IASbaba's Flagship Course: Integrated Learning Programme (ILP) - 2024 Read Details
TOPIC: General studies 2 and 3
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
- Inclusive growth and issues arising from it.
Background:
Non-performing assets (NPAs) at commercial banks amounted to 11.2% of advances, in March 2018. The ratio of gross NPA to advances in PSBs was 14.6%. These are levels typically associated with a banking crisis.
Origin of the NPA crisis
During the credit boom period of the years 2004-05 to 2008-09 commercial credit (or what is called ‘non-food credit’) doubled. It was a period in which the world economy as well as the Indian economy were booming. Indian firms borrowed heavily in order to avail of the growth opportunities they saw coming. Most of the investment went into infrastructure and related areas — telecom, power, roads, aviation, steel. Businessmen were overcome with exuberance, partly rational and partly irrational.
Thereafter, as the Economic Survey of 2016-17 notes, many things began to go wrong.
As per the process of provisioning the banks estimate that a particular borrower may not be able to pay back the loan in full and hence make a provision of the amount they could lose (as in that won’t be paid back to banks). Banks start creating provisions on a loan given when the borrower starts defaulting on his repayment instalments. Higher NPAs mean higher provisions on the part of banks. Provisions rose to a level where banks, especially PSBs, started making losses. Their capital got eroded as a result. Without adequate capital, bank credit cannot grow.
Privatisation of PSBs is not the right solution:
Since the problem of NPAs is more concentrated in PSBs, some have argued that public ownership must be the problem stating that public ownership of banks is beset with corruption and incompetence. The solution, therefore, is to privatise the PSBs, at least the weaker ones.
There are problems with this formulation. There are wide variations within each ownership category. In 2018, the State Bank of India’s (SBI’s) gross NPA/gross advances ratio was 10.9%. This was not much higher than that of the second largest private bank, ICICI Bank, 9.9%. The ratio at a foreign bank, Standard Chartered Bank, 11.7%, was higher than that of SBI.
Explanation:
PSBs had a higher exposure to the five most affected sectors — mining, iron and steel, textiles, infrastructure and aviation. These sectors were impacted by factors beyond the control of bank management- Infrastructure projects were impacted by the global financial crisis and environmental and land acquisition issues. In addition, mining and telecom were impacted by adverse court judgments. Steel was impacted by dumping from China.
Plans to prevent such crises:
Wholesale privatisation of PSBs is not the answer to the complex problem. We need a broad set of actions, some immediate and others over the medium-term and aimed at preventing the recurrence of such crises.
Conclusion: The task of accelerating economic growth is urgent and acceleration in economic growth is not possible without addressing the problem of non-performing assets. There is ample scope for improving performance within the framework of public ownership. The above suggested solutions should be focused upon.
Connecting the dots:
TOPIC: General studies 2
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
- Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and bodies constituted for the protection and betterment of these vulnerable sections
In news:
PepsiCo India recently took 11 persons including farmers and traders to court for unauthorised use of its protected potato variety. Following a backlash on the social media, and criticism in the press, PepsiCo India dropped the litigation. Farmers whom PepsiCo India sued were found to be growing its FL 2027 variety, which goes by the trade name FC 5.
Legal system:
In India:
The Protection of Plant Varieties and Farmers’ Rights (PPVFR) Act is a uniquely Indian law enacted in 2001, which not only recognises the rights of breeders (for 15 years) in the novel varieties they have developed, but also gives entitlements to farmers. Under the Indian law, farmers virtually enjoy a licence. They can save, use, sow, re-sow, exchange, share and even sell—in unbranded packaging—the produce or seed, even of a protected variety, grown in their fields.
Other countries:
On the other hand, the International Convention for the Protection of New Varieties of Plants primarily protects the rights of breeders while carving out exceptions for farmers.
The US, as a country that rewards innovation, has stiff protection for breeders’ rights. Its Plant Variety Protection Act prohibits a person from selling, marketing, offering, delivering, consigning, exchanging or exposing for sale a protected variety without explicit consent from the owner.
Issues:
Importance of Contract farming:
Way ahead:
Also read: PepsiCo versus potato growing farmers https://iasbaba.com/2019/05/daily-current-affairs-ias-upsc-prelims-and-mains-exam-11th-may-2019/
Connecting the dots:
Inching closer to the brink
Implementation issues in 10% reservation
Facing the climate emergency
No apology, please