Insolvency process: Competition Commission should see if monopolies are forming, says Yashwant Sinha

Over the last four-and-a-half years, the Bharatiya Janata Party-led National Democratic Alliance government has done much to constrict India’s economy.

Demonetisation hurt the smallest businesses: those of the self-employed. Their incomes are yet to return to pre-demonetisation levels. Many slightly bigger businesses, like small and medium enterprises in industrial clusters like Surat in Gujarat and Tirupur in Tamil Nadu, closed down after the introduction of the Goods and Services Tax in July 2017.

What has received less attention is the government’s ham-handed treatment of the country’s bad loans problem. The government’s insolvency proceedings have created a situation where a handful of companies are buying most of the distressed firms put up for sale by banks. The implications, as Scroll.in reported in October and November, run deep. They include both the possibility of cartelisation in the country’s core sectors and a freeze in fresh investments.

Adding to this, India’s financial institutions have taken a pounding. With the government preferring fealty over capability, institutional autonomy has come under a cloud. At the Reserve Bank of India, for instance, the government first replaced Raghuram Rajan, who opposed demonetisation, with Urjit Patel, who mutely allowed it, and then with Shaktikanta Das, who loudly defended it.

In April, Yashwant Sinha, finance minister from 1998-2002, during the Atal Bihari Vajpayee government, resigned from the Bharatiya Janata Party. He has emerged as one of the most prominent critics of the Narendra Modi government. His book India Unmade: How the Modi Government Broke The Economy, released in December, details his thoughts on what the administration has done wrong. Scroll.in spoke to him about how the economy could be revived.

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Interview: Income support schemes for farmers are a cop-out, says economist Abhijit Sen

On January 1, when Indian news agency ANI asked Prime Minister Narendra Modi about the government’s plans to reduce agrarian distress, he said loan waivers do not work as a very small segment of farmers take loans from banks. “A majority of them take loans from money lenders,” said Modi. “When governments make such announcements, those farmers do not become beneficiaries of the waivers.”

Calling loan waivers a political stunt, the prime minister told ANI the government would empower farmers in other ways. In that context, an idea from the South Indian state of Telangana has been getting some attention. The state government gives its farmers Rs 4,000 per acre per year as income support. States like Jharkhand and Odisha have followed suit. The first has announced a Rs 5,000 per acre payment from next year. The second plans to transfer Rs 10,000. There is speculation that the Union government might follow suit.

It is easy to understand why politicians find these ideas attractive. As capital becomes global even as labour stays local, governments are increasingly unable to provide jobs for all their people. One outcome, according to economist Abhijit Sen, a former member of the erstwhile Planning Commission, is that politicians, increasingly unable to find answers, turn to interventions like regular cash payments to the citizenry.

The country needs to tread carefully on this idea. Income transfer schemes come with large questions. Where does the money come from? Given competitive politics, can these burgeon out of control? If so, what happens to developmental expenditure? What happens to a society where states collect revenues from a small handful of businesses and keep a large chunk of the population on the dole? Whom are they more answerable to?

Excerpts from an interview.