Title: No easy solutions
(A ‘bad bank’ is not a magic bullet; tackling NPAs requires other structural reforms as well)
Context:- Union Minister Piyush Goyal, currently in charge of the Finance Ministry, has announced the formation of a committee to assess the idea of special asset reconstruction companies or asset management companies to take over bad loans from banks. The bankers’ panel has been given two weeks to revert.
The idea of a ‘bad bank’ is not new. Chief Economic Adviser Arvind Subramanian had suggested the creation of a Public Sector Asset Rehabilitation Agency (PARA) to deal with what he described as India’s “festering twin balance sheet problem”.
By this he meant over-leveraged corporates unable to service debt or invest afresh, and banks hit by non-performing assets (NPAs) cagey about fresh lending. This overhang hurts new investments and continues to dent India’s medium-term growth and job creation prospects.
A professionally-run PARA, or the so-called ‘bad bank’, could assume custody of the largest and most difficult-to-resolve NPAs from lenders’ balance sheets. This would allow banks to focus on extending fresh credit and supporting the pick-up in growth.
But there are good reasons why the Finance Ministry left the bad bank idea in the cold over the past year and a half – among them the fact that the new entity would need a lot of capital support, just as banks do.
Some of this was envisaged as coming from the Reserve Bank of India through a complicated transaction. After a long debate within government, under Finance Minister Arun Jaitley, it was noted that setting up a new institution would be very time-consuming and there would be challenges on its ownership structure as well as the pricing of bad loans taken over from banks.
As former RBI Governor Raghuram Rajan had pointed out, a government-owned bad bank could still face scrutiny from the Comptroller and Auditor General and the Central Vigilance Commissioner.
Whether or not the knots in the bad bank idea are sorted out, the government should focus on other reforms as well. One, amend the Prevention of Corruption Act to shield bankers and officers from investigative witch-hunts.
Two, back bankers to take demonstrable action against wilful defaulters.
And three, take a hard look at what ails the Insolvency and Bankruptcy Code.
Title: Open data, open government
(The time is now ripe for the government to create a data-driven governance architecture)
Context:- The new wave of a technological revolution will not be from pure data or access to consumer behaviour. The application of data and their assimilation with solving social problems, enabling better governance and powering elected governments to serve their citizens better is ushering in a new revolution. When Artificial Intelligence is coupled with open data, a real paradigm shift begins.
Privacy and consent
“Datafication” of businesses has also brought to the fore the criticality of developing data management, storage and privacy laws.
While concerns around privacy and consent have been well articulated, open government data is a silent but powerful movement unfolding globally.
Over 100 governments have already signed a charter to proactively share data collected by various government departments, for public consumption.
Fostering collaboration, enabling creative innovations and collective problem-solving are giving accountability and transparency a shot in the arm.
Underutilised asset
Open government data means publishing information collected by the government in its entirety, such as government budgets, spending records, health-care measures, climate records, and farming and agricultural produce statistics.
Unfortunately, the potential of this national asset is being grossly underutilised. We need to act on it without further delay for three basic reasons.
One, such data collected by governments are for citizen welfare; hence they have an implicit right to benefit from the information.
Two, data sets such as government budget usage, welfare schemes and subsidies increase transparency and thereby build trust.
Third, and most important, it paves the way to develop technology-led innovations which can unlock massive economic value, thereby benefitting even the poorest of poor, the under-represented and the marginalised.
For instance, availability of data on yearly produce of crops, soil data health cards and meteorological data sets can help companies develop customised crop insurance solutions with specific risk-based pricing.
Similarly, information on availability of facilities in public hospitals, current occupancy rates, hospital and demographic data can pave the way for curated health-care applications
Research by PwC(PricewaterhouseCoopers) in Australia estimated that open data can add an additional 1.5% to the country’s GDP.
India currently houses more than 1.6 lakh data resources and has published over 4,015 application programme interfaces (APIs) from across 100-plus departments. As a result, India’s global ranking by the Global Open Data Barometer has jumped.
Final Words
The time is now ripe for the government to create a data-driven governance architecture by building digital trust in the economy and its intent.
Vocabulary words:
Fester (verb) = Become worse or more intense
Leverage (verb) = Use borrowed capital for (an investment), expecting the profits made to be greater than the interest payable
Cagey (adj) = Secretive, reluctant to give information owing to caution or suspicion
Envisage (verb) = Foresee, forecast (परिकल्पना)
Scrutiny (noun) = Critical observation or examination, inspection (छानबीन)
Sluggish (adj) = Slow moving or inactive (निष्क्रिय)
Ripe (adj) = Mature, fit, ready (योग्य)
Audacity (noun) = A willingness to take bold risks, rude or disrespect behaviour
Assimilation (noun) = The process of taking in and fully understanding information or ideas
Usher (verb) = Show or guide (someone) somewhere
Consent (noun) = Agreement, concurrence (सहमति)
Bring to the fore (idiom) = To emphasize something or make it more noticeable
Foster (verb) = Encourage the development of, promote
Paves the way (idiom) = Make progress or development easier
Sporadic (adj) = Occurring at irregular intervals
Definition
Paradigm shift = A fundamental and important change in approach/idea
Watershed moment = A critical turning point in time where everything changes that will never be the same as before.
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