Economic Highlight
New Delhi, 2 August 2021
Rising
Personal Debts
I-T
REDUCTION CRITICAL
By
Shivaji Sarkar
There is more to Covid-19
morbidity than meets the eye. It has led to a dreadful rise of Rs 66 lakh crore
in personal loan defaults in addition to accumulated MSME debts to the tune of Rs
2.26 lakh crore. Individuals are now facing auctions by banks and financial
institutions. The MSMEs, facing a crunch of lending, have their units in temporary
or permanent closure and are seeking more loans to survive.
All this is happening
amid eight core infrastructure sectors’ production – coal, crude oil, natural
gas, refinery products, fertilisers, steel, cement, and electricity - rising
8.9 per cent in June 2021 at a low base of minus 12.9 growths in 2020. The low
growth is likely this year too due to severe purchasing power erosion of the
people, who are inflicted by job, income losses, high prices and critical
debts.
The nation is going
through a difficult phase as is indicated by the personal debts of Rs 27.86
lakh crore debts, which they are finding difficult to repay. Another Rs 14.64
lakh crore is also on individual housing loans, Rs 2.38 lakh crore due to
vehicle loans, credit cards Rs 1.02 lakh crore, against FD Rs 65,891 crore. These
individuals or families are also unable to repay education loans of Rs 62,720
crore and jewellery Rs 62,221 crore.
Education, housing
and jewellery loans are often linked to each other, as individuals unable to
pay one loan, take recourse to the other. Often none of the loans are fully
paid and this reflects poorly on them and the society. Besides, it reveals the
poor state of individuals’ economic status, on whose base the entire economy
moves.
Individuals are
suffering from another problem of high taxation. Most of them, except a small
segment, are income-tax payers at different slabs. As their deposits are being
eroded by tax deduction at source (TDS) on meagre interest earnings, the
national crisis deepens. Many of them have had to compromise on their food
intake!
This is affecting
banking, financial institutions (FIs) and non-banking (NBFC) sectors too,
thereby demanding a drastic income-tax reduction, which is certainly not to the
liking of a tightfisted Union Finance Ministry. It must rethink, as a reduction
in I-T will aid other sectors from getting out of a tight situation and the non-performing
assets (NPA) or bank losses are bound to drop. The Fitch Ratings indicate the
NBFC facing near-term pressure. It says, “Non-performing loans (bad loans) are
likely to rise as renewed activity restrictions have impaired borrower
repayment capacity. Collection shortfalls are better than a year ago, but
remain significant at 5 to 40 per cent across segments in April and May”.
The woes of
individuals, small businesses and tiny ones surviving on small incomes may
multiply as the banks and financial institutions are to start a tough recovery
drive further shaming people and discomforting them. The lending institutions
may start auctioning their pawned gold, vehicles and other assets as the
festival season begins. This might mar festivity and may even create societal
and political problems as a large sector comprising about 55 to 60 per cent of
the people are impoverished.
The FIs had put off
selling or auctioning the collaterals during the pandemic but now they are
finding their own survival difficult and some such as the HDFC and Axis have
indulged in unethical means to shore up their cash books. Both these banks have
been penalised with imposition of token financial penalty or Rs 10 crore and Rs
5 crore respectively. The ICICI is mulling auctions of pawned jewellery,
vehicles and HDFC’s housing wing HDB Financial Services houses.
According to the Reserve
Bank of India, loans against jewellery stood at Rs 62,221 crore on June 18,
2021 and grew 80 per cent, indicating that the households are in dire straits
and finding it difficult to survive. The National Crime Bureau figures of
rising suicides of individuals and some with their families may have a link to
the deteriorating financial conditions. The fall in FMCG goods or vehicles
sales are supposedly connected. The political leadership unfortunately has yet to
mull over this grave situation and if it chooses to continue to ignore it then the
situation could turn volatile.
A large section of
these people are also having association with the gasping MSME sector. MSME Minister
Nitin Gadkari told the Rajya Sabha in February “data regarding temporary or
permanent closure of the units are not maintained by the government”. Quoting a
Khadi and Village Industries Commission (KVIC) study on pandemic impact on
micro units under the PM Employment Guarantee Programme (PMEGP), he stated that
88 per cent of the beneficiaries were “negatively affected”, while 12 were
benefitted due to Covid-19”. Over 99 per cent PMEGP units -- 6.30 crore of 6.33
crore are micro enterprises, according to the Ministry’s 2020 annual report.
The larger units
under MSME though now have disbursal sanctions of Rs 2.76 lakh crore under the
Emergency Credit Line Guarantee Scheme (ECLGS), the MSME groups say that the
conditions laid out are difficult to get a loan. The Parliamentary Standing Committee
notes that there is a huge gap between sanctions and disbursement as banks fear
defaults for Covid-19 recurrence.
Amid this distressing
scenario, moving the Bill to amend insurance sector is fraught with dangers.
The private insurance sector is in shambles and desires pulling down of the
LIC, an ethical, pro-investor organisation. The sale of banks and LIC to the
private sector should not be welcome as it shall further add to the
deterioration of the economy and huge job losses.
Entertainment, cinema
included, and education sectors are also in deep crisis. The cinema industry is
having severe financial crunch. Many artistes and technicians have been thrown
out of jobs. The private education sector is one of the worst sufferers of Covid-19
with their admissions taking a heavy hit and many parents unable to pay the
fees. The National Education Policy formulations are further eroding their
finances and delivery mechanism.
Poor individual
finances and no cash flow are hitting the economy hard. Many cosmetic
programmes, incentivisations, loans and even direct benefit transfers (DBT)
surprisingly are not boosting the economy.
Economic contours need
to change, freed from Manmohanomics and a new economy needs to be conceived
with discussions with all stakeholders and political parties.
Post-demonetisation downfall has to be stemmed for the country to be an
effective power. It has to begin with empowering the individual in real
financial terms, including cut in taxes.—INFA
(Copyright, India News & Feature
Alliance)
|