Month: July 2014

Great Bank Robbery

India’s public sector banks belong to the people of India.  The banks have been robbed by corporates who borrow crores of rupees and default.

On 20/7/2014 Vishwas Utagi, Vice President, All India Bank Employees Association, released a list of defaulters and amounts.

  Rs. in crores
Bad debts restructured and shown as good debts 325000
Fresh bad debts in last seven years 495000
Bad debts written off since 2001 204000


There is complicity in this robbery.  Lists of borrowers are kept secret.  The borrowers default in one bank and go to another bank to get loan.  Corporate Debt Restructuring is a way to avoid debt payment.  Many borrowers enjoy political patronage.

The loss to the people of India is 10,24,000 crore rupees.  I wonder how much money has been lost since 1969 when 14 banks were nationalised.  More banks were nationalised later on.

Banks have gone to courts to recover 70,367 crore rupees.  That is just about 7% of the amount.  Court cases take a long time.

Vijay Mallya’s Kingfisher Airlines tops the list of defaulters.  Top 10 defaulters owe 18,000 crore rupees to banks.  Subrata Roy of Sahara is in jail for defaults to private individuals.  Promoters and Directors of defaulting companies should be in jail.  Narendra Modi with Arun Jaitley’s help can bring a law in a day to put defaulters in jail as an ordinance was brought to hire a former TRAI chairman as private secretary to Prime Minister.  Then banks will recover their money.  Non-Performing Assets will disappear.  Those who do not pay should spend the rest of their lives in jail.

RBI and banks should publish the lists of all defaulters to prevent defaulters from taking loans from other banks and bankrupting them.  There is an old joke that a businessman goes in Maruti to bank to take loan.  He goes in Mercedes Benz to say he cannot repay the loan.

Recapitalisation of banks means RBI printing notes and giving them to banks.  This causes inflation.  Recapitalisation of SBI and some other banks has taken place.  On 19/7/2014 Arun Jaitley said recapitalisation of public sector banks to the tune of 2.4 lakh rupees to meet Basel III norms is a high priority item for the government.  That will result in more inflation.

Budget 2014

The more things change the more they remain the same.

NDA replaced UPA as ruling coalition in House of Peoples i.e., Lok Sabha.  BJP replaced Congress.  Narendra Modi replaced Manmohan Singh.  However the budget presented by Finance Minister Arun Jaitley on 10/7/2014 was not much different from UPA budgets.

BJP had a chance to undo the damage done by UPA over the years.  It failed.  People who voted for BJP had hopes and expectations.  Hopes were dashed.  Expectations were belied.

There was no repeal of retrospective amendment to Income Tax Act.  That was a huge letdown.  The assurance that NDA government will not bring retrospective amendments has no meaning and setting up CBDT committees to settle tax disputes due to retrospective amendment is opening doors for corruption.

Arun Jaitley did not abolish NREGA, JNURM etc.  Continuation of UPA schemes does not make sense.

Arun Jaitley should have called a press conference at 9 p.m. and answered questions instead of appearing on different channels and answering the same questions.

Fiscal deficit target should have been zero per cent instead of 4.1% for 2014-15.  There was no need to announce new IITs, IIMs, AIIMs, agricultural and horticultural universities etc.  Deficit budget means inflation will continue.

Expenditure Management Commission to look into cutting expenditures was not necessary.  People in government know where to cut expenditure.  Will is lacking.

Increase of FDI limit in defence and insurance sectors from 26% to 49% is good.  It could have been better.

Schemes like Pradhan Mantri Krishi Sinchayee Yojana, Swachh Bharat Abhiyan, Shyama Prasad Mukherji Mission, Deen Dayal Upadhyaya Gram Jyoti Yojana should be left to states, panchayats and municipalities.

Sardar Patel’s Statue of Unity was a private initiative.  There was no need to allocate 200 crore rupees to it.

Arun Jaitley has allocated 100 crore rupees each to schemes like Van Bandhu Kalyan Yojana, Village Entrepreneurship Programme, Promoting Good Governance, National Adaptation Fund etc.  Such schemes should be scrapped.

Various Rural Credit Funds should be scrapped.

There is no need for setting up Kisan TV and Arun Prabha channels.  There are enough DD channels.

Allocation of 10,000 crore rupees to MSME sector to attract private capital should be scrapped.

Government should not be promoting handloom and other products.  Leave it to private sector.

Strange is the proposal to allocate 5,000 crore rupees to set up 3P India, an institution to support PPPs in India.  Public Private Partnership means losses go to public sector, profit goes to private sector.

