India's NPA crisis: Arvind Subramanian is Raghuram Rajan in slow motion; offers diagnosis but no cure

When we can’t find real long-term solutions to a serious economic problem, we may comfort ourselves by inventing new phrases that define the issue somewhat better. That is what seems to be the case with a mounting pile of bad loans (non-performing assets, or NPAs) in India’s public sector-led banking system. The strange thing is that two learned gentlemen, both of whom flew back from America to fix the Indian economy, found themselves caught up on opposite sides of a bitter political divide between the Congress-led UPA and the BJP-led NDA but seem to be increasingly converging on some views. Never mind that a big problem they tried to solve remain largely unresolved. Bad loans pile up like street garbage that everyone hates but no one wants to really touch. Raghuram Rajan, former governor of the Reserve Bank of India, gave us the term ’non-cooperative defaulter’ to describe the corporate bigwigs who can’t or won’t pay back the loans they took. Arvind Subramanian, who is leaving office before term as the chief economic advisor to return to the US is arguably less handsome but more articulate than the departed central bank governor. He speaks now of ‘ stigmatized capitalism’ that stops the government from reformist solutions to the NPA problem. In plain English, he means that no one is showing the courage to act fast and tough. All diagnosis, no cure. Unless you find some merit in Subramanian’s preference for a ‘judicial solution’ to the pile of unpaid loans in listed banks that last stood at Rs 10 lakh crore. [caption id=“attachment_2309170” align=“alignleft” width=“380”]  Chief economic adviser Arvind Subramanian. Image courtesy: PIB[/caption] What he is supporting is a painful, slow-grinding soap opera involving the National Company Law Tribunal (NCLT) and bureaucratic committees winding through hearings and meetings to cool-talk rather than hard-push the above-mentioned ’non-cooperative defaulter’. ‘ Project Sashakt’ is a fancy brand name we now have for a diagnosis that pretends to be a long-term cure to find a solution to the festering NPA problem. It turns out in the process that Subramanian is nothing but a Raghuram Rajan in slow motion. Why, he is even praising Rajan – he who shall not be named in NDA’s Harry Potter economics of magic-wanding bad loans away. The fact is there are at least three elephants in the public sector banking room. First, there is a nexus between manipulative borrowers and public sector bank officials, often with political blessings, who rip off public sector banks, best witnessed recently in the Punjab National Bank (PNB) fraud at the Fort branch in Mumbai where diamond merchant Nirav Modi allegedly colluded with branch officials for several years to hoodwink the bank. Second, there are farm loans, whose waivers irk copybook economists but are mercifully not being discussed much this year, partly because general elections are nigh and mostly because farmers pale in comparison to the fat cat borrowers who want ‘haircuts’ in paying back the money they owe. Third, there are hapless small borrowers including farmers who either commit suicide or cry wolf when bankers play toughies to get back borrowed sums that often won’t fund air tickets to London where fugitive borrower Vijay Mallya cocks a snook at India’s judicial system. So much for the ‘judicial solution’ that Subramanian speaks of. When Firstpost dug deep into a bad loan case involving UB Group’s chief Vijay Mallya, it found public sector Bank of Baroda had frozen the accounts of a hapless farmer and a clueless security guard for recovery of loans because they were mistaken for directors in Kingfisher Airlines. Alas, Kundan Shah is no more here to make a Bollywood black comedy on such cases, but you get the picture. There is a big mess that no one really wants to touch, and no sense of urgency or priority on how to fix the mess.

The stand-in finance minister, Piyush Goyal, and the man he has been standing in for, Arun Jaitley, are a seasoned chartered accountant and corporate lawyer respectively. It puzzles us how such qualified gentlemen took so long to do so little on the NPAs.

Is it because a slow-motion approach gives room for Smart Alec ‘ banksters’ to get away or because one should not be harsh on ‘commercially prudent’ settlements to get back loans? Or is it that a reformist BJP buys into ‘stigmatized capitalism’? Whatever it is, the NDA government has shown that Project Sashakt is likely to spill over into a government that comes after elections barely 10 months away. One man’s lack of political will is another’s commercial prudence, perhaps. (The author is a senior journalist. He tweets as @madversity)