India's main opposition party, Congress, has come out against the central bank's move to allow corporations in the banking sector. Former Congress chief Rahul Gandhi said Prime Minister Narendra Modi's policies show a definite chronology to help big businesses.
"First write off debts for a few big companies. Next huge tax cuts for companies. Now give people's savings directly to banks set by these same companies", tweeted Gandhi.
Chronology samajhiye:— Rahul Gandhi (@RahulGandhi) November 24, 2020
First, karz maafi for few big companies.
Next, huge tax cuts for companies.
Now, give people's savings directly to banks set up by these same companies. #SuitBootkiSarkar pic.twitter.com/DjK2mya4EZ
Gandhi's jab comes a day after federal Finance Minister Nirmala Sitharaman claimed Prime Minister Modi has undertaken "those kinds of reforms which have not seen the light of the day over the decades".
According to the former chief of the Reserve Bank of India (RBI), Raghuram Rajan, the central bank has even ignored the advice of financial experts to the proposal by an internal working group.
Rajan and his former deputy in the RBI Viral Acharya termed the move as "disastrous".
"First, industrial houses need financing and they can get it easily with no questions asked, if they have an in-house bank. The history of such connected lending is invariably disastrous", they wrote in a joint article on LinkedIn.
The second reason Rajan and Acharya pointed out was that such corporate banking mechanism would "further exacerbate the concentration of economic (and political) power in certain business houses".
Rajan said it would give undue advantage to large businesses that already have initial capital.
"Moreover, highly indebted and politically connected business houses will have the greatest incentive and ability to push for licenses. That will increase the importance of money power yet more in our politics, and make us more likely to succumb to authoritarian cronyism", they warned.
Indian banks wrote off a whopping $33 billion worth of bad loans in the financial year 2019-20 (April 2019 to March 2020). The share of bad loans written off by state-funded banks was over $26 billion.
Federal Finance Minister Nirmala Sitharaman has slashed the corporate tax from 30 percent to 22 percent for existing companies and from 25 percent to 15 percent for new manufacturing companies. According to a statement issued from the federal Finance Ministry on 20 September 2019, "the effective tax rate for these companies shall be 25.17 percent" inclusive of statutory levies.