Thursday, April 2, 2015

Narendra Modi: The Banker?

Yesterday the prime minister of India, Narendra Modi, spoke at a financial inclusion conference organized as part of RBI’s 80th anniversary celebrations. The kind of advise he was giving to the central banker of India, Raghuram Rajan, shows a sign of the kind of troubles that are coming in future for the Indian economy. The height of hubris with politicians is that they always think as if they are knowledgeable about everything; as if they are omniscient. They want to impose their own faulty ideas on the whole country. This is especially true with Narendra Modi. Since coming to power last year, he is constantly pushing the whole nation in a direction which he thinks is right for this country. He is driving everyone crazy to fulfill his personal dreams like Swaccha Bharat or Make in India. He did the very same thing yesterday also in his speech by directing RBI and commercial banks to do bidding for his own personal dreams. I analyze some of his agendas for the banks below.

1. Banks should fund marginal farmers in a way so that no farmer commits suicide due to excessive debt.

This is truly bizarre. This is like trying to cure a patient by bleeding him more! The very first reason why farmers are committing suicide is this excessive debt itself so the question is, how giving more loans and making farmers more indebted is going to safeguard their lives? Allowing them to borrow more will in fact worsen their situation further. And, it is none of Modi's business to tell bankers to fund marginal farmers or anyone else. Modi is not a professional banker. If we have free market banking then all banks will take extreme care when giving loans to anyone. That way, those farmers who can not afford to pay back their loans will not be heavily indebted to begin with. If banks give loans to sub-prime borrowers then that will destabilize the whole financial structure of Indian economy in the long run as bad-debt pile up on bank's account books.    

2. Banks should give up the fear of non-performing loans while lending to marginalized sections of society and to those excluded from the formal financial system.

This is sign of a big danger. Again, Modi is not a banker and he is not going to face the bad consequences of ignoring non-performing loans so he can utter such nonsense. By giving such illogical advise - and a kind of forced direction to the banks to work on - he is going to put the whole financial structure of Indian economy in danger. Raghuram Rajan is already warning about piling on bed-debt in infrastructure sector (see here). If banks will give up the fear of non-performing loans then that will bankrupt and break every banks in the end, and that in turn will destroy the whole economy. When banks will declare mass insolvencies, there will be big bank runs, money printing by RBI to rescue these banks which will result in hyperinflation, tax payers money will be gobbled up to bailout these banks or depositor's money stolen to bail-in them, and many more such dire consequences. Only an irresponsible person like Modi can make such comments.  

3. Banks should fund more small businesses and entrepreneurs to help increase employment and productivity.

Again, Modi is neither a banker nor an economist. Who says that funding entrepreneurs and businesses will create employment and increase productivity? The fundamental question is, from where that funding is going to come? If it is coming from prior real saving then that will generate wealth if entrepreneurs use that real pool of saving to serve the consumers well, but if it is coming from RBI's money printers, which is the likely case, then it will destroy the economy in the forms of boom-bust cycles, inflation and wealth inequality.

Employment and productivity increases come via prior production of real goods, saving of these real goods, investment of it in profitable way and accumulation of physical and human capital. Money printing is not saving.

4. They should partner in knowledge funding so that the poorest of students can be financed to be able to pursue courses of their choice.

Once again, Modi is asking the banks to fuel a "student loan bubble" in India just like in America. American banks have created a huge "student debt bubble" which is now threatening the US economy (see here, here, and here). If the Indian banks are forced to follow Modi's dictates then very soon that student debt bubble will put the Indian students and the economy in big danger too. When poor students will not be able to repay their student loans, they will also commit suicide like farmers today! It is none of Modi's business to ask bankers what to do and how to do.

5. Banks should convince their employees to let go of the cooking gas subsidy so that it can be used to make these cylinders more affordable to the poor, who still use choolahs.

Well, I think, first Modi can let go his 10 lakh rupees suits, everyday new fancy clothes, costly foreign tours etc., and do some productive work in the market before advising others to do the same. He is a leader of this country and should lead by example instead of empty rhetoric!!!

6. Bankers should fund farmers to grow more trees where crops have failed to reduce carbon emissions and maintain soil fertility.

Modi wants to use banks to stop (non-existent) "global warming" too!!! This is height of arrogance and stupidity.  

7. RBI must ensure the paper and ink used in minting currency is Indian and not imported.

This is at best ridiculous. His is pushing his Hindu nationalism virus everywhere. First, there is nothing great in having a paper currency. In fact, the government paper currency is the root cause of all problems that the Indian economy is facing. Second, what's so great in using the Indian paper and not a foreign paper and ink? According to this logic, India should stop importing everything from outside and just kill itself!

As I have said above, Modi thinks that he is an expert in every field and since coming to power is taking everyone for a ride in his dream car as if other people don't have their own dreams to fulfill. Why the whole country should go mad after dreams of this one guy is the most important question? Why should people live their lives according to wishes of this one man? Why not let everyone freely live their lives as long as they don't aggress upon others lives and property? As long as this fundamental question is not answered and implemented, this country is going nowhere.
nks should give up the fear of non-performing loans while lending to marginalized sections of society and to those excluded from the formal financial system.

Read more at:
at a financial inclusion conference organized as part of RBI’s 80th anniversary celebrations

Read more at:
at a financial inclusion conference organized as part of RBI’s 80th anniversary celebrations

Read more at:

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