The finance minister of India Mr. Arun Jaitley announced a bailout package of 2.11 lakh crore (US$ 2.11 Trillion) for the public sector banks of India yesterday saying that this will boost their lending activities, which is right now under pressure because of their huge non-performing assets (default loans). The logic behind boosting lending of these PSU banks is that right now private investment in India has hit rock bottom level and, according to Keynesian demand management equations, it is necessary to compensate this fall in private investment by public (government) investment.
This Keynesian demand management logic and policy are wrong. This bailout package is only going to add kerosene into fire that is already raging. The insolvent bankrupt (PSU) banks are only going to make their situation worse in future when this 2.11 lakh crore rupee will also turn into non-performing assets; when new Vijay Mallayas, Reliances, Essars, L&Ts, Adanis etc., will take billions of rupees loans and never return them! You cannot repay your debt by taking on more debt. The problem that started with this printing and spending of rupees by the government cannot be solved by the very same printing and spending. Government spending and PSU bank investment via these fiduciary phony credit is not real investment. Real investment comes via real production and real saving by the society’s productive members. The government is a parasitical non-productive sector of the society that lives off the hard earned resources of the productive members of the society. This bailout package is nothing but a massive theft of productive tax payers of India.
The real issue here is why the private investment is dead in India. It is dead because the Modi government has created an environment of extreme uncertainly via their reckless policies of demonetization, GST, harassment of businesses by the tax officers etc. No businesses will like to invest in present or future when they are not sure whether they will be able to make profit. Businessmen invest when the future uncertainty is manageable by their business acumen and when their profits are secured from any predatory policies of the government i.e., when their property rights are secured. As long as this secure environment is not present in India, business investment will not revive. Any government effort to compensate this investment by their spending will only result into disaster because it is all artificial. Governments can’t replace market’s voluntary activities. Their forceful actions will only create more chaos in future.
The Working class of India,are going to lose all their bank funds soon !
The GOI is pushing Indian Banks, to lend for NMP. The private sector has to pay, Rs 7,00,000 crores, to the GOI for the NMP.
These are 1st time or limited expertise entrepreneurs, who will tie up with International JV partners,for the infra projects.
When Indian banks lend to conventional greenfield or brownfield projects,they take an Equitable or English Mortgage,PLUS a hypothecation of specific assets, escrow accounts and Guarantees of Promoters ………, and STILL THE LOANS ARE NOT REPAID,and the bank is left with worthless assets.
The GOI now wants these very banks,to lend to NMP projects,where there is no mortgageable asset.There is only the technical know of the JV partners,and the promoters financial contribution ! The past empirical pattern of cash inflows,from the infra asset – might not exist or might not be material,& WILL CERTAINLY NOT JUSTIFY the NMP loan,to the promoters!
Escrow is NOT a loan security – it is a secured payment gateway !
Still the banks will lend the funds,as the banks are indirectly funding the GOI ,IA the NMP promoter ! So it is a secured loan – to the extent that,if the promoter goes bust – then a new promoter steps in,and loses all the investment in the NMP Project !
In essence,NMP bank loans is a free ride for the promoters,who need to invest just the seed capital to get in a Foreign JV partner,and JV funds,and then take the balance,from the banks. The promoter has to TRY HIS BEST,to drive efficiencies and ALT revenue streams – and if he succeeds – HE HAS A JACKPOT.If not,a NEW PROMOTER comes in.
A bank which cannot appraise a steel NPA – will OBVIOUSLY not be able to appraise the FORECASTED EFFICIENCIES OF THE NMP projects.SO IN COMES THE “CONSULTANT” – whose report will be relied upon by the BANKS – as such.All the NMP consultants used by the GOI and the Banks, HAVE BEEN ON THE PAYROLL,OF THE INTERNATIONAL AND INDIAN INFRA COMPANIES !
As a thought – the GOI could have hived off the NMP assets,into a SPV and raised International funds and Bank loans ! Y do a lease ? The terms of funds would be better for the GOI,in a SPV ! The JV partners in the SPV,would drive EFFICIENCIES – and there would be no need for the GOI,to share the EFFICIENCY PROFITS with the lessee !
SO Y DID THE GOI DO THE LEASE MODEL ?
U GOTTA BE KIDDING ME ! dindooohindoo
THE GOI WANTS THE PANWARI BANIAS TO MAKE BILLIONS,AND THEN SHARE IT WITH THE BJP !