Economic Survey & Budget 2022: Touted as the first paperless budget, the budget 2022 was after all a people-less budget that was far removed from the pressing concerns of the day. This was starkly similar to the Economic Survey presented before it, which too seemed oblivious about the income losses, job losses and high inflation. In its continued obsession with supply side concerns that helps it justify its lower social spending, the Economic Survey spoke of process reforms and ease of doing business, which was further built upon by the Finance Minister as she spoke of “trust based governance” in her budget speech. While it has been obvious that its credit based recovery and lower interest rates has no takers as small business has been struggling to even survive, the Economic Survey gave a twist to it. It said that they don’t need bank credits owing to their reliance on the capital market which is nothing but wishful thinking.    

The same deliberate ignorance was at display even in the budget that followed. In her budget speech the finance Minister Nirmala Sitharaman used the word “Digital” 36 times, but had nothing to offer on what people are faced with in terms of dwindling savings, lower income, alarming joblessness, stark poverty and rising inequality. The high reliance in the budget on supply-side solutions like infrastructure spending, credit based efforts at recovery and industrial production while the problem really is that of low demand, and push for high GDP growth instead of addressing the known challenges staring on the face – growing poverty, hunger, inequality and high health and education deprivations – is typical of the neoliberal thinking that growth trickles down to benefit people at the bottom. The budget shows that government’s obsessive concern around lowering the fiscal deficit continues even at the cost of cutting down on social sector spending while the country is struggling to recover and while consumer demand stays alarmingly low. Also, far from introducing wealth tax or increasing corporate tax given the superprofits of the corporates, the budget slashed surcharge on corporates that comes on top of the slashing of the corporate tax earlier. And on the other hand it relies on higher indirect taxes, particularly on fuel that passes the burden on the struggling masses. The big Digital push in banking and currency is without any grounded understanding of what they are dealing with and in the absence of an iota of clarity regarding regulatory frameworks or ramifications.  

Crypto Chaos: Government’s take on Cryptocurrency is marred in contradictions. While presenting the budget FM Nirmala Sitharaman levied tax on the crypto currencies. With that a government that has still not recognized crypto currency has gone ahead and levied taxes virtually legalising it. Despite the high tax rate of 30% announced on the same, one section seemed to celebrate it as it legitimised digital assets. Nischal Shetty, the CEO of WazirX for instance noted that, “By bringing in taxation, the government legitimises the industry to a large extent. But days after the FM in the Rajya Sabha said that taxing it does not tantamount to legalising it. She said, “We have taxed the profit emanating from the transactions. I am not doing anything to legalise it or ban it… legitimate or illegitimate is a different Question… But I will tax it because it is a sovereign right to tax.’’ What this shows is an utter chaos in the government’s stance on the matter. In this budget, major announcements have also been made for an upcoming Digital rupee while there is still no clarity about the necessary regulatory mechanism. 

The chaos was apparent as days after the budget, the RBI came out strongly yet again on cryptos saying it has no “underlying assets, not even a tulip”, referring to the 17th century Duth tulip bulb bubble. He also added that, “Private crypto currency or whatever name you call is a big threat to our macroeconomic stability and financial stability.” Though the FM after her customary post-budget meeting with the RBI said that both the government and the RBI were “on board” on the matter but the RBI Deputy Governor belied any such claims as he lashed out at cryptos saying the far from regulating, the most advisable path should be to ban them. Apart from being at odds with the financial sovereignty of the country, the RBI is of the position that it is a threat to the macro-economic stability of the country, the banking system, the currency, the monetary authority and the ability of the government to control the economy.  

National Stock Exchange: Corruption with stories of Himalayan Guru

In a whirlpool of investigations by the Income Tax Department, Securities and Exchange Board of India (SEBI) and Central Bureau of Investigation (CBI) on irregularities in corporate governance, violation of NSE contract rules, possible fund diversion, tax evasion and co-location scam. A number of former Chief Executive Officers (CEOs), Managing Directors (MDs), top management staff and NSE employees are being investigated. The series of investigations started 2013 onwards, with complaints of irregularities in corporate governance with respect to the appointment of Anand Subramanian. 

The latest SEBI investigation revealed that former NSE chairperson, MD and CEO Chitra Ramakrishna was manipulated by an unknown Himalayan spiritual guru, some claim an imaginary identity created by one or multiple people in key positions. Ramakrishna shared confidential company information and took advice for official operational decisions.  

