By S. Sethuraman
The biggest scandal in India’s banking sector – an alleged 11,400 crore fraud involving Punjab National Bank and diamond merchant Nirav Modi and associates — coming to light in January 2018 — will pep up the state poll campaigns, leading to Lok Sabha elections 2019.
A highly embarrassed Prime Minister Narendra Modi, who had been proudly claiming that no major scam had occurred under his watch, will certainly find ways to pin all the ills, past and present, afflicting the country on his arch-enemy, the Congress, which led the UPA Government till 2014.
His Ministers are already at it while the Prime Minister himself has reserved his response, which has to carry some credibility. He has merely held on a different forum that NPAs (non-performing assets) in banks started in Congress regime.
Even otherwise he has already launched a blunt offensive against the resurgent Congress as the best form of self-defence, maybe a cover-up for a poor record of four years on his governance outcomes, now becoming resonant across the country.
That such a shock could take place in India’s financial system, always assumed to be stable, has drawn global attention. It runs counter to how a starry-eyed Prime Minister on the world stage had been projecting India as a country with financial stability and the best investment destination.
The massive bank scandal in PNB, which is now revealed to have gone on for seven years with connivance of a few bank officials, reflects poorly on not only the state of management and supervision and controlling negligence but also the lack of effective regulation with vigilance at the RBI. Public faith in the banking system has been shaken for the second time in the Modi regime after Demonetisation of November 2016.
Until lately, say, in the first three years of the Modi Government, there was relative passivity about the growing stress in the public sector banks under the weight of non-performing assets (NPAs). Whatever feeble institutional remedies were proposed did not really become operational.
The bankruptcy code was no doubt one achievement and raised hope that the borrowers would be brought to book but not without some hair-cuts for the lenders. The Finance Minister had also announced a 1.3 trillion recapitalisation for select banks to help clean up some of the bad debts.
But it will be long before the banks. especially those in public sector, could hope to turn meaningful providers of credit to productive sectors. Investment revival has also been linked up with recovery in the banking system with the result that India is not easily coming out of a low-growth syndrome, the boasts of the Finance Minister notwithstanding.
The challenges for the Modi Government have become acute in 2018, given the political compulsions which shaped its recent Budget but met with little enthusiasm. The PNB scam could add to uncertainties for the BJP Government to return with comfortable majority in 2019. For the same reason, Mr Modi would be still wavering on a snap poll.
There has been a drastic turnaround from the highest levels of optimism about Mr Modi taking BJP safely to an unshakable majority with as many as 300-350 seats in the Lok Sabha to a sober safe return to be able to form the next Government.
The rot had set in for the ruling party, long before they have come to realise. Gujarat, of all the States, taught a lesson to BJP late last year with a narrow win in Assembly election while disappointing the Prime Minister, the way it voted in his home state.
It also instilled a new hope of resurgence for the Congress rival not only in Gujarat but in the rest of the country, as the party led by Mr Rahul Gandhi understood better ground realities – farmer distress, economic growth, jobs etc. He has since been striking more confidence on revival of Congress which had become moribund after being worsted by Mr Modi in 2014
There are many bridges to cross for Mr Gandhi and if he works consistently and involve the younger leaders, he can at least ensure that a formidable opposition can emerge in 2019 to make India’s democracy real, unlike the present. A victory in Rajasthan, likely given the hard work done by Mr Sachin Pilot, and other young leaders like Mr Jyotiraditya Scindia in MP, would certainly take the Congress closer to the winning post.
Belatedly recognising the current woes of farmers all over the country, the Prime Minister designed his Government’s poll-oriented Budget with emphasis on higher MSP for all farm products and rural infrastructure but the February 1 Budget (2018-19) has not enthused the farmers or other poorer sections.
Nor unfunded big promises like the National Health Scheme have met with aplomb by the middle class in general, the young aspirants fed on promises in 2014 had begun to feel frustrated at the way the maximum governance has failed to yield the expectations Mr Modi had raised in them as campaign commander-in-chief.
BJP image is getting dented in recent times by its aggressive tones, coercive policies, casting slur on liberals and failure on the economy-growth-jobs front. The party leaders, as seen in Karnataka which goes to polls in May, are on a single-point campaign — that the Congress Government runs on corruption hoping it would be enough to unseat Chief Minister Mr Siddharamiah.
The outcome in Karnataka is as crucial for BJP as the ruling Congress, for the former to get out of its brand as a Party of North as well as to set up the base for build-up of its influence in other Southern states and spread Hindutva in Mr. Modi’s “New India” by 2022.
Mr. Modi has problems to sort out with NDA ally, the TDP in Andhra Pradesh, to be able to retain seats in Lok Sabha while he may be hopeful of a deal with AIADMK faction now wielding power and amenable to him so as to ensure that BJP could raise its Lok Sabha numbers from one to ten at least, to reach the coveted 272 in the new Lok Sabha.