One, by his choice, may oppose to the fact, but historically the great dictators got tyrannical not by their choices but by compulsions. They presented themselves as external superpower because the system they were piloting got extremely weakened internally. They waged nationalist wars in order to prevent the in-house revolts. And whenever they provided welfare to the people, they did it so that they are not asked to bid a farewell. And today, they talk about ‘resolution’ since they are self-trapped into irresolvable contradictions. The ‘Financial Resolution and Deposit Insurance’ (FRDI) Bill, proposed by the present Indian government, is an iconic instance of such fact.
The Bill, since it was placed in the parliament in August 2017, has brought in severe controversy among all the political parties and the economists in the mainstream regarding its several clauses; but very recently it has come to the fore seeking serious concern of the masses after the Nirav Modi event. The dissenting voices have raised three principal points regarding the issue: firstly, an ultra-authoritarian centralization of all the regulatory bodies of different financial institutions (e.g. IRDA, SEBI, PFRDA etc) including all the banks (which are regulated by separate legislation acts) into a single ‘Resolution Corporation’ with the power to intervene in case of bankruptcy; secondly, the proposition of utilizing ‘bail-in’ as a resolution of such failure; and thirdly, while liquidating a financial institution, an unacceptable upper limit of Rs. 1 Lakh only as the amount payable by DICGC to the individual depositors, which needs to be updated. However, all of these parties and the intellectuals rejected any possibility of insolvency of the public sector banks of our country in the near future claiming the FRDI Bill to be belonging to a policy regime of the ultra-authoritarian Modi Government. Also the cases like Nirav Modi have been designated by them as unwanted crony capitalist events.
But are all these facts indicating to mere choices of the ruling party?
If we look at the entire picture of the global economy, its characteristic features and the recent history, and India’s position on this platform, it does not appear as a policy at all; rather it seems to be a compulsion of the ruling classes and therefore the ruling party too. It is to be noted that the present era of neoliberal capitalism is characteristically different from its preceding phase by two principal points: first, previously the stocks were traded over the storage of past products which had not been sold, but now a significant fraction (in fact majority) of the stocks are traded over contracts on future products which have not yet been produced even; and second, the gold standard has been replaced by the individual national currencies for foreign trading, expectedly with special powers (e.g. special drawing rights) of the Dollar, Euro, Pound, Yen and now Yuan. These have led to the emergence of two corresponding peculiarities in the new age crisis. Firstly, periodically in a cycle of 8-9 years, the ‘stocks traded’ globally during a particular financial year is overrunning the world GDP of the same year which is followed by a significant drop in the next years resulting in severe crisis. And secondly, between two successive cycles of such crises, the epicentre of crisis is shifting from one dominant nation to the other, such as from Japan in 1992 to the US in 2000, then to the US and Europe in 2008 and now to China and US in 2016. Such dominant nations are entangled to each other through foreign trading via a complex network of more than 250 other countries, which get seriously affected due to transport of such financial crises utilizing them as the channels. For instance, India exports, or seeks foreign capital investments, predominantly in US dollars, and the corresponding traders or banks and other financial institutions of India then get the equivalent amount of Rupee currency by substituting the dollars at the RBI reserves, and vice-versa for imports. Now if at some instant the strength of dollar is at low due to problems in the domestic economy of the US and/or in the global derivative market, US can send off an amount of it to other countries like India by importing or capital investment thereby improving its domestic economy. On the other side, countries like India, by engulfing such trembling currency, will suffer economic decline in its own domestic market. It can then try to improve its condition by importing from other countries like China. This is an illustration of the roadmap how an economic turbulence can be transported from one dominant nation to others such as from the US to China through the channel of countries like India.