NSE is the largest exchange in the world in terms of contract traded and second largest in terms of currency futures traded with a market capitalisation of Rs. 203 lakh crore. The earlier 2015 co-location scam revealed a nexus of NSE officials and private brokers for taking advantage of NSE servers to have early access to stock exchange feeds for making gains in trading. 

The largest exchange of this country under investigation for the past 6 years with its former board members, CEOs, MDs, chairpersons and other officials accused of misgovernance and corruption along with the stories of guidance from a Himalayan spiritual guru, reflects a complete failure of investigating agencies and the regulating body i.e. SEBI. Unsurprisingly, CBI has issued look-out notices for former CEOs Chitra Ramakrishna, Ravi Narain and former COO Anand Subramanian. 

ABG Shipyard bank fraud case: The Gujarat based ABG Shipyard bank fraud case that is struggling with the “hijab row” for air time has been dubbed the biggest bank fraud case in the country’s history. Mr Agarwal of ABG Shipyard has been accused of a loan fraud amounting to Rs. 22,842 crores that the company took from 28 banks. The total loan amount disbursed by scheduled commercial banks to the 17 lakh 85 thousand 8 hundred and 18 MSME account holders in the state of Assam as priority sector lending in the pandemic year of 2021 amounts to Rs. 22,698 crores. The loan fraud amount is higher than this. 

It is not about one Rishi Agarwal or one Vijay Mallya. It is about deliberately flawed lending & recovery policies that have added to the mounting fraud loans and NPAs over the years. It is pertinent to note that the total fraud loans in the year 2020-21 amount to a whooping Rs.1,37,023 crores which accounts for 99% of all bank frauds. It is substantially higher than the center’s revised estimates for the Ministry of Health & Family Welfare for the year 2021-22, which was Rs. 86,000.65 crore. And as per RBI data sought in an RTI by Saurabh Pandhare, as of March 2021, banks have reported total frauds amounting to 5 lakh crores (4.92 trillion rupees to be precise). The story gets compounded when we take stock of NPAs. 

The NPAs of the scheduled commercial banks in the country stood at Rs 8.35 lakh crore in March 2021, of which about 77.9% were the loans that remained unpaid by larger corporate borrowers mostly from the public sector banks. ABG shipyard in fact was one of the initial “dirty dozen”, the first 12 cases RBI referred to the IBC in June 2017. But it remained unresolved for nearly five years. There were multiple failed attempts to liquidate the company, which in itself speaks volumes about the process of IBC and its “time-bound recovery” claims. What we need is strengthening of loan recovery processes, stricter regulation and lending policies, regular audits, and a separation of long term infrastructure lending to private companies from commercial banking. But there seems to be no space for that in a “trust based governance” model in the Amrit Kaal that is to further ease of doing business.

The head rush to LIC IPO: The People’s Commission on Public Sector and Public Services has been expressing its grave concerns around the impending Initial Public Offering (IPO) of up to 5 per cent of the government’s stake in the Life Insurance Corporation (LIC), purportedly to generate resources for the government. The Peoples Commission which has been vocal against the privatization of PSUs notes that “It is a matter of concern that the IPO is happening in the midst of a pandemic, which has upended millions of livelihoods and which requires an immediate expansion of social protection measures, a task that the LIC has performed commendably over the last several decades.” [the full statement of the Commission is here]. Despite high market volatility and the looming crisis over Ukraine, the government is keen to push through with the public offer in March itself as it is desperate to “achieve” the country’s largest IPO with utter disregard for the ways this is fundamentally going to alter the character of LIC which has served as the biggest social security net for millions of poor Indians who form the bulk of its policyholders. Though it has seen its market share shrinking over the years, with an astonishing 98.62% claim settlement ratio, LIC still holds a whopping 64.14% market share while all the remaining 23 private sector insurers together have a market share of 35.86%. It is not merely the sale of 5% shares through IPO, this comes with the complete change in profit sharing model of LIC. Out of the total assets managed (AUM) by LIC i.e. Rs 34 lakh crore, approximately 1/3rd of it (around 12 lakh crore worth policies) belong to non-participatory policyholder (not-for-profit policies). Earlier, LIC used to share the 95% of total profit from its AUM with policyholders whereas now, the whole profit from non-participatory policies (policies worth Rs 12 lakh crore) is separated and profit from these policies will solely be shared with shareholders, resulting in direct decline in the returns to policyholders. 

And the apprehension is that far from being a company whose primary interest was welfare and outreach, under the pressure of the private shareholders who are only interested in short term gains, the ticket size of average policy premium of LIC will increase while its rural outreach would decrease thereby taking it away from the poor Indians. The Commissioners feel it is a disastrous step that is against the best interest of a legacy institution like the LIC, the interest of the policyholders and the country at large. The Commission had already written to the SEBI, addressed the press and this month it has also written to the IRDAI to take note of these grave apprehensions. 

