Making IBC little more pragmatic
Last week while on a visit to Mumbai, I noticed few aircrafts
belonging to the now defunct Jet Airways parked on the airport. The aircrafts
had gathered lot of dust and pigeon crap. I believe it's more than a year since
these aircrafts must have been parked there. The owner/lessee of these aircraft
owes billions of rupees to various lenders and operational creditors. The
company is undergoing the bankruptcy proceedings and apparently so far no buyer
has shown any interest in acquiring the company.
I wonder, why the bankruptcy procedure be made little pragmatic!
I feel one of the key purposes of the bankruptcy process must be to minimize
the losses to the lenders and operational creditors. If these aircrafts that
are lying idle were leased to other airlines till the completion of IBC
process, at least some money could have been recovered. Or at least, Jet
Airways could have been saved from incurring parking charges (which it can
never pay), and machines could have been saved from major overhaul cost due to
lying idle (again that cannot be paid by the Jet Airways).
A bureaucrat obviously will never take any initiative in this
direction, as it would increase his workload and responsibility. The
politicians who travel everyday and see these aircrafts rusting and gathering
dust could only take an initiative, as it may require some legislative changes
also.
Government may have done a lot by not doing anything
Talking with a senior bureaucrat last week I realized the
importance of sophistry in running the government. To my inquisition about the
below par performance of the Make in India program, his answer was the best
example of sophistry.
He said, "the government went slow on Make in India
program. We were never comfortable about creating large capacities using
borrowed money to increase our integration to the global supply chain in these
uncertain times. Our strategy of going slow has bore brilliant fruits. Imagine,
if we integrated into global supply chain like China, and all those factories
were shut down due to global demand collapse. All of these would have defaulted
on their loans, totally crushing our financial system."
After the God explaining that "sometime inaction is the
most appropriate action", this is perhaps the best explanation I have
heard.
Clamor for rate cut may be misplaced
A lot of market experts have expressed their anguish over RBI
not making an "emergency rate cut". Unfortunately, they are seeking
rate cut to comfort the financial markets and not the economy. Their complaint
is that stock markets are sliding fast and RBI is doing nothing to stop the
slide, even though it has many bullets preserved in its barrel.
These experts appear totally oblivious to the fact that dramatic
cuts by some large central banks have done almost nothing to arrest the market
slide.
Even, from the real economy view market, a rate cut now would
have yielded miniscule results. The capacity utilization levels are running
persistently low and demand for new investment is low; the banks and NBFCs are
mostly risk averse and not willing to lend; the system is liquidity surplus;
RBI is providing 3yr funds at 5.15% and buying bonds to ease the pressure on
longer maturities. A rate cut now may only disturb the equilibrium in currency
market. I would rather like RBI to cut substantially when things stabilize a
bit and banks are willing to take risk. For now, the rate cut would comfort
stock markets for 2hours or may be less than that.
