Lack of opportunities breeds angst; angst breeds discontent; discontent breeds intolerance; intolerance, combined with inefficiency, breeds meddling. There is, sadly, an excess of meddling in other people’s business, instead of concentrating on one’s own task and preparing for the future.
There is, for example, an ongoing turf war between the three arms of government — the legislature, the executive and the judiciary. The judiciary steps in when the other branches do not do the work assigned to them, and the others complain of judicial overreach. It was the judiciary which enforced stricter pollution control norms, for example, when the executive was blithely slow-paced in doing so.
But there is traffic both ways. The Supreme Court, e.g. has recently, in the case of Jaiprakash Associates, passed an order forbidding independent directors from transferring their assets, which is in the purview of the Ministry of Corporate Affairs. If this is carried out, there would be very few takers for the post of independent directors. Those who do, may not be truly independent.
Corporate governance will suffer.
The ruling, in turn, stems from the paltry record of bank lending, especially by public sector banks (PSBs) that still control 70 per cent of the total market share. Under previous governments, large corporate borrowers were permitted to roll over their debt using various ‘schemes’ formulated by the Centre. This government is trying to resolve the issue using the bankruptcy code, which is resulting in a huge sale of corporate assets (the Essar group has reportedly reduced its ₹1.22 lakh crore debt by ₹75,000 crore, by selling off assets such as Essar Oil to Rosneft of Russia for $13 billion.)
It seems that, along with providing additional capital to distraught banks, the government is also passing legislation that would permit for a ‘bail in’ by banks, as opposed to a ‘bail out’ of banks. In a bail out, taxpayer money is used (as in a recapitalisation) to bail weak banks out, in order to save depositors from a loss. Under a ‘bail in’ it is the depositors’ money that banks resort to save themselves.
Instead of penalising depositors, who have not committed any mistake, it is the bank management who sanctioned the loans, on poor scrutiny, as well as the political bigwigs who gave, presumably, telephonic instructions to grant loans to cronies, who must be investigated and, if found guilty of misdemeanour, severely punished.
The problem in India is that the guilty find ways by employing expensive lawyers and scuttling the investigation.
There are other examples of interference. Corporate governance is interfered with, which is not a healthy trend, especially when many corporate managers are excellent.
ONGC, for example, is protesting the arm twisting by the Petroleum Ministry, which is seeking to get it and Oil India to sell/privatise oil fields which are not being exploited. It points out that its record of extraction is better than those of private owners after privatisation. Whilst the option to privatise under-utilised assets in the public sector must be explored, it should not be a forced decision.
Likewise, it would be incorrect to compel LIC to fund the Railways to the extent of ₹1.5 lakh crore, as cleared by the Finance Ministry. This should be enabling clearance, not compulsive; LIC has enough appraisal skills, developed over the years, for it to decide on its own.
(The writer is India Head — Finance Asia/Haymarket. The views are personal.)