defaulters on the books.
4. The NARCL will either restructure the assets and find new buyers, or liquidate the assets. In case of liquidation, many companies have very little or no assets worth recovering. But the NARCL arrangement could leave everybody happy, except tax-payers: defaulting companies quietly buried and outstanding loans forgotten, with lending banks and company promoters off the hook. 
5. In the worst-case scenario, NARCL’s maximum write-off will be 15% of the total loan value; but the government will have to pay out 35% for the security receipts, if these indeed do carry a government guarantee.

• Ideal way out: The best way out is that the govt. (i.e. the NARCL) finds a new buyer. But who will buy these assets? India saw in past 3 years that in many cases, the original defaulters came back to reclaim their companies. 

1. The insolvency court (IBC - NCLT) recently shocked creditors to defaulting home-lender, DHFL Ltd, by asking them to consider the proposal of promoter Kapil Wadhawan. This request came after lenders had gone through the legally-mandated bidding process and were preparing to hand over the company to Piramal Group. Manoj Gaur, chairman of defaulting company Jaypee Infratech, made a similar last-minute request, promising to repay its entire outstanding to banks, including building and delivering the residential properties he had promised home-buyers, to stave off the insolvency process.
2. The motive behind these last-moment proposals raises questions. Apart from delaying the entire insolvency process, especially of companies at the cusp of resolution, the defaulting promoters’ sudden discovery of money to repay outstanding loans is shocking!
3. Round-tripping - In some cases, foreign funds have emerged as buyers of companies in the resolution process. This might push some promoters to use the foreign-fund route to regain their companies from the insolvency process at cheap rates. Round-tripping is a fact of life.
4. Indian regulators have often tried to know who are the ultimate people behind various FPIs but such convoluted holdings have never been truly exposed. The government does make some noise, but silently withdraws. 

• Summary: India's governance structures are such that the weak, poor and destitute have no voice in the system. Sadly, in the case of pandemic and vaccines, that may have prove deadly to many of them.

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