Home / Opinion / Columns /  Vaccines or bad bank, our policies have a privilege bias

Plutocracy is woven deep into India’s political architecture. India’s political class gathers its votes in the name of the poor and welfare promises, but aligns many of its delivery platforms with the wealthy and privileged. This has been an enduring policy paradigm for the past 30-40 years and has continued under the current government as well.

The most recent example of plutocracy is the government’s vaccine delivery model, which has been mandatorily ported through a digital app in an economy starved of bandwidth and proper digital access; plus, in the face of limited vaccine supplies, the policy favours the private sector over the public health system. The entire covid vaccine policy is actually a ringing example of how policies have a default plutocratic mode built into them. Predictably, the Supreme Court has come down on the Centre’s vaccine policy for its inequity and unevenness.

The tax structure is another window to the government’s plutocratic policies. This newspaper’s sister publication Hindustan Times recently carried a data analysis illustrating how elevated petrol and diesel prices were among the larger contributors to the government’s tax revenues during 2020-21. This was even as India’s corporate sector was reporting its highest profits but paying lower taxes, as a result of rates slashed for the year. The problem with oil levies is that it taxes everybody, rich or 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.

Another egregious example of plutocracy could well be the new ‘bad bank’ being created in the public sector, the National Assets Reconstruction Co Ltd, to solve the 85,000-crore spear-tip of bad loans plaguing the commercial banking sector. Right off the bat, if emerging media reports are to be believed, it seems like a lifeline being thrown to some industrialists. 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 (haircut, in financial argot).

Let’s say the original loan was 100. The bank will agree to ‘sell’ the loan to NARCL at 50, getting 15 in cash and the balance in security receipts with the bad loans as underlying assets.

This is where the ground starts shifting. 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. Then there’s the irony of the government creating new financial institutions in the public sector at a time when it is rooting for privatization. It also acts like a purification process: PSBs, having wiped their books clean, can now lend afresh to the original borrowers who no longer appear as defaulters on the banks’ books.

The NARCL is now expected to 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. In the worst-case scenario, NARCL’s maximum write-off will be 15% of the total loan value; the government, though, will have to pay out 35% for the security receipts, if these indeed do carry a government guarantee, as proposed.

The second option is to find a new buyer. Who will buy these assets?

There’s disturbing news here. In many cases, the original defaulters are coming back to reclaim their companies. The insolvency court recently stunned creditors to defaulting home-lender, DHFL Ltd, by asking them to consider the proposal of promoter Kapil Wadhawan. This request came at the last moment, 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, has 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.

The motive behind these last-moment proposals raises many questions. Apart from delaying the entire insolvency process, especially of companies at the cusp of resolution, the defaulting promoters’ eleventh-hour discovery of an ability to repay outstanding loans has everybody mystified.

There is another associated issue: In some insolvency cases, foreign funds have emerged as buyers of companies in the resolution process. Nothing wrong with that, theoretically. But there are apprehensions that this might inspire 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 and it is moot whether the government is serious about piercing the shroud over the identity of eventual investors represented by foreign portfolios and private equity firms. Attempts by regulators over the years to get to the bottom of such convoluted holdings have been repeatedly thwarted; every so often, the government makes appropriate noises and then silently withdraws. This seems like another piece of India’s plutocratic tapestry.

Rajrishi Singhal is a policy consultant, journalist and author. His Twitter handle is @rajrishisinghal.s

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