Narendra Modi swayed public perception his way via demonetisation, NPA resolution, but PM must address ‘control mindset’ concerns too

By: |
New Delhi | May 15, 2017 4:20 AM

Prime minister Narendra Modi-led NDA-2 government has succeeded in building public perception in its favour through demonetisation, and NPA resolution ordinance will add to this, but it has to address the concerns related to the ‘control mindset’ going ahead.

Performance of the PM Modi-led NDA-2 government is looking far more impressive just a fortnight ahead of the completion of its third year.

Is there a correlation between prime minister Narendra Modi’s big-bang demonetisation announcement of November 8 last year and the NPA Ordinance that is being seen as a measure to resolve the sticky bad debt situation ultimately? On the face of it, both appear to be targeted at different segments, but go deep down and it is clear that the Ordinance amending the Banking Regulation Act is also set to project the government as the one which is trying to deal with long-pending problems in the economy with a firm hand, even if the results are not visible immediately on the ground like demonetisation of 500- and 1,000-rupee notes.

Reserve Bank of India (RBI) deputy governor Viral Acharya pressed for a time-bound resolution mechanism in February, pointing out that: “Since RBI initiated the Asset Quality Review of banks in the second half of 2015, it appears that possibly up to a sixth of public sector banks’ gross advances are stressed (non-performing, restructured or written-off), and a significant majority of these are in fact non-performing assets (NPAs). For banks in the worst shape, the share of assets under stress has approached or exceeded 20%.”

Not surprisingly, therefore, suddenly, the performance of the PM Modi-led NDA-2 government is looking far more impressive just a fortnight ahead of the completion of its third year, thanks to the push last week to NPA resolution efforts by empowering RBI to take concrete, time-bound measures facilitated by the Ordinance. With the promulgation of the Banking Regulation (Amendment) Ordinance, 2017, the government has inserted two new Sections (35AA and 35AB) after Section 35A of the Banking Regulation Act, 1949, enabling it to authorise RBI to ‘direct banking companies to resolve specific stressed assets by initiating insolvency resolution process, where required’.

It has also empowered RBI to ‘issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution’. While the predominant opinion in the banking sector on whether this move will have a big impact on the resolution of bad debts or not is that the government has just bought time till the next Lok Sabha elections in 2019, there is no doubt that the move will help in resolving the cases involving consortium or multiple banking arrangements, if RBI intervenes in the specific cases now, currently stuck because of the absence of a coordinated approach of the lenders, to bring them to a definite solution—through restructuring, selling of assets or even a haircut.

Though the Ordinance itself is being seen as a step that will shield the bank officials from CVC/CBI/CAG scrutiny if any of their decisions related to NPA resolution leads to the legitimate commercial losses as the road map will be fixed by RBI-appointed committees, finance minister Arun Jaitley has already indicated that the proposed amendments in the Prevention of Corruption Act—which may get Parliament’s clearance as early as in the upcoming Monsoon session—will further strengthen this protection. What is more important from PM Modi’s point of view is that even if these changes don’t result in changing the NPA situation in a big way in the near future—FM Jaitley has already pointed out that it will take time—it adds to the ‘public perception’ created by the steps to curb corruption and black money, including demonetisation, of a government that is serious about handling such issues, unlike the previous ones.

Although it is yet not clear who will ultimately foot the bill for haircuts, the NPA resolution Ordinance, therefore, has done its bit for the PM Modi’s government’s meticulously arranged efforts towards perception management—after all, politics to a large extent is perception management—and it has been successfully displayed by this government through the PM Jan Dhan Yojana, Swachh Bharat, Ujjwala scheme, demonetisation, and even the surgical strikes. Big gains in the assembly polls in critical states like Assam and Uttar Pradesh—and though not that significant for the national politics, BJP’s performance in the Delhi’s municipal elections—clearly show that the ‘public perception’ is in favour of whatever PM Modi is doing. This, though, is only half the story—public perception in the government’s favour takes time to build, but it can start moving in reverse gear quite rapidly.

From here on, just talks might not be enough, actual delivery on the ground will start taking precedence over promises—the good part is that in all areas, at least, the ball seems to be rolling, be it any of the social sector schemes or push to the digital transaction to tackle corruption and black money. But this doesn’t mean that the government is moving in the right direction everywhere. One of the biggest concerns today is the control mindset in areas like drug pricing and adoption of GM crops, and handling of the PSUs, including the state-run banks, too—the NPA Ordinance is also seen in some quarters as strengthening government control further on PSU banks’ affairs.

If the drug price control order was bad enough, working heavily against pharma companies, PM Modi’s call for prescribing only generics and the talks of bringing medical devices under the price control mechanism have only worsened the situation. It should be added here, though, that the government’s intention of making healthcare and medicines affordable is not misplaced. There is no harm in ensuring affordable medicine and healthcare to people, but that can’t be done at the cost of quality and R&D—instead of forcing doctors to prescribe generic medicines only and capping prices of medicines and medical devices, a better idea would have been to support the sector and infuse competition to bring down prices.

In the case of GM crops, rather than looking at confused solutions like allowing indigenously developed varieties only for commercial use as suggested by the NITI Aayog’s three-year action agenda, the government needs to convince those opposing GM crops, including RSS-backed outfits like Swadeshi Jagaran Manch, that it could be an important ingredient in doubling farmers’ income, which is a promise that PM Modi has made. If Bt cotton and GM mustard developed indigenously are good for adoption, why exclude foreign seeds if they also pass the tests in India?

You may also like to watch this video

Going ahead, PM Modi will have to address concerns emerging out of control issues, whether these are in the handling of PSUs or the private sector. While speaking at the launch of e-filing facility by the Supreme Court last week, he rightly pointed out that the biggest problem in the adoption of technology is the mindset. It has to change both within and outside the government.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1As the antitrust movement against Big Tech gathers steam, it’s time to find solid solutions
2The silver lining on the Covid cloud
3Beating Covid-19: Scaling up India’s vaccination drive