[Marxistindia] Sitaram Yechury's clarification on Finance Minister's speech

[news from the cpi(m)]

November 17, 2016

 

During Sitaram Yechury's speech in the Rajya Sabha yesterday, the Finance
Minister intervened on the issue of the "write offs" of non-performing
assets and FCRA.

 

Sitaram Yechury, rebutting the misleading claims made by Finance Minister
regarding the two issues has given the following clarification today.

 

 

I. ON LOAN WRITE OFFS 

        During my speech on the demonetisation issue in the Rajya Sabha
today, when I raised the issue of Rs 1,12,078 crore of unpaid loans being
written off in FY 2014-15 and FY 2015-16, the finance minister intervened to
say that these "write offs" are merely an accounting entry. He went on to
add that this means that the bad loan is taken off the books of a bank, but
the banks will still attempt recovery of this money. This gives an
incomplete picture of the real situation.

 

        What does taken off the books mean? it means that the banks do not
attempt to recover this because it does not effect their balance sheets any
longer.

        

 

        The minister also added that a write-off means that the loan from a
performing asset, it becomes a non performing asset. This is incorrect as it
is non-performing asset which is written off; the rules for conversion of a
performing asset to a non-performing asset are clearly stated by the RBI in
its master circular (particularly, sections 3.5, 5.9 and 5.10 of Master
Circular on "Prudential Norms on Income Recognition, Asset Classification
and Provisioning - Pertaining to Advances"). The minister may like to check
his facts on this count.

 

        Getting back to the issue of write off, in a letter to The Indian
Express newspaper, the RBI itself had clarified that the total write-offs
includes - I repeat, only includes -- a large portion of technically
written-off accounts where the recovery efforts continue as usual. But as
RBI's former deputy governor KC Chakrabarty has noted, after a technical
write-off, when the bad loan is no longer on the books, there is no
incentive for banks to pursue recovery. 

 

        As far as tall claims of this government for recoveries of written
off loans go, the facts speak for themselves. The conviction rate of wilful
defaulters under this government was 1.14% in 2015-16, even lower than 1.45%
in 2014-15. So much for the finance minister's talk of written-off loans
being recovered from willful defaulters by his government. 

 

The finance minister may like to check his facts and tell the country how
much of the "written off" loans has his government recovered. If not,
written off loans are not just technical, it is real money of the people
being given by the government to crony corporates.

 

If the government is really serious in recovering these loans why are they
not confiscating the properties and returning these loans that are people's
savings to the nationalized banks?

 

II. ON FCRA

 

During my speech on demonetisation, the Finance Minister intervened to
explain the amended Foreign Contribution Regulation Act (FCRA), 2010 as a
mere "technicality", and not having any effect on the funding of political
parties. This is yet again, a sleight of hand.

 

The FCRA was amended from retrospective effect not by introducing and
debating a bill in parliament. The govt, instead, brought an amendment to
FCRA in February 2016 through the 2016 Finance Bill to avoid scrutiny. It
amended Section 2(1) (j) (vi) of FCRA, 2010, by adding a proviso with
retrospective effect. The Representation of People's Act bars political
parties from receiving foreign funds, but after this amendment, they can
receive funding from foreign donors which will bypass government scrutiny. 

 

The amendment was brought in retrospectively because the ruling party was
charged with illegally receiving foreign funds for political activities from
U.K.-based Vedanta Group from 2004 to 2012, thereby violating FCRA
provisions. The case is still being heard in the Supreme Court.

 

After the amendment, a foreign company - often foreign multi-national giants
- through their Indian arm/entity (where they may have more than 50% Indian
holding) can fund Indian political parties. Effectively therefore, foreign
companies can fund Indian political parties, through this arm. This raises
serious concerns about circumventing the Representation of People's Act for
foreign funding of Indian political parties.

 

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