It is interesting to note that, when in 2016 China and the US suffered serious stock market turmoil, India was importing highest (~16% of total import) from China and exporting highest (~16% of total export) to the US, and therefore became a major share holder of the current financial crisis. In the global chain of neoliberal capitalism, India has got trapped in the positive and negative balance of payment of importation by the US and China. In this condition, the projection of such global stock market booming and its succeeding collapse over India has made its entire economic sphere deeply darkened. It is to be mentioned at this point that the demonetization was carried out in the end of 2016 by the Modi government only with the aim of protecting the corporate profits at this crisis situation by reserving a significant quantity of currency at the Market Stabilization Scheme (MSS) of RBI, which is still holding an amount of non-circulating currency valued at almost Rs. 1 lakh crore. But this in turn, as we had claimed at that time, dangerously distressed the Indian economy at the production sector.
And what is the condition at present? The sum of ‘Term Deposits’ of all the banks of India, which are going to mature by the end of March 2018 and thus must be paid to the depositors, amounts more than Rs. 26 lakh crore and the gross non-performing asset (NPA) of 38 top banks of the country has already crossed one third of it. They provided almost Rs. 27 lakh crore to the industries, among which some major influential sectors have faced stressed loan condition very seriously, as given in the following table.
Domestic credit provided to the private sectors by banks has already reached a level of 50% of our GDP and in the last ten years the Gross NPA has increased exponentially from ~Rs. 50 thousand crore (2005-06) to ~Rs. 600 thousand crore (in 2015-16). And now, it has crossed the level of Rs. 800 thousand crore in the last year. Interestingly, the top 20 among these 38 banks having very high NPA ratio are all public sector banks (PSBs), and most significantly, by NPA amount, the top 5 among them are SBI, PNB, BOI, IDBI and BOB (all PSBs) which constitute almost a share of 50% of the total NPA. We have defined Stress Index (SI), a parameter (which accommodates NPA ratio as well as the scale of NPA amount) to grade the stress suffered by these banks due to such NPA and shown in the following table in order.
(* denotes private bank, all others are public sector banks)
It is estimated that the banks with a SI value greater than 4 is moderately stressed; and for above 6 is significantly stressed that can undergo immediate insolvency. However, we do not expect from the present bourgeoisie state of India to let it go that way. It is evident from the above table that presently majority of the public sector banks are facing serious stress compared to the insignificant stress values for private banks. This is attributed to the fact that our public sector banks, since nationalization, have been serving for the capitalists with much more higher intensity than the private ones. The very aim of bank nationalization by the Congress government was never anything other than this. And now, in this seriously stressed condition the only option left for the present bourgeoisie state other than to liquidate is an urgent merger of the public sector banks with the private ones by the end of March, 2018, in one-to-one, one-to-many or many-to-many schemes. The bourgeoisie state must have the power to spot merger/acquisition in order to defend the capitalist economy as the system of our country. The present FRDI bill has been subjected to be adopted by the parliament as early as possible only for this purpose. And this way we are possibly going to observe a simultaneous ‘Denationalization’ and ‘Ultra-centralization’ of our public sector banks very soon, all of which currently hold a more than 60-80% government shares.
But what will be the aftermath? The bank crisis has not been resulted due to ‘crony capitalism’; capitalism has always been and will always be ‘crony’ in that sense; the crisis is originating from the inherent contradiction of neoliberal phase of globalized capitalism as explained above. The multi-directional capital flow with a few economic power centres in the global economy has brought with it such crisis, and the very FRDI bill appears, not as a resolution but as a resultant balance of payment of the imported crisis. It is thus an unavoidable truth that even such merger/acquisition of banks of India will not be able to avoid such contradiction of the global capitalist chain, and will definitely fall into indefinite trouble. We cannot deterministically predict how soon it is coming, but we can deterministically say that it must come very soon.
My dear comrades of India, isn’t it, now, the weakest link?
- The data are collected from RBI, World Bank and other data banks of Government of India.
- “Demonetization in India, the Global Economic Crisis and the Working Class”, INDIA RESISTS, www.indiaresists.com/.
Basudev Nag Chowdhury is the Convenor of People’s Brigade.