The slew of announcements made by Finance Minister Nirmala Sitharaman, on whom the Prime Minister seems to have put the entire onus of overseeing the situation, despite her thoroughly disappointing performance in whatever she has done in the finance ministry, betrayed this policy of distancing. She has blamed the problem on an ‘act of God’. It follows from there that only God can now save India.

It was ultimately left to the Supreme Court to call the bluff, when it virtually pulled up the Modi government for running away from its responsibilities for dealing with a situation created by its own folly. The court went to the extent of reprimanding the government for supporting only business, leaving the people to fend for themselves, although they had no means of doing that as the untimely and ill-planned lockdown destroyed their livelihood. Most unfortunately, there is no hope of a turnaround in sight.

The response by the government to the court’s stricture continues to show the indifference that has characterised its policy pronouncements so far. It continues to keep a safe distance when it comes to financial commitment.

When it was the government’s turn to tell the court what action it proposed to take to deal with the deadline for the moratorium on loan repayments to end, Solicitor General Tushar Mehta only said the moratorium was ‘extendable’ for two more years. But here again, the government skirted the issue of whether the provision of punitive interest payment on accumulated interest during the moratorium period. The loan moratorium on EMI and fixed term loans ended on August 31.

Mehta’s response was as vague as it could be. An 82-page affidavit filed by the Ministry of Finance said the circulars have devised a framework, which allowed concessions in interest rates and “permits lenders to allow moratorium of up to two years, irrespective of current six-month moratorium ending on August 31”.

It is up to the lenders and those who have taken the loans to decide what to do now. “A borrower fearful of being in default as on September 1 and becoming an NPA could continue to avail moratorium as a part of the resolution plan,” the ministry said.

The government insists that the banks have been ‘fully empowered’ to resolve Covid-related stress and customise relief to individual borrowers. According to the ministry, the various available concessions include alteration to the rate of interest and haircut on amount payable as interest; extension of the residual tenor of the loan, with or without moratorium, by up to two years; waiver of penal interest and charges; reschedule of repayment; conversion of accumulated interest into a fresh loan with deferred payment schedule; and sanction of additional loan.

The government’s financial distancing is obvious in the approach. The same has been true on the issue of distribution of GST dues to the states from the central kitty. The Centre has acknowledged at the GST Council meeting that the States are likely to face a GST revenue gap of Rs 3 lakh crore this year. But she has sought to excuse herself from the obligation, saying that the GST Compensation Act had not foreseen the ‘act of God’.

That law guarantees that the states would be compensated for any loss of revenue in the first five years of GST implementation, until 2022, using a cess levied on sin and luxury goods. However, the economic slowdown has pushed both GST and cess collections down over the last year, resulting in a 40 percent shortfall last year between the compensation paid and cess collected.

The way-out suggested by the Centre is that the states could borrow this money, estimated at Rs97,000 crore, from the RBI through a special window at a ‘reasonable’ rate of interest and repayable after five years. It has also suggested a second option of the states borrowing directly from the market.

Finance ministers of opposition-ruled states have naturally opposed the idea, saying that the Centre’s approach amounts to a ‘trust deficit’ between the Centre and the states. They are asking why the Centre cannot borrow the money and then compensate the States.

Obviously, that has to be ruled out as it would amount to deviating from financial distancing norm, the hallmark of Centre’s Covid response so far. (IPA Service)