Kabir Upmanyu 19.07.17
Almost half a century before Prime Minister Narendra Modi announced demonetisation, there was bank nationalisation. On 19 July 1969, by means of an Ordinance, the Indira Gandhi-led Congress government nationalised 14 commercial banks of the country.
On Bank Nationalisation Day, 19 July, The Quint brings you a lowdown of what this measure entailed, why was it implemented in the first place, how it was intertwined with the politics of the day, and whether it conveyed any significant economic benefits to country.
The What And Why of Bank Nationalisation
The measure of bank nationalisation came into effect on 19 July 1969. The ownership of 14 major commercial private banks - estimated to be controlling 70 percent of the deposits in the country - was transferred to the government led by Indira Gandhi, who was sworn in as the Prime Minister over three years ago after the untimely death of Lal Bahadur Shastri.
The ordinance that made bank nationalisation possible on 19 July was called the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, which was soon after followed by an Act of the same name.
Why Was Nationalisation Necessary?
Till 1969, the State Bank of India (SBI) was the only bank that was not privately owned. It was called the Imperial Bank before its nationalisation in 1955.
There were primarily two reasons why the ownership of these 14 banks was transferred to the government. The first was the unpredictable manner in which these functioned as private entities.
As this report in The Economic Times points out, there were 361 private banks which "failed" across the country in the period from 1947 to 1955, translating to an average of over 40 banks per year. More often than not, this resulted in depositors losing all their money as they were not offered any guarantee by their respective banks.
Second, these commercial banks were seen as catering to the large industries and businesses. Agriculture, as a sector, was largely ignored by these banks. In 1950, only 2.3 percent of the bank loans were channelled to farmers. The situation, instead of improving, worsened in the years hence, with the figure declining to 2.2 percent by 1967.
So What Benefits Did Bank Nationalisation Promise?
In light of these circumstances, the stated motive of this measure was to make credit availability easy for what was called the “priority sector” – constituting agriculture, small industries, traders and entrepreneurs.
Moreover, the focus was also on opening up of bank branches in the rural and backward areas.
Was There a Prelude to The Nationalisation Measure?
As the researcher Suhit K Sen notes in his paper ‘The politics of bank nationalization, 1969-76’, the concept of bank nationalisation started gaining currency in the 60s, riding on the demands from a radical socialist section within the Congress party. However, this was countered by the so-called ‘old-guard’ (Syndicate) belonging to the same party.
Therefore, in light of these opposite currents, a middle path was reached in the form of the social control policy for banks.
Described by Sen as “an utterly vague compromise,” social control of banks took shape in 1968. Vesting greater powers in the government, the policy was marked by the formation of a Finance Minister-chaired National Credit Council, expanding the RBI’s jurisdiction as well reconstitution of the banks’ management in order to give control to the non-industry people.
The Politics Behind Nationalisation of Banks
The nationalisation of the 14 banks in 1969 took place when the Congress party was undergoing an internal crisis, marked by a bitter conflict between Indira Gandhi and the Syndicate, which ultimately led to its split in the same year.
Bank nationalisation served to widen the chasm between the two factions. While Indira Gandhi went on to eventually support the measure, Finance Minister Morarji Desai (a key Syndicate leader) made his reservations against it amply clear.
In fact, bank nationalisation coincided with the infamous ouster of Morarji Desai as Finance Minister. As Gandhi took charge the portfolio herself, Desai conveyed his displeasure in a letter, in which he stated:
Ultimately, the measure proved to be a political masterstroke for Gandhi. As Sen observed in his paper, bank nationalisation instantaneously made the public rally behind Gandhi. It reaped rich political dividends for her faction, not just in the short term, but also for the national elections of 1971 as well as the state elections of 1972.
Forget Political Goals, Did Nationalisation do Anything Useful For The Economy?
Not really.
In this regard, Sen asserts that the move "failed to, or perhaps was never meant to, fulfil its stated populist, radical promise of contributing to either the eradication of poverty, or more realistically, scaling down inequalities of income, wealth and entitlements, especially in rural India.”
The performance of nationalised banks, on the parameters of branch expansion as well as increasing the number of deposits, never surpassed that of private banks.
Moreover, even while it did serve the agriculture sector, the ones who reaped the maximum benefits in terms of borrowings were the well-off farmers, with the poorer and the needy ones being excluded. The same trend applied in the case of traders, businesses and industries.
Nonetheless, 11 years hence, a second nationalisation took place in April 1980, wherein six more banks were put under government control. And ironically in 2017, nationalised banks are struggling with bad loans of over 10 percent of their assets, while new private banks like HDFC Bank and several others find themselves on the ascendant.
Demonetisation . . .
One year later . . . .
Indians queue near an ATM counter at an Indian bank to withdraw money in Bangalore on November 21, 2016.
Last year on November 8, Indian Prime Minister Narendra Modi declared that all 500 and 1,000 rupee notes would cease to be legal tender in a surprise television announcement. Demonetization, as it was called, applied to 86% of the value of all currency in circulation.