RBI announced MPC decisions: In its bid to support the recovery process, the monetary policy committee for the tenth time decided this February to hold the lending rate, or the repo rate, steady at 4%, and its reverse repo, or the rate at which it absorbs excess cash from lenders – unchanged at 3.35%. Economists have pointed out that there is not much of an elbow room in monetary policy in any case beyond this point as credit uptake is low. The problem being on the dismal demand side, it needs a relook on the fiscal end. The MPC also projected a lower inflation rate of 4.5% in next fiscal compared to 5.3% this year. Also it projected a 7.8% growth  rate in the next fiscal year which is lower than expected 9.2% in 2021-22.  

Staff Accountability Framework: The Finance Ministry has issued a fresh set of norms to guide state-owned banks in adopting a uniform staff accountability framework for non-performing assets (NPAs) up to Rs 50 crore which will come into effect from April 2022. The revised guidelines come after the finance minister’s interaction with bankers in Nov 2019. The government has been pushing banks for increasing credits but despite the liquidity credit flow of banks have not improved significantly. It is reported that bankers fear investigations in case loans turn into NPA or worse a case of fraud. The new framework comes with stated aim to protect employees for their bona fide actions and at the same time make them accountable for any wrongdoing or any inaction on their part. The need for the framework has been stated as :

• Slow decisions on credit sanctions- Series of frauds led to an environment in which PSU banks became extremely cautious and risk -averse on decisions on credit sanctions,
• Bankers fear the 3Cs – CBI (Central Bureau of Investigation), CVC (Central Vigilance Commission) and CAG (Comptroller and Auditor General), 
• Protect Bonafide action,
• Stalling credit growth, 
• Strain on bank’s resources, 
• No uniform framework.

It is nothing short of a wonder that the government and the regulator continue to go in order to justify the decision of making commercial banks lend large loans. Even in the revised manual there seems to be no issues when it comes to loans less than 10 crores and it is mentioned that they are not major contributors of NPA. It is the larger loans that have caused a crisis and the response should be to increase the due diligence of the loans given to borrowers. Moreover the recent cases of frauds, if anything, have only proved that banks, despite their internal audit mechanism, have failed to check these frauds. One of the suggested mechanisms to find out banker’s accountability issues in large loans is to form committees at the regional and zonal level (depending on the size of the loans). From earlier experience we know that  committees and audits within the system have not helped in bringing out the frauds in time. Hence, once again leaving the responsibility of committees and processes to look into lapses of bankers to the banks and not vigilance might not be fruitful.

Bad bank: The Finance Minister in her budget speech mentioned that the Bad Bank proposal from the last budget has become a reality. Days before the budget, it was announced that 15 accounts worth over Rs 50,335 crore will be transferred to the National Asset Reconstruction Company Limited (NARCL), out of the 38 accounts worth Rs 82,845 crore identified.

With the specter of privatisation looming over the public sector banks, the bad bank is nothing but another desperate means to aid banks to clear their NPAs off their books. Over the last five years we have seen that NPAs are yet to be resolved, despite multiple attempts by the government. The NPAs of the scheduled commercial banks (SCBs) in the country stood at Rs 8.35 lakh crore in March 2021, of which about 77.9% were the loans that remained unpaid by larger corporate borrowers mostly from the PSBs. The Finance Minister in March 2021 informed the Lok Sabha that the SCBs have written off loans worth Rs 5.85 lakh crore in the last three years, while recovery has been paltry, just over Rs 68,000 crore. Instead of addressing fundamental concerns around the lending policy, regulations and recovery, this is merely an attempt to move the numbers from one book to another.

EPFO to increase risk to retirement savings with increased market exposure: At a time when people are demanding the restoration of the old pension scheme in place of newly brought New Pension Scheme (NPS), the government is continuously opening up retirement savings of people to market risks and vulnerabilities. Instead of reducing risks and making sure of fixed returns, pension funds in India are increasingly tilting towards Defined Contribution (DC) plans with funds being invested in the stock market and returns vary with performances of equity investments. 

After changing the basic structure of pension plans, from defined benefit to defined contribution, through the introduction of NPS, the government is now slowly increasing market exposure to pension funds managed by EPFO by allowing investment into private corporate bonds and in alternative investment funds (AIFs) including infrastructure investment trusts (InvITs). At present, EPFO also invests 15% of its annual funds in stock market equities through ETFs. 

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