Will moving out of banking system solve our economic problems?
The country needs to adopt a new economic policy. Three years of the NDA government has seen an effort to break away from the past. It needs more vigorous efforts and wide discussion to chart out a new course.
India needs a drastic change. The political system has to take over the reins to fight out poverty, which despite statistical jugglery, in real terms has not come down. The slowdown is palpable. Jobs are inadequate and not matching the growing numbers of those without jobs.
Even overall growth has come down, as per official statistics. Inflation is projected to remain low except in food items, projects the latest Reserve Bank of India (RBI) monetary policy report.
So should not the interest rate be further lowered to pep up the housing industry, boost consumption and industrial activities? That is what the common logic says. Is the RBI going beyond it? It seems so. It is viewing the situation with a different glass. The latest June 5, 2017, monetary policy meeting seemingly has many doubts about the economy. Rightfully so.
“Past episodes have shown that when there are significant fiscal slippages, they do permeate through inflation sooner or later. Farm loan waiver is a path that we need to tread very carefully before it gets out of hand," is the circumspect observation of RBI governor Urjit Patel, while releasing the monetary policy.
It means that interest rates should not be lowered for a tottering banking sector with almost Rs 12 lakh crore of bad loans touted as NPAs.
Should we not give farm loan waivers? Is it not queer logic against political wisdom? The Uttar Pradesh government has waived off Rs 36,000 crore worth of loans. Now farmers in MP and Maharashtra are up in arms. There are forces which are trying to cash in on the developments. The total waiver would cost Rs 3 lakh crore - a huge sum for an economy that is trying to find its moorings.
Farmers have strong logic. If big corporate houses’ loans of Rs 1.5 lakh crore, which benefit some individuals, could be waived off, then why not for lakhs of farmers and their families?
Again it is “sound logic”. It should remain just at that. The money waived off either for big houses or farmers was lent to them by the hard earned deposits of citizens. Do banks have the right to waive it off? In the case of industrialists, the banks did it.
Farmers’ waivers are done by state governments, as in UP, or in the past by the central government. It was taxpayers’ money that needs to be used for furthering growth and development of the country. Thus, it is a convoluted economic prudence.
There is a human angle as also statistics. Over 54 to 58 per cent, according to official statistics, of the people are dependent on farms for their livelihood. It comes to approximately 75 crore people. The farmers have problems of high input cost and low and sometimes negative returns. It hits this large population and the economy starts tottering again.
The so-called 1991 “economic reform” and the 1995 WTO rules of the agreement on agriculture targeted ending farm subsidies. It caused enormous misery for the farm sector and unabated suicides. The National Crime Records Bureau (NCRB) says 2,56,913 farmers committee suicide between 1995 and 2011.
What UP chief minister Yogi Adityanath did could be humanist but is not a long-term solution. The country needs to chalk out a strategy for farmers away from banks and the politics of waiver.
Reducing interest rates is a blow to the sick banking industry, funded fully by the common man through their deposits or “recapitalising” with taxpayers’ money. Both are imprudent. Low interest rates hit the common depositors.
Banks are failing for their uncontrolled profligacy. If charges continued to rise, depositors would prefer to opt out of banks.
It would solve the triple problems - interest rates need not be tweaked, recapitalisation at taxpayers’ cost could be avoided and people would not have to pay illegal and extortive bank charges.
The glorious side is the banks would have less to worry about managing the funds, which will not be there and since they would not be able to lend to large houses, their NPAs would be wiped off.
Yes, if people move out of banks that grew with small savings, ultimately the banks would have to fight for their existence - a normal economic fall-out.
The banks need to redo their mathematics and do away with extortive charges on each transaction. If they have failed for their bad management, they cannot tax the people and take the economy on an inflationary ruinous path.
The nation has to give deeper thought to farmers and the agricultural sector. Flip-flop policies over the past 26 years, treating industry separately from farms and levying of queer charges by all services, including railways, where you lose more than half of the money for cancellations, though trains go overfull, or airlines where you do not get a refund, super high tolls, extortive income tax, profession tax and a plethora of others are putting a brake on consumer expenditure.
It has made prices rise and lowered purchasing capacity. It has hit farms, industry, and the core sector alike.
The nation needs rethinking. The farmer and farming have to be at the centre of the discussion. The Narendra Modi government is seized of it but cobweb of rules, procedures and complicated economic situation has prevented it from providing the desired solutions.
It is imperative to keep the economic costs low and farmers in a happy state for peace, growth and for taking the country on the path of being a superpower. Industrial growth is linked to happiness in the farm sector. It can check migration, put development at a fast pace and properly tended farmers would not need loan waivers.
The economy was slowing even before demonetisation. Demand was coming down. If this has to be reversed it can be done with the holistic approach of recalibrating and integrating the economy. A piecemeal approach has caused enormous problems. New thinking on subsidies and direct benefit transfer (DBT) is required. All subsidies are not bad.
Modi needs to initiate the process of finding the new path for a benevolent farm policy targeting sustenance to the smallest farmer. It has to be intertwined with a forward looking industrial approach and creating the critical industry-agriculture balance.