Why blame only Mallya?

http://wwv.asianage.com/columnists/why-blame-only-mallya-329

Mar 14, 2016,  Mohan Guruswamy

We are forgetting the officials of the banking services department of the finance ministry, many of who served on the boards of the banks that lent Kingfisher Airlines money, and the many board directors who sanctioned the loans. 

Let’s get something right about Vijay Mallya. The popular narrative is that he milked the banks for Rs 9,000 crore to support his hedonistic lifestyle in India and abroad, and took off when the debt burden became excessive or no more money was forthcoming to evergreen his debts. But we seem to forget that he enjoyed a hedonistic lifestyle much before Kingfisher Airlines and he had much money to spread around even before Kingfisher Airlines.

The Rs 9,000 crore he is now found to owe the public sector banks and others is the money he lost on Kingfisher Airlines. I understand the loan money is about Rs 4,000 crore and the rest is interest and the interest on interest. The banks just kept lending him money to evergreen its loans. This was not possible without political and bureaucratic support. Even if one little joint-secretary or one little MP or one little bank manager red-flagged the growing stain of red on Kingfisher Airlines’ debts, the bleeding would have been staunched. Mr Mallya did not milk just the banks to keep Kingfisher Airlines afloat; he also milked his own companies, such as United Breweries and United Spirits, to support its flight into the deep red.

When a business makes a loss, it doesn’t always mean the money was stolen. It often means that it has spent more money than it has earned. This means Kingfisher Airlines employees got paid for all the years, except the last year, most of the time when the airline did not fly, the oil companies got paid for aviation turbine fuel supplied, the leasing companies got paid for the planes hired, the caterers got paid for the meals supplied on board, the airports got paid their landing and parking fees, and the taxes and cesses due for the most part were paid. All during this period, Kingfisher Airlines did not sell enough seats to cover the costs, or just spent more money than it earned.

The question then is why was Mr Mallya lent money when quite clearly Kingfisher Airlines increasingly showed it had a business model that precluded it from earning money?

Let’s not forget that during this period Air India and Indian Airlines together lost Rs 43,000 crore. The money lost under Mr Mallya’s stewardship was a measly Rs 4,000 crore. But we are not putting Ananth Kumar, Sharad Yadav, Praful Patel and Ajit Singh out to dry for its losses. Why? We do not even want to even find out how much money was made by the politicians and bureaucrats during the last decade on account of the two public sector airlines? Some astounding numbers are commonly heard, as no airline worth its name buys aircraft outright anymore. They lease them,, but Air India and Indian Airlines paid hard cash.

In the entire hullabaloo over Mr Mallya’s last flight to the cooler and more sanguine climes of Hertfordshire, we are forgetting the bankers who lent Kingfisher Airlines for something quite as spurious as its brand name. We are forgetting the officials of the banking services department of the finance ministry, many of who served on the boards of the banks that lent Kingfisher Airlines money, and the many board directors who sanctioned the loans. Such loans are sanctioned when everybody gets to drink a little at the trough. Now Mr Mallya has flown the coop that nurtured him, and it seems that all others stand absolved.

Forget Mr Mallya. He won’t be coming back soon. The banks can attach his cars and homes in India, but he is clearly out of reach of the “authorities” which don’t really want him back. They probably long for him to take his secrets to his grave.

But Mr Mallya in his going is serving one useful purpose. It takes focus away from how other “industrialists” fund their lavish lifestyles and have created empires overseas. Anil Agarwal and the two Ruia brothers, Shashi and Ravi, are now bigger abroad than in India. Not long ago Nitin Gadkari was cruising on the Essar yacht berthed at Cannes. Our “industrialists” all use their company assets for personal use.

Money flows from our business houses to political groups like Naxalites in Bastar and the United Liberated Front of Asom, in addition to all the mainstream political parties. The not-too-industrious industrialists, most of who make most of their money from the public sector banks, also fund the hedonistic political lifestyle of our elite. Why is the Reserve Bank of India not blowing its whistle to stop this? Why is the department of company affairs silent? One can understand finance minister Arun Jaitley acquiescing to this, but what keeps RBI governor Raghuram Rajan from reading the riot act to the banks?

The problem is that we are far too invested in this system. If the banks tighten up, as many as six of our top ten business houses will fold up or will have to be dismantled. In other words, really restructured. Except for Reliance Industries, the Tatas and Aditya Birla, all other major business houses are over-leveraged and mortally indebted.

If we rock the boats now, many will capsize. The economy will slow down further. Mr Mallya is, relatively, a small fish. The big sharks are still circling the banks.

Will Prime Minster Narendra Modi please stand up in Parliament and assure the nation that all money lent to them are as per norms and prudential banking practices, and that the loans are not being evergreened? Will Rahul Gandhi demand that Mr Modi give the nation an assurance on this? I don’t think so. Both are betting on short public memories. We love gladiatorial sports and the Roman emperors best understood mass psychology. We have plenty of pilgrims to feed the lions and the public’s frenzy.

The writer, a policy analyst studying economic and security issues, held senior positions in government and industry. He also specialises in the Chinese economy.