The goal, Modi said, was to eliminate fake Indian currency notes, curb terrorism, and force out stashed cash people had hidden to avoid paying taxes. Later, when criticism erupted, the government said demonetization would also help India switch from cash to digital money.
Some good
The good news starts with the widening of the tax base. The number of income tax returns filed for 2016-17 year grew by 25%, which is crucial to ease pressure on public finances in a country that has well over 1.25 billion people but less than 30 million file tax returns.
However, there have been conflicting claims on the tax surge. In May, Finance Minister Arun Jaitley said 9.1 million new taxpayers were added, but in August, Prime Minister Modi said there was an increase of 5.7 million taxpayers after demonetization. Meanwhile, the Economic Survey put the number of new taxpayers at 5.4 million, or just 1% of all individual taxpayers.
Digital transactions have surged, too. More efficient than paper money, digital money is expected to bring in transparency into the system. The hands-down winners are the mobile wallet players, particularly Alibaba-backed Paytm, which now has 250 million registered users. That's a 105% increase from January 2016.
Innovation emerged as well, such as the government-backed payment app BHIM, which facilitates easy electronic transfers between bank accounts. But digital payments haven’t substituted the use of paper money as India still remains a cash economy.
So do these few improvements set off the hardship and job losses among the most vulnerable?
More bad
Demonetization wrecked the primarily cash-reliant rural economy, adding distress to mounting debts. The agricultural sector, which is behind in reforms and investment, worsened due to cash shortages, plunging demand and collapsing prices. Prices of potatoes, onions and tomatoes were half of what they had been a year before in January-February. The outcome was widespread suffering and farmer unrest in the states of Madhya Pradesh, Maharashtra, Gujarat, Tamil Nadu and Rajasthan.
The downturn spilled over to other sectors. A survey by India Development Foundation found that production took a hit, accompanied by fall in employment, wages and job losses in the two months after demonetization. In Mumbai, more than 50% of the power loom units were shut down, impacting around 300,000 workers. Around 1.5 million jobs were lost in the first four months of this year.
Surveys done by the Punjab Haryana Delhi Chamber of Commerce and Industry, All India Manufactures Association and State Bank of India showed that the impact was between 50% and 80% on small and unorganized sectors. The Reserve Bank of India’s Annual Report (RBI) stated that industry slowed down.
The economy is also still coping with aftermath. In the first quarter of fiscal 2017-18, growth slumped to 5.7% compared to 7.1% in the same quarter of the previous year.
Although there is no way to be absolutely certain that the cause of all this is demonetization, there are some telltale signs: Rural loans increased by only 2.5% between October 2016 and April 2017; the growth in industrial output in April was 3.1%; and the construction sector registered negative gross value added growth.
Too high a cost?
On top of this, little black money has been brought to light. Of the $240 billion USD worth of the notes removed from circulation, the government estimated that as much as a third wouldn't be deposited in banks, implying that black marketeers would junk their undeclared cash than risk being found out. But this didn’t happen. According to RBI's report, banks received around $220 billion USD, or 99% of the money.
Even as RBI stated that there has been a significant increase in the rate of fake currency note detection, the government’s freshly minted 2,000-rupee notes, issued after demonetization, are already being counterfeited. If this was not enough, the RBI suffered a loss printing new currency notes -- the cost of printing notes was nearly $900 million in 2016-17, which is double the $450 million spent a year prior.
All in all, demonetization accomplished too little while causing too much collateral damage. But despite the economic toll, Modi has solidified his power base.
The cashless society is a con – and big finance is behind it
Times of India, Crop Insurance, 404 ERROR, Sorry, Page Not Found
Karnika Kohli
Media
Politics
26/Sep/2017
New Delhi: A story carried by the Times of India‘s Jaipur edition criticising the Narendra Modi government’s Pradhan Mantri Fasal Bima Yojana on September 14, 2017, was taken down from the newspaper’s website within hours of publishing.
The story by Rosamma Thomas reported how the scheme, which was hailed as a “safety shield” for farmers, has turned out to be just another way of the government taking Rajasthan’s hapless farmers for a ride.
Launched in 2016, Modi government’s scheme has so far largely benefitted the insurance companies, which, thanks to high premiums and unpaid claims, logged profits of nearly Rs 10,000 crore till April, according to the office of the Comptroller and Auditor general (CAG) and the non-government Centre for Science and Environment (CSE).
“The deduction was made without warning. The bank had no clue about what I had sown. Moreover, Rs 1,718 has been deducted as “inspection charges” though no one came for inspection. To top it [all], the premium has been deducted when the crops were safe and beyond the risk period. My crop was uninsured for 80% of the crop cycle, when the risk was at the highest. The premium has now been deducted for the full period,” a farmer who cultivates cotton and guar in equal halves in his 15-bigha farm told TOI. In July 31 this year, Rs 7,827 was deducted from his SBI account as premium for crop insurance.
