It was not at all shocking to hear that 68,607 Cr worth bank loans have been written off in India, which includes the debts of multi-billionaires like Mehul Choksi and Nirav Modi. Even though, the opposition leader Rahul Gandhi once asked to have the list of top 50 bank defaulters in India on March 16, 2016, that was refused by the ministry to disclose the names of willful defaulters. Despite the reiterating stories of writing off bad debts, what makes this special, is the way it treated in a pandemic period, where people face high economic problems.
Apart from being engaging in correcting Rahul Gandhi in his mistake on mentioning the matter as waived off instead of written off, it will be fame to disclose how much written bad debts have recovered by the reserve bank in Modi Regime. Apart from an auction story of nearly 400 Cr of Nirav Modi and a bitter legal action on Mallya, how much we have to believe in current proceedings
Moreover, it is important to notice the fiscal deficit of the nation rising to 4 and the GDP growth rate falling to 4. Here, it is also important to analyze the theoretical aspect of bad debts and how the BJP-led government has treated it in their ruling period.
It was in 2015, the former RBI governor Raghuram Rajan handed over a letter to the prime minister of India, stating the importance of handling bad debts in the nation. On 24th April, a detailed report was published by Hindustan Times, commenting on the matter inside the letter. By understanding its relevance, The Wire again provoked its importance in October 2018 through an article titled ‘Rajan Handover the letter to Modi’. The national media hardly questioned the way of the journal which named Narendra Modi as the receiver of the letter. Upholding the advice of the estimate committee that there are chances for having the letter to Manmohan Singh where he (Rajan) was the Governor of RBI during his regime, the Wire.in slightly changed the title as Prime minister instead of Modi. But after a month itself, the prime minister’s office declared that the letter was to Narendra Modi itself and it was in 2015. Thus, we have no way to get regret of government policies on bad debts, as it is their way of crony capitalism.
In the letter, Raghuram Rajan informed about the top ten defaulters, which further delineates the way banks and CBI dealt with looting scams. Moreover, the data well exemplifies that around 60 percent of bad debt belonged to 20 people. Even though the government was asked by the Reserve bank to have sufficient answers to this problem, till now it wasn’t given any sort of importance. Unjustly, the government has further endowed financial aid to the so-called culprits.
Bad debt is the cost that a business entity incurs when they went uncollectible for a credit which was previously extended to a customer. Bad debts are a contingency that should be accounted by all entities who engage in credit options, as there is a high risk for getting their payment not received. Thus it is important to a nation, who already relies on reserve bank for financial aid to meet their fiscal deficit, to think well about writing off the debts.
Bad debt is a natural result of the banking sector and it should be covered well by capitals and reserves. There are high chances of a financial crisis through rising bad debts as it belongs to the cyclical financial process. The rise in lending will create huge demand in the market and it will result in a hike in the production sector. But, whenever this demand was badly affected by some external factors, the extension of loss will be high.
During 2006-08, India marked a higher level of growth and the overestimation of RBI resulted in a huge amount of lending and this resulted in the great financial crisis. The prime cause of writing off bad debts is the inefficiency of banks and defaulters in managing the risk. But here, the notion is to imbue the bank to waive the debts for preventing the fusion of state and corporates. This model of crony capitalism is having its high execution during the Corona pandemic as it may not get noticed by the people.
Sarcastically, it will be vital here to quote the words of former Reserve Bank governor VV Reddy. He said “I am happy as Reserve Bank is independent. Moreover I am also happy that the finance ministry has given me permission to pursue the so-called sentence”. The words demonstrate how far the Reserve bank is doing serfdom to the government. The resignation of Raghuram Rajan, which was followed by Urjit patel and that was highly due to their opposition to the government on treating the bad debts.
It’s good to conclude by the words of French renaissance writer, Francois Rabelias, who once said, “Debts and lies are generally mixed”. As the nation faces infinite number of farmer suicides in terms of debts, it’s quite disappointing to note the silliness that the government is giving to write off the debt of billionaires. Understanding ethics is always important to handle a financial principle, which is now lacking in the banking sector too. The Question of Rahul Gandhi on March 16, now yield much relevance as it was a strong message to the whole nation.