Talking Shop: Economic sense, anyone?

“If you owe ten pounds to

the Bank of England, you get

thrown in jail, but if you

owe a million pounds, they

invite you to sit on the Board.”

―Philippe Riès

This is a terminal time for India, with politics and the economy moving head-on at one another, especially as Year 2024 and the General Elections inch ever closer. Hundreds of election rallies are being planned across the nation in the run-up to the grand electoral fest, with everything else including the flailing economy, rising prices and unemployment is being shoved onto the proverbial back-seat. As people dip into their savings or reach out to banks for sustenance and succour, defaults and Non-Performing Assets (NPAs) at Indian banks are skyrocketing too. Ironically, while smaller loans of regular folks like you and I are coughed up somehow or the other, bigger Corporate defaults have a delectable way of getting off as write-offs of hundreds, sometimes thousands of crores of rupees happen.

The echoes of the banking danger bells resounding in the United States are reverberating in India as well. With two leading banks—Silicon Valley Bank and Signature Bank—almost downing shutters in the US, India is worried too, with the Reserve Bank of India now issuing urgent warnings to all Indian banks, asking them to keep a close eye on their balance sheets and NPA figures. The saving grace in India is that the US banking imbroglio is unlikely to have any real impact here as over 70 per cent of loans have been extended by Indian banks to small loan-takers and large Corporate houses account for the rest.

Very tough targets

It is perhaps due to this that we wax eloquent and shout from the rooftops—that all is well and we are truly headed towards becoming a USD 5-trillion economy by 2025. Even standout economists (themselves top leaders and Members of Parliament in the ruling party) point out that this achievement would require an annualized GDP (Gross Domestic Product) growth rate of 14 per cent or more, starting from Financial Year 2020-21, all the way through FY 2025. And what was our growth rate in the first financial year in this five-year enigma as we attempt to achieve this GDP target? It was a negative 7.3 per cent.

If we look at the dividend earnings in FY 2022-23, the ongoing financial year, the estimates given last year were that the figure would be around Rs 73,948 crore by 31 March 2023. With the year almost over, the revised figure is Rs 40,993 crore, a reduction of nearly Rs 33,000 crore. For FY 2023-24, the estimates are at around Rs 48,000 crore, but analysts already predict that given the on-going run rate, it should be around Rs 43,000 crore, another shortfall; sure, a smaller decrease, but a shortfall nonetheless.

All of the above lead to fiscal damages and a negative economic impact, and the one saving grace would be if India can meet its target to cut its fiscal deficit by nearly 200 basis points to 4.5 per cent of the Gross Domestic Product (GDP) in the next three years, which it feels it can if there are no major global economic shocks, such as the COVID-19 pandemic. In its FY 2023-24 Union Budget, the Government set a fiscal deficit target of 5.9 per cent of GDP for the coming financial year, down from the current year’s target of 6.4 per cent of GDP.

Wilful defaulters

The number of wilful defaulters released for Indian banks recently also presents an alarming trend. For instance, reports claim that the number is 1,883 wilful defaulters at State Bank of India, 2,144 at Punjab National Bank, 1,746 at Union Bank of India, 2,203 at Bank of Baroda, 340 at Bank of India and 1,344 at Canara Bank. The total estimated number of wilful defaulters is 15,778. Remember, these are all big-ticket high-figure loans given mostly to those who can afford to return the money but do not, hence a ‘wilful defaulter’.

Some argue that wilful defaulters have always existed in any banking system worldwide. That’s true, but prior to COVID-19, the number of wilful defaulters in India was around 10,000, which means that the figure has gone up by 50 per cent in three years. Just recently, Parliament was informed that Indian banks have written off over Rs 10 lakh crore in NPAs in recent times, providing some respectability to bank balance sheets, but distorting the true NPA picture.

In December 2022, Parliament was informed that as of March 2022, top 50 wilful defaulters in India owed Rs 92,570 crore to the banks. At Rs 7,848 crore, Gitanjali Gems, founded by now-fugitive businessman Mehul Choksi, was the biggest defaulter, the Lower House was informed. As mentioned earlier, wilful defaulters have the ability to repay the loans, but are unwilling to do so. According to the RBI, defaulters are not allowed to take new loans and set up new ventures for a period of five years. One saving grace is that public sector banks have recovered an aggregate amount of Rs 4.8 lakh crore, including a recovery of Rs 1.03 lakh crore from written-off loans during the last five financial years

Growing disparity

Going through market sales numbers also paints another story, one of growing disparity in our masses, with the rich getting richer and the have-nots sliding further down the financial value chain. Take a look at these numbers—luxury goods, cars and expensive products are seeing an increase in sales, while that of daily essential items such as mixer-grinders, gas cylinders, scooters, cycles and even footwear and undergarments are slipping dramatically.

In a country where 81 crore people have to be provided free rations for their subsistence, sales figures of ultra-swank luxury cars are up by as much as 32 per cent. On the flip-side, the sale of scooters and motorcycles declined by 16 per cent in February 2023. Undergarment sales at a leading brand are down 55 per cent. The reasons for this have been listed as stagnant or lower salaries in private sector jobs, loss of employment in even the most renowned blue-chip forms, with joblessness being the worst in over four decades. Rising prices of essential items means expenses are going up, while salaries and savings are drying up.

All of the above is leading to a situation where professional restlessness is fanning unrest on the ground; in the financial, social, societal and even communal front(s). A quote by Dennis Lehane sums up the grimness of the situation quite starkly: “People were lost and people were scared and their lynch ropes couldn’t reach bankers or stockbrokers, so they looked for targets closer to home.” Sounds familiar of happenings around us today, doesn’t it?

The writer is a veteran journalist and communications specialist. He can be reached on narayanrajeev2006@gmail.com. Views expressed are personal