Public money write-off calls for accountability

AN additional 230 million people have quietly slid below the poverty line during the first year of the pandemic, reports the Centre for Sustainable Employment at the Azim Premji University (APU). In another study, the Pew Research Centre had computed the middle class to have shrunk by an estimated 32 million. This estimate is again for the first year of the pandemic. However, both studies are a grim reminder of the severe blow dealt by the pandemic to the middle class and the poor.

We still do not know how severely (or relatively softly) the devastating second wave has impacted. While all sections of society have been hit in varying proportions, with household savings coming down drastically, and unemployment soaring, forcing the government to extend till November the 5-kg free ration scheme for the 800 million needy, the corporate net profits of listed companies have soared by 57.6 per cent in the last fiscal. At a time when economy is struggling to cope with the impact, the stock markets, fuelled by surplus money, too have been rallying high. While the wealth of India’s billionaires has gone up by 35 per cent, Bloomberg says the wealth of the top two — Ambani and Adani — has jumped to $84 billion and $78 billion, respectively.

The rich continue to amass wealth, while the pandemic has driven the poor against the wall.

Let’s dig still deeper. The increase in corporate profits does not, however, translate into higher tax collection from the rich. In reality, while the rich get hefty tax concessions and easy money, the rest of the country ends up paying more taxes. Corporate tax collections have declined significantly, reaching their lowest in 10 years. The systematic reduction in corporate tax is in sync with the global trend. The Finance Minister had in September 2019 lowered the corporate tax base from 30 per cent to 22 per cent, and reduced the corporate tax for the new manufacturing companies from 25 per cent to 15 per cent. This costs the exchequer Rs 1.45 lakh crore by way of revenue foregone every year.

Now let us take a look at how the tax base has shifted from the corporate to the average households. Against the direct tax collections — corporate and personal income tax — for 2020-21, which amounts to Rs 9.45 lakh crore, the indirect tax collections have exceeded it, and reached a high of Rs 11.37 lakh crore. In addition, the common person in the street ended up paying over Rs 5.70 lakh crore as taxes (excise and VAT) on petrol and diesel, with roughly 60 per cent of fuel tax coming from two-wheelers. Add to it the electricity duty that consumer pays along with taxes on real estate registry and excise duty on liquor, the share of indirect tax that a common person finally ends up paying is enormous. At least now the individual tax payers cannot claim they alone provide resources for development. The non-tax payers too have made a significantly higher contribution in generating revenue. Let’s not forget, even a labourer wearing a plastic chappal (bathroom slippers) pays GST. In fact, it should now be abundantly clear: everyone pays tax.

What may appear baffling is that at a time when the share of corporate profit in the country’s GDP has reached a 10-year high of 2.63 per cent, Indian banks had written-off a whopping Rs 1.53 lakh crore of corporate bad loans in 2020-21. As per RBI estimates, non-performing assets (NPAs) of banks are expected to increase further. Meanwhile, the total write-off in the past four years, since 2017-18, stands at a staggering Rs 6.96 lakh crore. A lot of hue and cry erupts whenever farm loans are waived but the periodic NPA write-off by the banks goes rather unnoticed.

As if this is not enough, a newspaper report, based on an RTI reply, showed how Rs 5 lakh crore of bank money is struck in frauds. Accordingly, the top 50 credit accounts contributed 76 per cent to these dubious transactions.

Interestingly, the Insolvency and Bankruptcy Code (IBC) was enacted with the aim to punish the chronic defaulters but has left much to be desired. The two recent insolvency proceedings, where the banks/lenders have been forced to take a ‘haircut’ of 93 to 96 per cent, have evoked a lot of public anger. In a resolution plan, approved by the National Company Law Tribunal (NCLT), the bidder — Twin Star Technologies of Vedanta group — gets control of 13 companies of the debt-ridden Videocon group by ‘paying almost nothing’. Against the admitted claims of Rs 64,838.63 crore, Vedanta group walks away by paying only Rs 2,962.02 crore as a one-time settlement which is merely 4.15 per cent of the total amount. In other words, the creditors, including banks, have agreed to waive the remaining 95.85 per cent of the outstanding amount.

In another insolvency resolution, lenders of the Shiva Industries and Holdings, including several banks, have agreed to take a ‘haircut’ of 93.5 per cent. Of the total outstanding of Rs 4,863 crore, the creditors will get only Rs 313 crore. Of this, the company has agreed to pay upfront only Rs 5 crore. Financial journalist and author Sucheta Dalal quipped: “Now take a bicycle loan and see how banks treat you.”

There are numerous such cases, where the bidders have walked away with cheap deals, leaving the banks (and other lenders) to take a heavy cut, often in the range of 80-95 per cent. The general impression is that it is public money that is being siphoned-off through a legitimate route. After all, the banks hold public money, and any write-off means public money lost.

Probably this is what irked industrialist Harsh Goenka, who tweeted: “Promoters stash away money on the side, take the company to the cleaners, get a 80-90% haircut from bankers/NCLT — that’s the new game in town.” he wrote, adding: “A lot of institutions cleansed by the government — NCLT next please @PMOIndia. We can’t have our hard-earned money being stolen.”