Banks join hands to recover dues from large borrowers | Business Line

Banks join hands to recover dues from large borrowers | Business Line

Over-leveraged Indian Industries

We have a old saying in Marwari for business failure "Punji Thodi. Vyapar Ghana." This signifies that if Business size is more than the capacity of the capital to serve it, you may be in for business failure. The woes of present Indian Business is over-leveraging. Continuous inflation over the years have made them more confident. Biggest and untold for finance source of Indian Business is suppliers' credit. Instead of considering it as last resort, it is considered as means of finance. Accidentally, the cost of this credit cannot be calculated easily, as this is included in the suppliers' price. Based on the experience of the payment schedule of the buyer, the supplier jacks up the price. Moreover, the number of suppliers drop for habitual defaulters and the remaining suppliers jack up the price disproportionate to interest on borrowings. This adjustment is built over a period and its immediate impact cannot be calculated, but it will be definitely higher than the bank interest, as why one will block his capital in debtors.

While, the payments retained for performance is understood, but it is not the only reason for late payments.

It is high time, Indian Banks insist on considering the suppliers credit as a debt in the books of the business to arrive at debt-equity ratio. 

Rural Reforms-II

Continuing with need to consolidate farm lands, I like to suggest the consolidation of small villages. 

It is very difficult to provide basic facilities like health, education in small villages with habitations below 1000. Though we can provide some facilities through Govt. subsidy, we must think of sustainable model, which is economically feasible. It is very difficult for people to leave their parental place, but we have seen migration for the purpose of job. I think, we can give a thought on the subject.

We can select some villages with population above 2000 near the National or State Highway. These villages be provided with at least a school, a primary health centre, a bus stop (frequency of buses should not be more than a hour, as they already have highway connectivity). Residential appartments should be built under Indira Awaas Yojana, which should be offered free for those migrating permanently from nearby small villages. When the need for residential accomodation not much away from their cultivable land is fulfilled, migration may be acceptable. This will help them in visiting their workplace in towns and cities. Good road connectivity will also help attract teachers and healthcare professional to visit the village. The land freed from homes in small villages should be utilised for rain-water harvesting by digging ponds and planting neem and peepal trees. Apart from rain-water harvesting, Neem trees will reduce the need for pesticides in farming and Peepal trees will provide extra oxygen needed in the atmosphere. 

This is a big call for our planners, but deserves a look. 

Rural Reforms-I

One of the major success of  Indian land reforms in late 1950s and early 1960s was consolidation of land holdings.

Benefits to the farmer - It was observed that a farmer is holding land in different places. This led to low productivity as much of the energy of the farmer was lost in protecting the boundaries than doing real farm work. Even if his boundaries are protected, he had to devote considerable time for supervising scattered farms. Moreover he cannot use irrigation facilities efficiently due to non-contiguous nature of his land holdings.

Benefits to the Society - Improved farm production is always better for the society. Further, the consolidation of land holdings released some surplus land locked in boundaries of small farm units.

Inspite of the success achieved by Uttar Pradesh, Punjab and Haryana, other states did not fared well. However, the Western India was somewhat saved from scattered land holdings due to co-operative movement and land-renting. The situation in Eastern India is really grim. Though the co-operatives were also tried there, but it failed because their main objective was to get the incentives from Govt. than providing benefit to its members. The small and scattered land holdings in these states make the acquisition of land for industries by direct purchase method nearly impossible.

We need another attempt for consolidation to begin. This is applicable for earlier successful states as well as long time has passed since last consolidation and land holding pattern changes over the years due to various reasons. Excess land realised should be used to develop social assets like water reservoirs, forest cover, solar farms etc.

Other suggestions on rural reforms will follow.

Privatisation of Govt. educational institutions

Primary and secondary education (till Madhyamik) in India is classified into two parts. At one end, we have Private institutions with very high fee structure making them unaffordable to large part of the society. On the other hand, there are Govt. run institutions with little or no fee at all. These institutions also provide free mid-day meal among other freebies. The freebies are offered to attract the poor population to schools. But at times, these freebies are important to some students than the learning itself. Even the teachers in these schools enjoy the lack of interest in studies among the students as this reduce the pressure on them for updating their knowledge. Ignoring the occasional blushes, the percentage of students from these institutes opting for higher study reflect a very sorry state of affairs. The economic reasons are often blamed for this, but their performance in competitive exams tell the true storey. 

While complete overhaul is not possible at one go. We can take steps to offer the management of some selected institutions to private sector (referred as managing body) for a limited period, say three years on following terms:

1. The amount spent by the Govt. on salaries of teachers, mid-day meal or other running expenses be paid to the managing body. 

2. The managing body will be free to engage teachers of their choice. 

3. The managing body will not enhance the fee payable by the students within this period.

4. The managing body will continue the mid-day meal, books, uniforms etc. as the students were receiving earlier. 

5. The managing body will file the action plan to improve the academic standards of students for three years as a whole with time limits broken into a period of six months. 

6. The managing body will file the performance report alongwith comparison with previous period and their action plan every six months.

7. The managing body will file their action plan for next six months at the end of every six month interval. 

8. The managing body will also file the report on extra-curricular activities of their institutions at the end of every six month. 

9. The managing body will have to keep the record of students passing out of the institute, specially their future course of action.