Don’t PNB standards apply to govts, too?
In the past few days, media attention is focussed on the Nirav Modi case and on borrowers defaulting on loans taken from banks. I wonder when governments and their agencies that inordinately delay or do not pay their dues will get similar attention.
In my dealings with entrepreneurs over four decades, I have come across numerous cases where the government has not paid promised subsidies or unduly delayed payment against supplies. State agencies routinely subject suppliers to untold harassment before releasing payments after considerable delay. Usually, the victims are small entrepreneurs who cannot annoy the buyers or go to court. They can only turn to banks and borrow, quite often at penal rates of interest. Some then go bust.
In recent months, not a day goes without hearing about the travails of exporters who have paid under the Goods and Services Tax (GST) to the government and not got their due refunds. It is as if they have lent money to the government and cannot get it back because the borrower is in default. A system has been created whereby their refunds will be delayed or denied. The government promised refund within seven days but, by its own admission, over two-third of exporters’ refund claims have not yet been honoured for one reason or the other.
With their working capital thus blocked with the government, many businesses have held up payment to creditors, constraining the latter’s liquidity. The Reserve Bank of India says banks should classify any dues unpaid beyond 90 days from the due date as non-performing assets. If the same criteria is applied to the receivables of businesses from the government by way of export refunds held up or other payments due from government or its agencies such as electricity boards, the balance sheets of these businesses would look quite different. with those receivables treated not as current assets but as miscellaneous assets.
In the wake of the Punjab National Bank (PNB) fiasco, there are many calls for greater accountability, more stringent audit, detection of systemic flaws and structural reforms of the banking system. Could all these questions also be asked in the context of government failure to pay the dues of exporters and others? What systemic flaws have led to hold-ups of refunds to exporters? Who is accountable for this fiasco? Does the government act on audit reports? And so on.
No one in the government seems accountable for its hasty, inept and chaotic implementation of the GST regime. The dice is loaded against exporters and small entrepreneurs in dealing with the government. For any mistakes an entrepreneur makes, the government punishes him or her. They also get punished, for no good reason, for every mistake the government makes. The law stipulates six per cent interest payment for delay in refunds but this is rarely paid. This rate of interest is also way below the commercial rate at which businesses borrow.
The PNB case has exposed weaknesses in systems and the government says it is eager to fix these and hold accountable the persons concerned. It should show equal zeal to set its own house in order, including holding to account the persons responsible for grant of refunds to exporters. Its claims on ease of doing business ring hollow when exporters can’t get their own money back in time without hassles.
E-mail: tncrajagopalan@gmail.com