Loan default: Socialism for the rich and capitalism for the poor

Some months back, the new Aam Aadmi Party government in Punjab withdrew arrest warrants against 2,000 farmers who had defaulted on farm loans given by the Punjab State Cooperative Agricultural Development (PADB). These farmers had landholdings exceeding 5 acres. For quite some time, it has been a practice to issue arrest warrants against defaulting farmers, and that too for petty amounts. Using the blank cheques submitted at the time of getting a loan, the banks often fill up the blank cheques when farmers fail to repay back in time thereby converting a civil case into a criminal suit. Many farmers have reportedly died in jail, and there are instances when after receiving legal notices, and unable to face the humiliation that comes along with it, farmers have committed suicide.

Meanwhile, in the past 5 years, nationalised as well as private banks have written-off a whopping Rs 10-lakh crore of corporate bad loans. Quoting an RTI response, the Indian Express (Nov 21, 2022) reported that the banks have so far recovered only Rs 1.32-lakh crore till Mar 2022. Of the total amount of Rs 13.22-lakh crore of the corporate toxic loans that have been written-off in the past 10 years, Rs 10.09-lakh core has been written off in the last five years. As much as 73 per cent of the total write-offs are borne by the nationalised banks.

This only endorses what I have been saying for long. We have socialism for corporates and capitalism for farmers. I haven't seen any report about arrest warrants being issued against the corporate big wigs or have seen reports of some of the corporate leaders being sent to jail. These mega-defaults, cleverly camouflaged under a sophisticated sounding term, non-performing assets (NPAs), provide a kind of protection that is not available to defaulting farmers or for that matter to defaulting citizens who fail to pay back regular instalments for home and car loans. The question that needs to be asked is than why treat defaulting farmers and other ordinary citizens with a high hand. Why should the protection against imprisonment be only available to the big players who lead to much bigger defaults? Why treat the big defaulters with kid gloves?

In fact, the Reserve Bank of India (RBI) itself has at times said that even divulging the names of the corporate defaulters would send a bad signal to future investors. This is rather unfair given that not only the names but even the pictures of defaulting farmers are pasted in Tehsil headquarters, as if they are some kind of wanted criminals or terrorists. This is the reason why the rich defaulters continue with their lavish lifestyles as if nothing has happened, while poor farmers languish in jail.

Further, as per the same media report, this huge corporate write-off equals to 61 per cent of the fiscal deficit expected in 2022-23. This assumes importance given the target by successive Finance Commission's to keep fiscal deficit below 3 per cent of the budget. Moreover, at a time when the Supreme Court is engaged in an exercise to demarcate what is a freebie, and even the Prime Minister had rued about the prevalent revdi culture, it is quite clear that while the welfare announcements for the poor are considered to be a drain on the national exchequer, it is in reality the corporate who walk away with a larger chunk of the freebies.

Agreed, it is the banks that indulge in these huge write-offs and so there is no additional burden on state coffers. But the banks are eventually recapitalised by the government, which means the entire burden eventually falls on the national exchequer. If the government was left with financial resources equal to 61 per cent of the fiscal deficit, I am sure enough money would have been available for public health, education and to provide for higher prices to farmers.

The huge write-off is also happening at a time when the country provides tax sops to the industry equalling 5.5 per cent of the GDP every year. In Sept 2019, before the pandemic years, the government had given India Inc an additional tax cut of Rs 1.45-lakh crore, which many economists had then questioned saying the financial support should instead have gone to create more rural demand.

Parliament was recently informed that the number of wilful defaulters have now gone up to 10,000. Wilful defaulters are those who have the capacity to pay but they don't. Just 312 big wilful defaulters, who have defaulted for Rs 100-crore or more, have an outstanding of Rs 1.4-lakh crore to the public sector banks. But strangely I find no questions being asked. In fact, a lot of sympathy exists for the corporate defaulters in the public domain. Whenever farm loans are waived anger virtually spews on the TV channels. While the TV headlines scream 'Waive the waivers' when farmers get a loan waiver, there has hardly been a TV debate on massive corporate loans that are written-off. The reason is obvious.

Now let's make a comparison with Punjab farmers who default on crop loans. There are a total of 71,000 farmers, including 2,000 against who arrest warrants were earlier issued, owing the banks a total of Rs 3,200-crore. There have been cases when for instance an octogenarian farmer in Haryana was jailed for a default of Rs 2-lakh. He died in the jail. If arrest warrants can be issued against the erring farmers, and many of them jailed at an advanced age, I see no reason why the corporate wilful borrowers should be deprived of the same privilege? Why shouldn't they be arrested? Why should the RBI continue to throw a protective ring around them?

Didn't I say earlier that we have socialism for corporate? Not only wilful defaulters, the entire process of recovering the corporate outstanding dues comes with a mechanism that lacks teeth. In my understanding, it is time to dispense with corporate write-offs. To shift the defaulting amount by banks to a different ledger saying that the recovery process will continue is technically a very smart cover up by the banks, who otherwise would see their profits plummet knowing that the written-off amount is to be deducted from profit before tax.

The Insolvency and Bankruptcy (IBC) code too has failed to recover the pending dues. Claims notwithstanding, huge haircuts (sometimes as high as 80 to 94 per cent) too are being seen as a legal way to siphon public money. It will however be interesting to see how the shift to the newly created bad bank helps recover public money. Meanwhile, the country's resources will continue to be usurped by a handful of crony capitalists. Even the debate on freebies will simply overlook this.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)