Conflicts of interest in governance: The compass helps only if you know where you are headed

J Mulraj | Updated on October 05, 2019

Governing is no easy job, more so of a large and diverse country like India. There are a number of conflicting interests and priorities to juggle with. Despite this, there must be clarity of thought and direction; if you don’t know where you are headed, a compass can’t help, can it?

Several examples of conflicts of interest in governance were evidenced last week. Here are a few:

Does India want a $-5 trillion economy or does it want crony capitalists to destroy banks?

The NPA problems at the bigger public and private sector banks have been amply highlighted. Now the whole gamut of co-operative bank scams is being exposed. There are 1,551 urban co-operative banks, of which only 54 are scheduled. These UCBs have a dual reporting structure, both to the RBI (for financial management) and to the State and Central governments (for management structures). This results in regulators treating them as babies, and hence to abysmal standards of governance. One such UCB, viz. PMC Bank, was brought under RBI surveillance last week, after it was found to have high NPAs and inadequate capital. It seems that PMC had lent 73 per cent of its funds to just one group, HDIL. When HDIL faced a liquidity crunch, the co-operative bank went under.

It appears that the NPA issues were old, but hidden from public scrutiny by creating dummy companies to which the bank lent money, passed on to HDIL to show repayment of their dues.

This raises several issues. Of course, the management is guilty of disbursing 73 per cent of the bank funds to one group and overexposing the bank; then of creating dummy accounts to hide the true facts from the RBI. But so are the internal auditors and the statutory auditors, for not doing their jobs. Who suffers? In the case of PMC, it is the depositors, who are asked to ‘bail in’ the bank and have been restricted to withdrawing only ₹10,000 of their money in the bank. This is criminal negligence and certainly not the harbinger of a $5-trillion economy.

So the Government has to decide whether it will treat NPAs and corporate fraud with the swift harshness it deserves, or whether it will allow a sleepy and overworked judicial system and an investigative system open to inducement to water down a case, to permit crony capitalists to loot the public?

Do we want a $5-trillion economy or do we want to make political compromises to crony capitalists who fund political parties? Decide.

Do we want to help double farm income by 2022 or not?

The government has stated its intention to help double farmer income by 2022. Rightly so, for agriculture, which supports 52 per cent of the population, earns only 14 per cent of the national income. This is clearly unfair, and means that the farmers are not getting paid enough in order to protect the urban dweller. Yet, last week, the government placed a ban on export of onions, fearing rising prices (a huge election issue) due to a lower crop.

This belies its own objective to double farm incomes, and also reverts to the bad old times of ‘government knows more than, and does not trust, markets’. How long will farmers be denied their due benefits? And will exporters be able to rebuild their customer base once the ban is lifted? Buyers are making alternative arrangements.

If a crop output is lower than anticipated (and the government has the machinery to judge that) then it ought to prepare by importing the crop in anticipation and not by sudden and unilateral bans.

So, does the government want farmers to double incomes by 2022 or no? Decide.

Equal justice or selective?

Far too often have we seen the ‘connected’ and ‘powerful’ people go scot free even after being jailed. The slowness of the judiciary is well known as is the complicity of the investigative agencies. Yet, the PM has stated that Foreign Investment will be attracted to India because it has an established judiciary system which conducts matters in English, the international language. True, but it is far more important for the system to deliver justice swiftly and impartially. Justice should not be the football of political expediency. Decide.

These are some of the issues. As far as stock markets go, the developed markets are falling, due mainly to effects of trade wars and the inhuman wastage caused by senseless wars to appease a handful of neocons who want them. The long-term India story is good if the government decides which way it wants the country to move.

The writer is India Head — Finance Asia/Haymarket. The views are personal.

Published on October 05, 2019

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