AN ORGANISED LOOT OF NATIONAL RESOURCES

It was indeed a great confession on the part of the Government when the Union Finance Minister, Jaswant Singh reacting to the huge non-performing assets (NPAs) in the financial sector had characterised the ever rising bad debts in banks and financial institutions as a virtual loot of the national resources. While expressing his serious concern over the fast deterioration in the financial health of banks and financial institutions, he had indicated his firm resolve to put in place an appropriate legislation to arm the financial institutions with power to recover their dues without recourse to long drawn litigation. The NPAs of the financial sector including commercial banks, development finance institutions (IDBI, ICICI, IIBI, IFCI, LIC and GIC), State Level Financial Institutions (SFCs, SIDCs etc.), co-operative banks including urban co-operative etc. have been estimated at around Rs.1,50,000 crore. A large part of this sum is owed to the financial and banking system by a handful of few high profile borrowers. Interestingly, the promoters of most of the defaulting companies are either related to influential politicians or have close political connections. The Banks and Financial Institutions have found it difficult to recover their dues from such defaulters either because of political interference or because of the often unhelpful, and sometime dubious, role played by various courts and tribunals. A combination of corruption and nepotism has enabled crony capitalists to run riot, threatening the banking and financial sector. The NPAs of the financial sector account for 15% to 20% of the total outstanding credit forming upwards of 5% of gross national product, almost the same as the Union government's fiscal deficit. The loot of national wealth does not stop with the financial sector. This loot is much more naked and deep in the case of collection of Govt. taxes - both Direct and Indirect. The conservative estimate says that while nearly 25% of the realisable taxes are compromised by the corporate giants in collusion with bureaucracy, substantial amount of Corporate Taxes including Income-Tax had not been recovered by the government and were outstanding against a few high profile corporate giants. The total outstanding taxes on account of corporate taxes including income-tax for the year 2000-01 were estimated at more than Rs.74,143 crores. The revenue deptt. figures indicated that as on February 28, 2002 it has an outstanding sum of Rs.62,134 crore in corporation tax and income-tax dues locked up in disputes. This sum has gone up from Rs.56,430 crore on March 31, 2001 to Rs.62,134/- crore by February 28, 2002, indicating a 5% growth annually in these tax outstandings. By the finance ministry's estimates, tax arrears on all direct taxes in 1998-99, 1999-00 and 2000-01 were to the tune of Rs.44,143 crore, Rs.52,970 crore and Rs.59,425 crore respectively. As against this, the GDP during these years was Rs.17,40,935 crore, Rs.19,29,641 crore and Rs.20,87,988 crore, while the fiscal deficit was Rs.1,03,737 crore, Rs.1,04,717 and Rs.1,11,972 crore respectively. Now, had the unrealised tax revenue been realised during these years, the fiscal deficit as a percentage of the GDP could have been contained at 3.2% in 1998-99, 2.6% in 1999-00 and 2.5% in 2000-01. Besides heavy arrears under corporate taxes as mentioned above, it is disquieting to point out that the bureaucracy in the tax administration in collusion with corporate big wigs had under-assessed their income and levied substantially short income-tax. The Comptroller and Auditor-General of India's (CAG's) report on direct taxes had pointed out a short levy of Rs.654 crore on automobile, cement and textile sectors (involving 97 companies) over a period of six years. It is significant to mention that the companies referred to in the report are of high profile promoters who have strong political connections and have also pocketed substantial loans from commercial banks and financial institutions. Less said the better about the leakage of government revenue in the collection of excise and customs duties. If the taxes are collected honestly by the government and the NPAs of banks and financial institutions are also recovered, it will go a long way in helping the government in containing its fiscal deficit within reasonable limits and would obviate the need for levying fresh taxes. The government would have sufficient resources to invest in social sectors which are starved of funds like primary education, rural health, drinking water facilities etc.

It is quite significant to mention that the planning process set in motion in early 50s through implementation of Five Year Plans aimed at balanced growth of the economy with social justice and elimination of poverty, destitution and unemployment from the country. Notwith standing the laudable objectives of our planning process, the implementation of Nine Five year plans have resulted in concentration of power and wealth in the hands of few persons in the country who enjoy the national resources and are also powerful instruments in forming the government. Because of power concentration in few hands, there has been an unholy nexus between the politicians, bureaucrats and the corporate sector which works for each other's benefit. The high level of NPAs in the financial institutions and heavy arrears of taxes outstanding against high profile corporates are the result of such collusion. With a view to providing protection and shelter to the unscrupulous borrowers of bank loans, government had set up the Board for Industrial and Financial Restructuring (BIFR) for the purpose of rehabilitating sick units. In actual practice this statutory body has over-jealously worked to protect willful defaulters from the hazards of recovery proceedings launched by the banks and financial institutions. Therefore, the loot of national wealth has been engineered by the above nexus. It is now a common knowledge that the government institutions like UTI, IFCI, IDBI, SFCs and SIDCs have been plundered by the vested interests enjoying patronage of the political bosses and now the government is keen to provide them with hefty rescue packages to keep them in business. While these institutions will be recapitalised, the small investors who had kept all their life's savings with UTI etc. for better returns have been pushed to the wall. Interestingly, the loot from these institutions will be financed by the government by taxing the common man. No one in the government has ever spoken of instituting an independent enquiry into the financial loot of these institutions and fix responsibility.

The Union Finance Minister, Shri Jaswant Singh deserves our praise for keeping his word on what has come to be dubbed the "NPA Ordinance". By securing the Lok Sabha's approval on the very first day of its normal functioning for the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002. Mr. Singh has demonstrated his commitment to his stated Agenda of financial sector reform and he must be complimented for playing a positive role in this regard. The bill is of considerable significance as the ordinance it replaces had been challenged in the court of law that had stayed the sale of assets till the bill was passed by Parliament. The passage of this Bill will facilitate the recovery of NPAs by banks and financial institutions without intervention of the courts. The provision in the Bill (enforcement of security interest) is broadly on the pattern of Section 29 of the SFCs Act, 1951, which empowers SFCs to take over the assets of the defaulter unit and dispose off the same without the intervention of the court etc. Since Section 29 of SFCs Act has not helped SFCs to recover its NPAs to a significant extent, it has to be seen over a period of time if this ordinance really helps banks/ financial institutions in recovery of their NPAs without hassle. In view of the political climate and level of corruption prevailing in the country, it would be naïve and unrealistic to imagine that the Bill alone will be able to neutralize the power of well-connected and corrupt. If the government is really sincere in recovering the bad debts of banks/financial institutions, the political bosses and the senior bureaucrats should desist from interfering in the functioning of the financial institutions.

{K.K. MUDGIL}