Voice from the Rooftop

Blog of Vincent Augustine D'Souza

Tag: market price

Banks and loans

In 1953 or thereabout the government of India nationalized Imperial Bank and changed its name to State Bank of India.

In 1969 the government of India nationalized 14 banks. In later years more banks were nationalized.

Some years back there was a proposal to nationalize those banks as they were making losses. The employees protested saying there were not responsible for losses.

The banks had lent to many industrialists who had not repaid the loan and that was the reason for losses. Many industrialists in India would have gone bankrupt years ago if banks had insisted on payments.

The report that a group of banks led by State Bank of India allowed Kingfisher Airlines which has a debt of over 7,000 crore rupees to convert a part of loan into share at Rs.64.48 each when the market price was around Rs.48 is disturbing. The owner of Kingfisher Airlines owns an IPL team. Nothing has changed over the years. Some years back Essar Group was bailed out. Many companies are regularly bailed out by banks. Many times companies don’t pay and banks convert loans into shares often at a cost higher than market price. Once a company’s loan was converted into shares of Rs.10 each when the market price was around Rs.6.

Many real estate companies borrowed from banks and bought land at high prices. They were unable to sell flats. Banks did not act against defaulters. Defaulters going to court and long legal proceedings should not be a deterrent.

Nationalized banks belong to the country. If a company is unable to pay the loan winding up petition must be filed against the company. The government of India must come out with a white paper on defaulters.

PDS and cash transfers

There are people who say PDS does not work and cash transfers is the way. Some give example of Bihar where it is said to be 92% effective.

If PDS does not work it should be scrapped. That does not mean people should be given cash. When it is said 92% effective it means 8% ineffective which can become 80% or more. Fictitious accounts can be opened. There is swindling in NREGA and complaints are not investigated. One person in Uttar Pradesh who got an award for his work in NREGA returned it as his complaints were not investigated and swindling continued. Whether the swindling in NREGA is 5% and in road transport 50% as Chidambaram said in Davos or more is a matter of debate.

India has to dismantle welfare state system. Wide gap between PDS prices and market prices is the reason for corruption. Most of the grains acquired rot in godowns. If they had not been acquired market price would have been less. Kerosene is subsidized. Difference in the prices of kerosene and diesel has resulted in adulteration and oil mafia. As time passes maintaining welfare state becomes more expensive and printing notes to finance deficit is not a solution as it leads to inflation.

European countries are finding the hard way that they can not continue as before and are trying to cut down expenditure. India has to get rid of its white elephants and black holes.

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