By K Raveendran
The approach of the Internal Working Group (IWG) of the Reserve Bank in recommending that leading corporate houses be allowed to own banks can only be described as irrational exuberance, a term famously used by former American Federal Reserve chairman Alan Greenspan to describe the cause of the dotcom bubble.
Former RBI Governor Raghuram Rajan and his erstwhile deputy Viral Acharya have ripped through the recommendations, saying this is a recipe for disaster as industrial houses are most likely to abuse their in-house banks, going by past experience. In an article posted on Dr Rajan’s Linked-In page, the two senior economists recall how India has seen a number of promoters passed the ‘fit and proper’ test at the time of licensing, but turned rogue later.
The article comprehensively covers the pitfalls of the working group recommendations, but there are also larger issues inherent in the move that run counter to the core values that are dear to the Indian public and well as their national aspirations.
The working group has cited the improved performance of the private sector banks in comparison to their public sector counterparts to argue in favour of banks owned by industrial houses. It points out that the PSBs have been consistently losing market share to the private banks, a process which has markedly hastened over the past five years. The primary reason cited for this is the beleaguered balance sheets of PSBs on account of the non-performing asset (NPA) overhang of post-global financial crisis years.
If this is considered the main reason for handing over the turf to the private sector, the same could prove the undoing of the new arrangement. Access to in-house capital could tempt even the most disciplined player to become prodigal. We have had any number of instances where our industrial houses have turned their well-managed businesses into sick units so that they can have it both ways: use the resources of those units to fatten personal fortunes and then seek the benefits of the units turning sick.
If better efficiency of the private sector is the sole criterion for handing over businesses to it, it is a very dangerous argument. An overzealous working group, similar to the one in the RBI, could recommend handing over the country’s governance to the industrial houses, on the ground that they have been managing things better, compared to the track record of our governments.
Efficiency is, of course, important, but it cannot be an end in itself. Efficiency can only be the means to achieve something bigger and higher. And it obviously has something to do with the right of the people for self-determination and cannot be entrusted to anyone else. Self-determination is too scared to be outsourced like handing over a management contract to a consultancy, which incidentally is catching up as a new trend.
The approach of the RBI working group suffers from a certain selective myopia and is apparently influenced by new thinking as reflected in contemporary writings such as Bloomberg columns. The working group’s report even refers to an article titled ‘Toyota or Pakora? India Must Choose’ carried by Bloomberg. But the group’s selective myopia has meant that a part of the article that warns against the chances of India Inc. consisting of a ‘handful of very large business islands surrounded by tiny atolls that will be first to go underwater in bad weather’ has been overlooked.
Already power and wealth are increasingly being concentrated in the hands of a few business houses. ‘Adanis and the Ambanis’ carries connotations that are less than respectable under the Modi dispensation. All choicest deals seem to be destined to go to these two houses, which raises serious doubts about the quality of governance in India. While the need is for polices that will bust inequality, the government’s approach seems to produce exactly the opposite results.
An Oxfam India report released in connection with the World Economic Forum, India’s richest 1 per cent hold more than four-times the wealth held by 953 million people, who make up for the bottom 70 per cent of the country’s population, while the total wealth of all Indian billionaires is more than the full-year budget.
The report said it would take a female domestic worker 22,277 years to earn what a top CEO of a technology company makes in one year. With earnings pegged at Rs 106 per second, a tech CEO would make more in 10 minutes than what a domestic worker would make in one year. It further said women and girls put in 3.26 billion hours of unpaid care work each day, contributing at least Rs 19 lakh crore to the Indian economy annually, which is 20 times the entire education budget of the country. Women and girls are among those who benefit the least from today’s economic system, it added. (IPA Service)