COMMENT PMC FRAUD RBI
THE CRISIS UNFOLDING at PMC Bank is but the tip of the iceberg of larger, unresolved problems in India’s banking sector. The roots of the crisis in the banking sector, writ large, go back to the unresolved problem of non-performing assets (NPAs), which were magnified in the case of cooperative banks due to lax governance and a dicey business model.
The other interesting element in the public reaction to the PMC Bank crisis is the direct appeal by many frustrated depositors to Prime Minister Narendra Modi to solve the problem, ubiquitous on social media. Some of the videos doing the rounds document absolutely distraught, impoverished depositors literally begging and pleading with the Prime Minister to help them out. One cannot possibly imagine such a response in advanced economies, where the reaction of a disgruntled public would more likely be of anger at the failure of politicians and regulators, rather than one of entreaty. This is a reminder, if any were needed, of the still somewhat feudal relationship between the ruler and the ruled that appears to characterize Indian democracy. What exactly do these folks expect the Prime Minister to do to help their respective personal situations?
The crisis at PMC and, more broadly, unresolved issues in the banking sector as well as other spheres of the economy seem to suggest that the government does not have a coherent and well thought-out overarching strategy for economic policy, including toward the unfinished economic reforms agenda. Rather, policy seems reactive rather than forward-looking. Thus, the corporate tax cuts—which I support—are presented by those close to the government and its acolytes as a magic bullet, with an insouciance and complacency when it comes to other pressing reforms, including of labour laws, and other critical failures such as of infrastructure.
The PMC crisis should be a warning to the government: get serious on economic reforms. Time is running out. ==LIVE MINT (Reproduced in public interest).
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