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27 January 2017 Editorial

 

27 January 2017

Banking on good faith

The arrests by the Central Bureau of Investigation of former IDBI officials are worth noting for timing, intent and implications. The agency is investigating these officials, who had been at the helm of the public sector bank’s affairs eight years ago, on charges of facilitating a ?900-crore loan to the now-defunct Kingfisher Airlines without due diligence. Two days after the arrests, a list that included former IDBI Chairman Yogesh Aggarwal, the Securities Exchange Board of India barred Kingfisher promoter Vijay Mallya and senior officials of group firm United Spirits Ltd. from securities dealings, and restrained them from holding directorial positions in listed companies. Mr. Mallya owes banks close to ?9,000 crore and has been in exile in the U.K. for nearly a year, even as his lenders have scrambled to recover their dues, with little success. Last week, after a three-year-long trial, the Debt Recovery Tribunal allowed a consortium of 17 banks to recover from Mr. Mallya and his companies outstanding dues of ?6,200-odd crore plus interest related to the airline’s operations. For the Central government, Mr. Mallya’s flight to London has been a source of much embarrassment, with Finance Minister Arun Jaitley terming the bad loans a legacy from the UPA days.

Amidst the rising pile of non-performing assets in government-owned banks, wilful defaulters were said to be responsible for around ?77,000 crore of bad debts by last July, but the Kingfisher baron has emerged as the poster boy of the problem. Therefore the flurry of action on his bad loans, however belated, could help counter perceptions of a passive approach towards the well-heeled. Breaking the banker-borrower nexus is just as critical for safeguarding public money as is acting against corrupt administrators, but a timely and transparent system is needed to ensure that bankers don’t turn wary of extending credit at the slightest hint of risk. The fear of investigative agencies and adverse audit reports was blamed for the so-called policy paralysis in the UPA’s second term. Prime Minister Narendra Modi had, early in his term, urged officers to take bold decisions without fear of retribution and promised to stand by them for decisions taken in good earnest. That promise requires making some necessary amendments to the Prevention of Corruption Act, particularly the much-too-broad and subjective Section 13(1)(d) that has resulted in many an honest officer being chargesheeted for the corruption of others. If there is malfeasance involved in the IDBI loan, action must be swift and exemplary — but to ensure circulation of credit, systems must also be put in place to reassure bankers against random witch-hunts.

 

Setback to climate action plans

That Donald Trump’s scepticism about climate change will adversely impact policies to address global warming became abundantly clear minutes after his swearing-in as U.S. President. The White House website quickly deleted all mention of climate change. Turning its attention to other agencies, the Trump administration instructed the U.S. Environmental Protection Agency to follow suit and scrub all mention of climate change from its website as well. But following a protest by scientists and others, the administration softened its stand and indicated that the agency’s website was only being “reviewed” and that it had “no immediate plans to remove the content” on climate change. Mr. Trump has also resurrected the controversial Keystone XL, that former President Barack Obama had blocked after a protracted battle with policymakers, and Dakota Access pipelines. The Trump administration had issued a gag order to scientists at the EPA and the U.S. Department of Agriculture to stop them from speaking to the media; it subsequently changed its policy with respect to EPA but has mandated that even routine data and studies be “reviewed” before being released to the public. In line with his thinking that “global warming is an expensive hoax”, Mr. Trump plans to re-energise the fossil-fuel industry. The America First Energy Plan listed on the White House website aims to increase fossil fuel extraction in the name of creating more jobs, and in the process “eliminating”, among other things, Mr. Obama’s climate action plan.

Even more alarming is Mr. Trump’s intention to reverse America’s involvement in the historic Paris climate accord. Under the pact, 195 countries have agreed to limit the increase in global temperature since pre-industrial time to less than 2°C in the 21st century, and try to work towards reaching a tougher target of 1.5°C. In November 2014, Mr. Obama announced a new target to cut greenhouse gas emissions 26-28% below 2005 levels by 2025. Among other measures taken in 2015, the U.S. had finalised the clean power plan to reduce carbon dioxide emissions from the power sector to 32% below 2005 levels by 2030. With the average global temperature already reaching 0.8°C above pre-industrial levels, there are fears that further delay will have long-term repercussions that would be near impossible to mitigate. With the current and proposed policies by the U.S. already inadequate to meet the Paris target, any negative deviation from the plan will have implications for the entire world.

 


 

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