ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Central Budget 2002-03 : Creating Public Discredit for Asset-Grabbing

Increasing the vulnerability of the lower-income groups, including the fixed-income middle class, is part of the strategy of global capital for grabbing their assets. And there are perhaps few governments anywhere which is prepared to pursue this strategy so callously as the one in New Delhi.

Law and Finance : The UTI Mess

Newspapers for the past few weeks have been full of news about the UTI mess. And it is little wonder given that we have had massive losses in a mammoth mutual fund, high profile arrests, finance ministers pointing fingers at each other and even a prime minister offering to resign. Exactly what happened is still somewhat unclear, but the basics are as follows: The managers of UTI appear to have had their arms twisted (by a combination of ministerial pressures and private sector inducements) into making large investments in some flimsy high-tech stocks. Along with the rest of the high-tech equity market, UTI’s fortunes have suffered in recent times – and the losses with respect to the flimsy high-tech stocks were significant. That reversal of fortunes resulted in the once mighty UTI having to take some drastic steps such as restricting sales and repurchases of its US-64 fund. As was discovered later, however, this was not before some well-connected companies pulled out their money.

Time Running Out

To say that something is rotten in India’s financial sector is to state the obvious. The UTI imbroglio has stalled parliament, precipitated a prime ministerial threat to resign and strained relations within the ruling coalition, apart from causing anxiety, hardship and worse to large numbers of small investors. Close on the heels of the UTI crisis comes the news that the country’s oldest development finance institution, IFCI, would default on debt servicing unless the government bailed it out with fresh infusion of funds. It turns out that IFCI’s gross non-performing assets are close to 30 per cent. With two-thirds that level of NPAs, IDBI, the biggest public sector development finance institution, is not far behind. ICICI claims an NPA level of a little under 10 per cent. The fact is that all these figures have limited credibility, given the financial institutions’ expertise in evergreening loans – that variant of the art of throwing good money after bad – under which a fresh loan is granted to a debtor for the purpose of servicing past loans that escape, in this manner, being classified as non-performing.

Calcutta Diary

The UTI fiasco has let down the middle class. It is a politically sensitive issue and the government is bound to launch into a number of firefighting operations. But once befuddled, twice shy. There is a danger of a revolt by the middle class.
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