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19 April 2016 Editorial


19 APRIL 2016 

Grounding Vijay Mallya

The suspension of Vijay Mallya’s diplomatic passport by the Ministry of External Affairs, within a week of his failing for the third time to heed an Enforcement Directorate summons to appear in connection with a money laundering probe, is a prompt and appropriate step. The Directorate had repeatedly sought his personal presence and, in the face of non-compliance,wrote to the MEA seeking revocation of the passport. The Ministry, which has given the liquor baron a week’s notice to explain why the official travel document should not be revoked or impounded, should increase the pressure on him to return to India and face the law of the land. As a sitting member of the Rajya Sabha — he is due to retire on June 30 — and as someone who portrays himself as the victim of a campaign of calumny and asserts that he has neither the intention nor any reason to abscond, it is appropriate that he submit himself to due process. At its last hearing, the Supreme Court had given him time until April 21 to clarify when he would appear before the court. Regardless of his dim view on the merits of the allegations against him, Mr. Mallya still has to discharge his liabilities, which the banks that have lent to his companies have quantified at about Rs.9,000 crore. He also has to answer the Central Bureau of Investigation’s charge that the Rs.900-crore loan Kingfisher Airlines had taken from IDBI Bank involves money-laundering; it is in this connection that an open-dated, non-bailable warrant against him was issued by a special court in Mumbai.

Mr. Mallya’s elbow room is shrinking, and he must know that he is not merely battling the legal consequences of corporate loans gone bad. He is also battling a widespread perception that the loans went bad because of his profligate ways, poor management and possible malfeasance. His flamboyant lifestyle has been central to contributing to a negative public perception; if anything, his sudden exit from the country has only added weight to such a view. He has challenged the determination by banks that he is a wilful defaulter by arguing that he is personally not a borrower, and only gave a personal guarantee for corporate loans. Any credibility that one could attach to his defence will have to flow from his own conduct and submission to due process in this country, something that the Supreme Court has underscored by asking him for a possible date for his appearance and an authentic statement of his assets. The Central government must not ease the pressure on him, and must take recourse to all diplomatic and legal means to achieve the objective of bringing him back. It cannot afford to lend the impression that it allowed Mr. Mallya leave India at a crucial stage in the legal proceedings for recovery of the money due from him and is not doing enough to submit him to the process of law.

Are negative rates the new normal?

If it is hard to agree on strategies that are critical for global growth, then at least avoid the ones that could hurt progress. This seems like a reasonable reading of the deliberations at the Spring Meetings of the World Bank and the International Monetary Fund last week. Clearly, the earlier impatience to see a return to the robust rates of growth that preceded the 2008 meltdown is gradually giving way to a more sober acceptance of a modest medium-term recovery. China’s slowest rise in GDP since early 2009, low global commodity prices, and the uncertainty over Britain’s continued membership of the European Union, together seem to contribute to a more cautious stance. Scepticism over excessive reliance on monetary tools, especially in the backdrop of the prolonged low interest rates in the eurozone, is not unfamiliar in these forums. But U.S. Treasury Secretary Jacob Lew was in line with the majority when he spoke uneasily about the pursuit of negative nominal interest rates, currently being adopted by six central banks and 25 per cent of the world economy. The explicit opposition to negative rates could partly be explained by the exceptional and experimental nature of this particular measure — rates of zero per cent and below have been a rarity until very recently. Proponents see negative rates as a means to induce consumers to spend more and banks to lend more, with the potential to spur growth and raise inflation expectations.

The implications of low or negative returns for individual savings, however, could be mixed. Customers would either have to save more to meet long-term targets or hold cash to avoid its adverse effects, assuming that banks brave themselves to pass on the burden. The negative rates policy has thus come under considerable attack both in Germany and Japan, despite the macroeconomic objectives they were designed to realise. A more serious objection, in view of the sizeable ageing populations in these societies, is the impact on the viability of pensions, life insurance and savings vehicles. German Finance Minister Wolfgang Schäuble has gone so far as to blame the rise of populist anti-EU parties for the European Central Bank’s negative rates policy, dubbed “penalty rates” in his country. Growing public anger is also said to limit any room for manoeuvre for further rate cuts by Japan. Curiously, within two months of the hike in the U.S. in the rate of lending last December, the chair of the Federal Reserve did not rule out a plunge into negative territory. While emphasising the potential to create additional stimulus in the economy and maintain price stability, the IMF is tentative about how long governments may persist with negative rates. Meeting in Shanghai earlier this year, the Group of 20 countries agreed to refrain from a competitive devaluation of currencies. It may not be long before negative rates policies, which in effect weaken currencies, are pushed up the agenda for concerted action.


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