Comment

Dr Mohammad Manzoor Alam

On November 2, Prime Minister Narendra Modi made a dramatic announcement. He has been making such announcements over the last four years, but this seemed magical. In a way, it was like the Rs 15 lakh moment, something too good to be true.

Remember the pre-election promise of BJP in 2014 to bring back all the black money stashed away in foreign banks to be deposited in every Indian’s bank account, Rs 15 lakh each? When not even Rs 15 was deposited in everyone’s account the question began to be asked: Where is the money? At that BJP president Amit Shah clarified famously that the party did not mean it, and that the Rs 15 lakh promise was merely a chunawi jumla, an election stunt.

When Narendra Modi announced note ban two years ago, he promised that at the end of the ban India would shine like gold (Bharat soney ki tarah chamkega). Instead India’s glow dimmed because of the note ban. In a recent lecture, ex-governor of Reserve Bank of India, Raghuram Rajan, said that note ban and GST slowed down the economy considerably.

This government will be remembered for its theatrically announced projects and missions, barely any of which has succeeded. Observers feel that the November 2 announcement too does not mean anything except Modi’s penchant for theatrics. He announced that from now on MSMES (mini small and medium enterprises) can get loans of up to Rs 1 crore cleared online in 59 minutes. Sounds great! Doesn’t it? Certainly as impressive as Rs 15 lakh in everyone’s account. And, also as unreal.

Experts are sure this progamme is not workable. Banks and non-banking financial companies (NBFCs) would never clear loan application without due diligence, a process that would take 59 weeks, not minutes. Also, just because a loan is cleared on paper, it does not mean that one will get the money instantly.

The fact is that both banks and NFCs are groaning under a burden of unpaid loans (non-performing assets, NPAs). The Reserve Bank of India is strictly demanding loan repayments and curbs on new loans. There is a conflict of interest between the Central government and the Reserve Bank of India. The government wants to oblige sections of voters by granting them loans before the elections to influence their voting, while the Reserve Bank thinks such unreasonable populism is disastrous for the financial health of the country.

In fact, the financial situation is so bad that by the end of 2019 several banks are likely to collapse under the weight of NPAs. The non-banking companies do not take deposits, but take loans from banks and the market and advance loans to companies. Both banks and NBFCs are caught in a vicious spiral.

In a grim situation like this the government is unreasonably putting pressure on the RBI to give money to government banks to distribute loans before elections and influence voting. It also wants RBI to stop forcing banks to pay back their loans.

On the other hand, the mini, small and medium enterprises are trying to get their own loans restructured like those of big companies for them to have the payment of dues against them postponed and arrangements made for repayment in easy and staggered installments.

Put Mr Modi’s Rs 1 crore loan in 59 minutes in this context and see whether this too looks like Rs 15 lakh in every Indian’s bank account.

(Author’s Note: I hope to return to this topic soon.)