Tuesday, August 19, 2014

Politician promises and Regulator disposes

Politician promises and Regulator disposes

There is an old adage that a farmer is born in debt, lives in debt and dies in debt. No farmer has liquidity when he wants cash in hand, for it lies either in land or stock. Farmer is today a part of the rule book, both with Governments and the financial institutions and the regulator.

AP and Telangana both the States, after formation, did not lose a minute in negotiating with the RBI the way forward to realising their hasty loan waiver promises. The States tried to bargain hard for restructuring the loans till they could find resources to fully credit the promised waiver amount into farmers’ loan accounts. The logic for waiver could be disputable but the request for restructuring on the sovereign guarantee has less reason to be faulted. This cannot be dubbed away as ’crony socialism’ – the meaning of which the creator of the phrase alone has much to explain.

The history of farm loan waivers – a sad one—politically motivated could have been resisted by the regulator even during the years 1990 and 2008. When the commercial banks were writing off loans of various other sectors but failed to respond to the farmers’ requests even amidst a do-or-die situation, the governments took law into their hands and claimed equity in debt treatment. In a political economy, howsoever puritan the economists are, the will of the politician prevails, particularly in democracy.