As it stands now, farmers have very little to gain from having their crop insured, while private insurance companies are raking in the profits, agriculture expert Devinder Sharma wrote in The Wire last month.
The TOI report was not only embarrassing for the Modi government at Centre, but also for Rajasthan chief minister Vasundhara Raje, who has faced a lot of flak in recent months from farmers in her state.
Thomas told The Wire that she was asked to remove the word ‘fraud’, which wasn’t originally part of the copy she filed and was added by the desk while editing the draft, and get a quote from the authorities. However, the story was spiked even after she complied with these requests.
“We were not happy with the introduction in the story,” claimed Kunal Majumder, TOI‘s resident editor for Jaipur, even though the story was published in his edition and would have been added to the Jaipur bureau’s list of stories that form part of the ‘Times News Network’ (TNN) with his approval. When asked if TOI will carry a clarification or a correction, Majumder said, “This isn’t a normal procedure. We have sent a revised copy to Delhi. Waiting for them to approve it.”
Asked to clarify what he meant by “sent revised copy to Delhi”, he said that they were waiting for Ranjan Roy, who heads TNN, to approve the new draft.
When contacted, Roy claimed that he was unaware of any such incident and that “the TOI website had a life of its own”, implying that the decision to take down the story was taken by the online editors.
TOI.in, whose editor Prasad Sanyal quit a few months ago, is currently headed by Times Internet Limited’s Rajesh Kalra. Under his direction, staffers say, the website – India’s largest news portal – has become especially accommodating towards advisories and releases from the Prime Minister’s Office and the government’s Press and Information Bureau.
Since Kalra took over TOI.in in 2014, the website’s editors have been unofficially asked to play up positive stories about the government. Former and current employees, who wished to remain anonymous, recalled multiple instances when they were asked to ‘drop stories critical of the government from the homepage, section landing pages and social media’. On some occasions requests were also made to the SEO team to ‘deindex’ stories so that they don’t show up in Google search.
“We were often provided data sourced from government to write positive stories, which were later promoted on the website,” said a former employee. Asked why the crop insurance story had been taken down, Kalra too declined to comment.
Ironically, the story was also uploaded under the ‘Good Governance’ section by TOI’s sister publication Navbharat Times as it still available on its website.
This section is used by the Times Group to highlight positive stories that fit Modi government’s ‘Acche Din’ narrative.
Editor’s proximity to Jaitley
This isn’t the first time the TOI website has taken down a story carried by the print edition. In July, a story published by the TOI’s Ahmedabad edition about an apparent increase of “300%” in BJP president Amit Shah’s assets over the past five years was removed from the the newspaper’s website within hours of being published. While the BJP issued a statement about the asset increase after being slammed by the Opposition for getting the story removed, no explanation was ever given by the newspaper for pulling the plug on the news item from its website.
The Wire had also reported that TOI decided to delete its tweets and Facebook posts alerting readers to another story involving Smriti Irani: ‘PIL accuses Smriti Irani of fraud in MPLAD funds’. Irani is believed to have objected to the story, which appeared on July 27, 2017.
Meanwhile, sources at the TOI in Delhi said the decision to pull the Rajasthan crop insurance story was taken by executive editor Diwakar Asthana even though the revisions that he had himself suggested were incorporated. Despite multiple attempts by The Wire, Diwakar remained unreachable.
Asthana is no stranger to controversy. A leaked WhatsApp message in June revealed the extent of collusion between TOI editors and the Narendra Modi government. Sent mistakenly on an internal TOI journalist group by Asthana, the message detailed how he, along with former Economic Times and OPEN magazine editor P.R. Ramesh, lobbied on behalf of an unnamed income tax official with finance minister Arun Jaitley:
More specifically, the meeting between Asthana, Ramesh and Jaitley dealt with the manner in which the government decided postings for the “ITOU” panel. ITOU panel here likely referred to “income tax overseas units” – groups of income tax officers that are posted at Indian embassies abroad and serve as a liaison between Indian and foreign tax authorities.
During the meeting, the journalists asked Jaitley and his private secretary Simanchala Dash (whom the WhatsApp message referred to as “Dash”) that this unnamed income tax official be assigned the ITOU posting in London.
The above mentioned instances of TOI censoring anti-government stories answer an important question raised by The Wire in June: If editors from the Times of India and other newspapers have the ability to push for personnel changes with government ministers, do these ministers, in turn, have the ability to influence the editorial line in these newspapers – including what gets printed and what get’s taken down?
Intimidation
Newslaundry, which first reported the taking down of Rosamma Thomas’s story, also said that she had received a WhatsApp message on September 17 from an unknown person stating that referred to Gauri Lankesh’s recent assassination and said people who dare to write against Prime Minister Narendra Modi or the RSS would not be spared.
Similar messages have been sent anonymously to journalists around the country but are not believed to be linked to specific stories.
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