There is more to the Covid-19 menace as it leads to a dreadful rise of a whopping Rs 66-lakh crore in personal loan defaults in the country. This is in addition to the accumulated MSME debts of Rs 2.26 lakh crore. Several individuals are facing auctions by banks and financial institutions. The MSMEs are facing temporary or permanent closure and yet seeking more loans to survive. Personal debts stand at Rs 27.86 lakh crore and people are finding it difficult to repay. Another Rs 14.64 lakh crore accounts for individual housing loans, Rs 2.38 lakh crore in vehicle loans, credit card dues total Rs 1.02 lakh crore. People are also unable to repay education loans of Rs 62,720 crore and loans against jewellery worth Rs 62,221 crore. The education, housing, and jewellery loans are often linked to each other, as individuals unable to pay one loan take recourse to the other. Often, none of them is fully repaid, revealing the poor economic status of the loanees. The people also suffer from high taxation. Most of them, except for a small segment, are income-tax payers. As their deposits are being eroded by tax deduction at source (TDS) on meagre interest earnings, the national crisis deepens. Many of them compromise on their food intake. The debts are affecting the banking, FIs, and non-banking (NBFC) sectors. There are calls for a drastic income-tax reduction. If that happens, it can help many sectors coming out of difficult situations and help banks reduce their NPAs. Fitch Ratings indicate the NBFCs facing near-term pressure as “non-performing loans (bad loans) are likely to rise as renewed activity restrictions have impaired borrower repayment capacity”. The woes of individuals, small businesses, and others surviving on small incomes may multiply as banks and financial institutions plan tough recovery drives.
The lending institutions may start auctioning their pawned gold, vehicles, and other assets just as the festival season begins. This might mar festivities and create societal and political problems. The FIs put off selling or auctioning the collaterals during the pandemic but now they are finding their survival difficult and some like HDFC and Axis are indulging in allegedly unethical means to shore up their cash books. Both these banks have been penalized for this. The ICICI is mulling the auction of pawned jewellery and vehicles. Jewellery loans indicate that households are in dire straits and rising numbers of suicides could be linked to people’s deteriorating financial conditions. The fall in sales of FMCG goods sells or vehicles also reflects the worsening situation. The political thinkers are yet to mull over this grave situation. MSME minister Nitin Gadkari told the Rajya Sabha about a Khadi and Village Industries Commission (KVIC) study on the pandemic impact on micro-units under the PM Employment Guarantee Programme (PMEGP) revealing that 88 per cent of the beneficiaries were “negatively affected” by the pandemic. The private insurance sector is in a shambles. The sale of the LIC banks and LIC to the private sector cannot be a welcome step as it further adds to the deterioration of the economy and leads to bigger job losses. The entertainment, cinema included, and education sectors are also in deep crisis. Many cosmetic programmes, incentivisations, loans, and even direct benefit transfers, surprisingly, are not boosting the economy. The economic contours have to change, free from Manmohanomics, and a new economy needs to be conceived with discussions with all stakeholders and political parties. The post-demonetisation downfall has to be stemmed for the country to become an effective power. It has to begin with empowering the individual in real financial terms, including a cut in taxes.
(The writer is a senior journalist. The views expressed are personal.)
