The Modi govt is bailing out banks and corporates. But who will bail out the govt?
The Narendra Modi government is trying hard to send a message to its electorate that it is bringing order in the economy by pushing corporates to repay their loans.
From press conferences to social media, the message the government is striving to disseminate is that the corporate sector is being forced to sell its assets to repay loans.
More than a dozen companies are facing liquidation process under the bankruptcy law. However, the question is, who will buy these loss-making corporate assets?
The answer is, the government itself.
According to Business Standard, State Bank of India has written to Odisha government to take equity in the Bhushan Steel, which is facing liquidation process under the new bankruptcy law. A bank owned by the central government wants a state government to share the burden of its bad loans.
The government has been patting itself for coming up with a law that is forcing corporates to part with their assets. What is another matter is that, till date, there has not been a single success in the process.
Recently, a story in one of the leading English dailies of India said, “The biggest ever fire sale of Indian corporate assets has begun, to tide over bad loans crisis”.
That story, with a pro-government message argued that that there has never been so much of pressure on Indian corporates to sell their assets to repay their loans. Giving examples of groups like Bhushan Steel, Lanco power etc, the report said “The top 10 business house debtors alone owe Rs 5,00,000 crore to the banks. They will be forced to sell assets worth over Rs 2,00,000 crore.”
While it is a fact that most of the big corporate houses in India are looking to sell their assets to repay their loans, there isn't a single buyer for such projects in the market. In fact, all these projects have been on the block for more than three years now, but given low demand in the Indian economy - for power steel cement etc- most of these projects have not found a buyer yet.
A few exceptions exist. Sajjan Jindal owned JSW Energy has agreed to bail out Naveen Jindal-led JSPL by purchasing its 1,000 Mw power plant at an enterprise value of Rs 6,500 crore. Ruias promoted Essar oil too managed to sell its oil and gas business to Russian company Rosneft. But one or two deals do not change the fundamentals and destiny of a economy.
The government recently announced a bail out package for the banking sector by approving a Rs 2.11 lakh crore recapitalisation package for public sector banks.
But who is bailing out the government?
The fact that government is bailing out corporates, it needs someone to bail itself out. And naturally, it has to be the common tax payers.
The government's posturing that it is acting against unscrupulous corporates who have not been repaying their loans is more of a rhetoric than reality. Over the past three years, the government has refused to bail out farmers have reduced its subsidies for the common man in order to reduce fiscal deficit.
But one thing that continues unabated is the mega waiver for the corporate sector. The bad loans in the banking sector have touched Rs 8 lakh crore mark. Instead of coming up with measures to force companies to repay their loans, the government has been experimenting with camouflaged bail out.
In the process, the only losers are those who pay taxes in this country.