Monday 7 September 2020

Do Not Merely Protect Large Institutions - Financial Support Must Be Reconsidered to Save the Soul of the Economy - The Small Entrepreneurs

The SBI chairman, Rajnish Kumar, spoke today about excess liquidity with banks and stated that the bank had doubled its deposits with RBI. It is a shame that at the same time consumers and businesses are being forced to pay loans when they can ill-afford it. The loan restructuring is already being spoken of for people who have large ticket loans, which again makes borrowers in the most vulnerable segments carry on without any support to ensure they carry-on.

Additionally, banks are only interested in pushing more loans to these people who are already struggling with paying the existing loans, how can they be comfortable in taking more loans given the uncertainty and the risks.

The loan moratoriums were the only partial relief activity that the government indeed undertook to help those struggling in the pandemic. I call it partial because with interest still accruing, it eventually extracts its cost from the borrowers. It would have made sense to provide moratorium and interest rate relief to borrowers below a certain threshold of borrowing at least, as the banks are not going to invest time in restructuring their loans, causing consternation and grief for these people in dealing with the institutional establishments that have come to rule over them.

Individuals with home loans, auto loans, educational loans, credit card loans, insurance premiums and other financial burdens, below a certain threshold should have been granted interest-free moratoriums or even some waiver reliefs. MSMEs and Farmers with loans should have been given some real relief instead of merely the option to load up on more credit. Direct transfers to small farmers have been done to some extent, but one must factor in that the quantum of transfer is more related to personal consumption and not for livelihood sustenance support.

Detractors may still talk about maintaining a culture of responsibility and accountability and not provide free money. But the fact to be noted is that the avenues of sustainable employment are under threat and any measure without the prospect of burdening these enterprises further, must be availed because at the heart of entrepreneurship is initiative, which has been taken at considerable risk by most small entrepreneurs. To sustain the culture of initiative and effort this cohort of pioneers must be supported at the time of an unprecedented crisis.

One must also factor in that the interest rate on deposits have reduced and investments are not bearing returns for people who could have relied on these to make up for shortfalls in business or employment income. A spate of suicides due to financial difficulties are as tragic as they are also avoidable.

As a society, we must take responsibility by taking risks ourselves. Also, if the government and banks are worried about the relief being misused by undeserving people, it must be known that saving livelihoods must take priority above anything else barring saving lives and hopefully, these are no longer in conflict but aligned objectives. This is what we were debating at the time of lockdown, but now that we have chosen to move ahead by saving livelihoods, we have suddenly prioritised protecting ourselves from unworthy gains by a few, over protecting livelihoods and lives. Why has this additional criterion become more important than protecting lives and livelihood? I believe that the decision-makers must bring clarity to their decision making by clarifying their priorities, which must be to protect vulnerable people and those who contribute to keep the wheels of socio-economic sustainability turning, those who are in between access to employment with big business and those who rely on daily welfare measures of the state, the precious middle, the spirit and the soul of the economy. I hope decision-makers will reconsider their financial support measures, or we run the risk of creating a society of people who will be defined by inertia, indolence and selfishness, over risk-taking, effort and initiative. You will impact the future and while history may or may not judge these events, it will leave an indelible imprint for a significant time to come and the responsibility lies on us in this defining moment of these epochal times.