Ms. Nirmala Sitharaman’s statement that Covid-19 is an act of God to deprive states and union territories of their legally due GST has led to lot of discussions.
While the central government in a federal system cannot deprive the states and UTs of the tax revenue collected from the people, which would have gone to the state government accounts if not for the GST. (Though not all taxes) there are wider impacts on economy, especially the banking system.
For a believer, everything is an act of God. But can that be used as an excuse for the inefficiency and miscalculation of a government which is elected for serving the people of the country? All of them not a selected few.
In insurance, an act of God is a clause used to refuse claims due to natural calamities. Nowadays even that is not accepted and many insurance policies cover natural calamities and provide compensation.
As per news reports Chief Ministers of non-BJP ruled states including Tamil Nadu’s Chief Minister who is a supporter of BJP have written to the central government their objections, some terming it breach of trust and unconstitutional.
Attorney General Shri K.K. Venugopal has also opined that the center cannot refuse to pay states what has been promised.
The impact of banking is likely to be catastrophic. Banking system of the country was already in stress because the economy was not doing well and many big corporates were responsible for the huge NPA of which 82% belonged to the corporates.
Now the situation is worse. The government and RBI announced 6 months moratorium but without the government taking care of the Interest. Now the interest as well as instalments becomes due. The government advocate Mr. Tushar Mehta has told the Supreme Court that the moratorium can be extended for 2 years. But no notification has come.
With the statement that it is an act of God, many borrowers are likely to take the same stand. Some industrialists have already spoken on these lines. It is true that industry, business, almost every sector of the economy is affected. The GDP statistics are alarming. So the banks cannot expect repayment.
Already banks are in a mess. They are providing additional credit to accounts which are regular but will become irregular without the economy picking up.
On the one side the repayment of loans are going to be an issue. On the other hand depositors are withdrawing money because the interest rate is lowered frequently. The faith in the system is going down from demonetization to FRDI bill now redrafted in the name of Financial Sector Development and Regulation (Resolution) Bill. The experience of PMC Bank where depositors haven’t got the deposits back is adding to the doubts on the government which was ensuring that no bank collapses after 1969 Nationalisation. The service charges are becoming alarming which leads to anger among depositors. The proposal of privatisation of banks leads to further worries.
All these may lead to a collapse or a financial emergency declared or undeclared. The government wants it because it knows it is losing credibility. From the statement assuring to control Covid-19 in 18 days like the Mahabharat war now that the lockdown announced on March 24th has not helped, the government is clueless. The government could have controlled the act of God by screening all international flights passengers arrived in the beginning from the date of announcement by China. After all we had just 500 cases by March. But we were careless. We were busy with Donald Trump and company’s visit. Namaste Trump did not help the country.
Now, instead of blaming God, the government has to act before it is too late. The lakhs of dislikes on the Man ki bath is just one indication of anger. More to come. The financial emergency will be dangerous and it may take a decade or more to recover.
The government should listen to economists, opinion makers and learn from the experiences of other countries.
1. Provide interest subsidy to all loans. Even God will want it.
2. Expand the banking system, through increase of branches and staff and provide small credit all over instead of providing Voluntary Retirement Scheme as illegally proposed by SBI.
3. Provide cash to people in addition to the grains provided which is too little.
4. States can’t borrow at market rate and they should be given their due without which the federal system will break.
5. Provide unemployment relief to all those who are unemployed.
6. Extend NREGA and have Urban Employment Guarantee Scheme which Jharkhand and Kerala are already trying.
7. Above all, wake up. Instead of looking after peacocks and ducks, take care of people. Otherwise God won’t forgive.
Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.