Wavers, waivers and worriers–rich, poor and middle class

There is a deep, dark paradox reflected in the headlines of newspapers in the past few days —the richest and the poorest are in the queue.

Published: 18th June 2017 04:00 AM  |   Last Updated: 18th June 2017 07:07 AM   |  A+A-


There is a deep, dark paradox reflected in the headlines of newspapers in the past few days —the richest and the poorest are in the queue. A message, popular on WhatsApp groups, reads: “The Irony of India—The rich, the billionaires, are seeking write-offs. The poor, the farmers, are seeking loan waivers. The middle class is paying EMIs on time, and the price.”  

Like, there is no running away from the harsh reality that loan waivers are essentially nationalisation of the cost of public policy and political failures. The discourse on waivers has been discursive, it has rambled around cause and consequences. The point is what the states are planning this year and the next to fix agrarian distress. Can the patient be sustained on drip?

Like, three years after Raghuram Rajan advocated surgery and forced disclosures, banks and borrowers continue to be in the intensive care unit. The RBI and bankers struggle to trim down bad loans, despite multiple attempts and mechanisms—there is a surfeit of acronyms and schemes, but no sign of resolution. 

Like, the anger among the middle class is about helicopter economics, it is also about expectations, new deal versus no deal, about the lack of job creation. The headlines are on stories of wavers—the ones that got away; of waivers—band aid economics; and worriers—the hand-wringing tax payers.
Like, the loan waivers which began with Uttar Pradesh are now a national epidemic. It has been estimated that the total bill for loan waivers across nine agitating states diagnosed so far is around Rs 3 trillion or Rs 3,10,000 crore to be precise. 

Like, to get a perspective it is interesting to place the tab on loan waivers in the scheme of India’s political economy. So, exactly how much is Rs 3 lakh crore? It is five times the money allocated for roads, four times money allocated for fertiliser subsidy, twice the allocation for food subsidies, more than the total subsidy estimated at Rs 2.7 lakh crore. It is over 43 per cent of the Centre’s fiscal deficit for the year.

Like, it is no secret that the states, already borrowing to pay for interest and expenditure, will borrow more. The debt waiver will force Uttar Pradesh to make available Rs 36,359 crore, or borrow an additional Rs 99 crore a day and Maharashtra will need to find Rs 30,000 crore or borrow Rs 82 crore per day. And if all waivers come through, states will need Rs 850 crore per day.

Like, they say, a week is a long time in politics. Two months back, on April 24, Madhya Pradesh Chief Minister Shivraj Singh Chauhan took the centrestage at the presentation to elaborate on how to double income of the farmers. He presented five factors: trimming input costs, ramping productivity, diversification, better prices and risk mitigation. There is no disputing the points, but why the farmers in MP are yet angry.

Like, routinely loan waivers are confused with loan write offs. Fact is, loan waivers mean a clean slate. Loan write-offs are essentially a technical process in banking where the banks write in provisions for a loan, but do not give up their right to recovery. The banks are obliged to chase the defaulters. 

Like, an RBI panel has come up with a list of 12 loan accounts for resolution under the Insolvency and Bankruptcy Code, 2016. Collectively, the outstanding debt is about Rs 2 lakh crore (' 2 trillion). Most are from the steel sector and some from infrastructure. It begs the question: on what basis have they been short-listed—are they being cherry-picked—and what about the rest? 

Like, the saga of NPAs, dates back to 2011-12. The then Governor D Subbarao observed: “this is happening because of the economic downturn”, and added, “there are factors which are beyond our control—we have to take them as given and manage them.” Former governor Raghuram Rajan said, “The process of recognising the NPA is akin to an ‘anaesthetic’ needed for the procedure.” After taking charge current Governor Urjit Patel said that NPAs are an important issue, and promised to deal “with the situation with firmness, but also with pragmatism”.

Like, three governors and five  years later it does seem much has been said and little seems to have changed. Indeed, the NPA situation has worsened—there is the terminology of NPAs, gross NPAs, stressed accounts and distressed accounts. As per the RBI, gross NPAs are around Rs 7.7 lakh crore and stressed loans are around Rs 10 lakh crore (`10 trillion). Former deputy governor K C Chakrabarty has hinted that the actual magnitude of bad loans could be as high as Rs 20 lakh crore (`20 trillion). And all this when the economy has been growing at seven-plus per cent! 

Like, there is not much heard or said about the much-discussed programme to reform and fix the governance systems in public sector banks through the Banks Board Bureau. What did make news is that last month one member resigned despondent over ‘inadequate progress’ and rejoined to ‘re-engage with activities of the bureau’.  

Like, clouds—of moral and other hazardous kinds—hover over the economy. The issues are mainly in the states. The issues and triggers for growth are mainly in the states. What would be the impact on social spending in states  writing out cheques for waivers? How will they fund infrastructure?  Can Maharashtra, which has a long laundry list of infra projects, find the resources? There is no escaping the impact of regional profligacy on the national balance sheet. The RBI says “the risk of fiscal slippages”, which can trigger inflationary spillovers, “has risen with loan waivers”. 

Like, the BJP which won the Uttar Pradesh assembly elections rather handsomely, 312 seats is an all-time record, must be/at least it should be wondering at the price of its politics. The moot question is: was it the promise of loan waivers which tilted the scale for them or was it a combination of known knowns—from the corrupt practices of regional parties to the promise of the Modi model of governance. 

Finally, the stark reality is that the political economy pyramid is split three ways. Those at the top of the income pyramid can wrench rent for they fund politics. Those at the bottom of the pyramid dependent on entitlements can wield their votes. And squeezed in between is the middle class. It is up to the middle class to make sure it is heard—and it will take more than sharing WhatsApp messages.


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