Let cities develop by themselves.  No need for government to spend money for smart cities.

Debt Recovery Tribunals are a good idea.  Corporates who have defaulted on loans to public sector banks should be punished.  Properties of companies and directors should be confiscated.  If debt is not recovered directors should be put in jail.  Sahara case is an example.  Banks should have a list of borrowers mentioning amount borrowed, amount paid, amount pending, defaults, on their web sites.

Issuing Kisan Vikas Patras is a bad idea.  KVP amounts are to be returned with interest.  That leads to more printing of notes and more inflation.

Government money should not be spent on sports.  Government has no control over Indian Olympic Association and various sports associations.  They are a law unto themselves.  USA government does not spend money on sports and USA is mostly No. 1 in Olympic medals.

Cess, surcharge, levy etc. continue.  What happened to education cess collected over the years?  Who benefitted?

Why investment allowance of 15% to manufacturing firms that invest 25 crore rupees annually?

Some (radio taxi providers etc.) have come under Service Tax.  Some (cotton transporters etc.) are out of Service Tax.

Excise Duty has gone up on some items, come down on some items.  Increasing Excise Duty on cigarettes and tobacco products is a good idea.

Divestment proposals are said to be in annexures.  We will know when they are implemented.

Narendra Modi spoke of bitter pill.  Arun Jaitley spoke against mindless populism.  This budget is bitter pill for some, sweet pill for some, no pill for others.  It is more mindless populism than of Sonia Gandhi.

Reactions to budget are predictable.  BJP and allies have praised the budget.  Other parties have not said anything good about the budget.

Rupee rate and subsidies

There are people who speak against electricity, water, fertilizer, diesel, kerosene, petrol and LPG subsidies. Some even say diesel and LPG subsidies benefit middle class and not poor people. They do not speak against corporate debt restructuring (CDR) and exchange rate manipulation to keep rupee value low. Lakhs of crores of rupees are lost due to CDR. Rupee value is kept low to benefit exporters. For the profit of few exporters 125 crore Indians are made to suffer. If rupee appreciates there is no need for diesel, kerosene, petrol and LPG subsidies.

Foreign exchange increase due to buying dollars has kept value of rupee low against dollar. A dollar is more than more than 60 rupees. Below given are figures for three weeks.

Forex increase is in million dollars. Forex reserve is in billion dollars.

Week ended Forex increase
(in million US $)
Forex reserve
(in billion US $)
6-Jun-14 203.20 312.500
13-Jun-14 950.90 313.536
20-Jun-14 1385.00 314.922
Total 2539.10

If RBI had not bought dollars rupee would have been less than 60 per dollar. If rupee is allowed to appreciate it will be 30 rupees per dollar in a few months. There will be no need for any subsidy and prices of diesel, kerosene, petrol and LPG can come down. Consequently prices of many commodities dependent on them can come down.

India should have agreements with countries for mutual acceptance of currencies. American dollar should be accepted from USA only. From euro zone countries it should be euro. From Russia it should be rouble. From Kuwait it should be Dinar. From UAE it should be Dirham. From South Africa it should be rand. From Saudi Arabia it should be riyal. India should pay in rupees for imports. No trade with any country that does not want currency agreement.

Corporatism thrives. Democracy is a myth except perhaps in Switzerland where there is direct democracy to a great extent. In capitalism those who make loss go out of business. In corporatism when corporates make profit they keep it, when they make loss it goes to taxpayers. Ordinary people have no choice in decisions. That is true in USA, India and many other countries. It is oligarchy is most countries.

Rupee value has been brought down by vested interests. For some years there was quantitative easing of restrictions which meant printing of notes. For five years Federal Reserve Bank of USA engaged in bond buying of 85 billion dollars per month. That means 1.02 trillion dollars per year. Rupee was 40 per dollar. It should have been 20 rupees per dollar. Instead it became more than 60. Bond buying continues in 2014 though less than 85 billion dollars per month. It has been 75, 65, and 55. USA had debased its currency. India has debased its currency even more.

Narendra Modi had promised good days. We have not seen good days. Prices have gone up. Railway fares went up. It may be good days for corporates, exporters and traders but not for ordinary people. For an ordinary person it does not matter how high is the Sensex. Prices of onion, garlic, food grains etc. matter. Modi has to see that inflation is zero, prices are under control and rupee appreciates against dollar and other currencies. Otherwise disillusionment will set in fast and he will be in trouble.