Businessman Vijay Mallya’s claim on Wednesday that he met Finance Minister Arun Jaitley before fleeing the country and offered a settlement has sent ripples through government and animated the opposition. Mallya, who defaulted on nearly Rs 9,000 crore in bank loans, fled India in March 2016. He has been living in exile in the United Kingdom, despite the Centre’s efforts to extradite him. Earlier this year, an injured Mallya dubbed himself the “poster boy of bank default” and a lightning rod for public anger. Mallya’s case that he has been made a scapegoat does not quite hold water. But it is true that he is the symptom of a larger problem that threatens to cripple the economy: that of non-performing assets. The new sensation in the Mallya case should lead to the question of what the government has done to tackle it, particularly when it comes to large-scale defaulters.
Is it a coincidence that Mallya’s dramatic revelations emerged around the same time as a note written to Parliament by former Reserve Bank of India governor Raghuram Rajan? In the 17-page missive, Rajan underlines the pressing problem of non-performing assets and the considerable action that still needs to be taken on it. While the Centre exulted over Rajan’s observations that many of the bad loans date back to 2006-2008, or the tenure of the United Progressive Alliance, it needs to take note of other, more sobering, observations as well. Rajan particularly emphasised the government’s failure to go after defaulting promoters and frauds.
Over the past few years, the National Democratic Alliance has given the appearance of putting in place mechanisms and legislation to crack down on non-performing assets. These included amendments to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which had established debt recovery tribunals, and the introduction of the Insolvency and Bankruptcy Code. Yet, as Rajan points out, debt recovery under the first two mechanisms had been poor, because large promoters knew how to game the system. The Insolvency and Bankruptcy Code, analysts now predict, could go the same way.
The major problem seems to be of investigation and enforcement, particularly when it comes to cracking down on large-scale defaulters and frauds, who created non-performing assets through blatantly illegal activities. The system, Rajan observed, had failed to bring “a single high profile fraudster to book”. He also mentions sending a list of high-profile cases to the prime minister’s office, urging that “we coordinate action to bring at least one or two to book”, but is not aware of any progress on this front. The Opposition claims that diamond merchant Nirav Modi and his uncle, Mehul Choksi, both of whom have fled the country, were on the list of frauds sent by Rajan.
Indeed, it has been pointed out that fleeing billionaires, wanted for reasons ranging from graft to loan default, have had it remarkably easy under the National Democratic Alliance. Mallya’s departure was reportedly described as “assisted escape” by one Enforcement Directorate official, while arms dealer Sanjay Bhandari seemed to have made an exit under nose of several investigating agencies. External Affairs Minister Sushma Swaraj herself had helped procure travel papers for the disgraced former Indian Premier League chief, Lalit Modi, apparently on “humanitarian grounds”. While those that got away make the headlines, there are said to be a number of large-scale defaulters within the country’s borders. Even if the government is not directly responsible for Mallya’s getaway, what explains its magnanimity towards the others?
