In Lalu’s time, swaggering goons showed off their guns in public. Today no gunman is visible. The Nitish administration has convicted 38,000 people, including dozens of politicians, some from the ruling party itself — for violating the Arms Act.
The economic miracle has been led by construction, which has averaged a colossal growth rate of 47% per year for the last five years. Government development spending has zoomed from Rs 2,000 crore to Rs 16,000 crore per year.
Most impressive has been the rise in road construction, from 384 kilometres in 2004-05 to 2,417 kilometers in 2008-09. Security plus road and telecom expansion have incubated a boom in small business and domestic construction.
However, large-scale industries has not shown growth. Organized sector output actually fell in the Lalu era from Rs 1,150 crore in 1999-00 to Rs 790 crore in 2004-05 at constant prices, and has stagnated under Nitish. Big industry owner are waiting for election in Bihar. What will be the outcome of
next election will decide the growth of large-scale industries. Many large industries have proposed big investments.
So are the bank's lending and investments safe?
As the FM points out, the banks are well capitalized. What does this mean? It simply means, that the RBI lays down norms for banks to follow and these regulations will ensure that depositor's money is safe. Here are some of the regulations:
-Banks cannot lend more than a certain amount to unsecured loans, that is, loans that are not backed by a mortgage or lien. Common examples of these are personal loans, credit cards, etc. Even loans against shares are risky because the mortgage in this case would be the shares which are volatile.
-The RBI's monetary policy defines the limit to which banks can invest in the stock market. It means that banks can't invest more than that amount in equity shares, convertible debentures, mutual funds etc.
-Banks have a limit on the use of foreign funds (either foreign direct investment or foreign borrowing). This ensures that during times of crisis, even if foreign players pull out their money, the bank is not substantially affected.
-Banks have strict audit and disclosure requirements. This keeps a check on the bank's lending and borrowing.
-Banks must maintain a minimum capital as a buffer against any unforeseen risk. Banks also need to keep liquid funds and these are defined by the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR).
In an interview with CNN IBN, CNBC TV 18's banking editor Latha Venkatesh, explained, "For every Rs 100 a bank collects as deposit, Rs 25 will have to be kept with the government as bonds. Governments cannot default, so Rs 25 is anyway safe. Another 8.5 per cent cash should be kept with the RBI, so that is safe again. Lehman Brothers lent 40 times its capital as loans and Goldman Sachs lent 27 times it capital but India is nowhere near that kind of cowboy lending"
In addition to these regulations, financial planner Arvind Rao explains, "For further security, the government introduced 'deposit insurance', which secures your bank deposit up to Rs 1 lakh."
All commercial banks including the branches of foreign banks functioning in India, local area banks and regional rural banks are covered under the deposit insurance scheme.
Foreign banks?
Shanbhag explains that foreign banks that have subsidiaries in India are safe. However, those that are headquartered abroad and only have branches here will be different. "If their operations fail there, then most certainly their operations here will become questionable," he says.
In such case, the bank's future would depend on the respective governments. For instance, Venkatesh explains that the British government has gone all out to reassure its banks in a big way. "I assume that this assurance applies to branches in India," she said.
In a post-budget interview, the Union finance minister likened India’s growth story to an Indian epic in which all sections of society — scheduled castes, scheduled tribes, minorities, women and children — have a role to play. What he did not mention was the other side of the story, i.e. how each of these sections was contributing to economic growth. Let’s talk of just one section — the housewives — whose contribution, though immense, never gets recognised. While the FM has to worry about the budget only once a year, a housewife has to do it month after month. This is not an easy task because unlike the FM she cannot impose new taxes nor raise the rates of old ones to boost her family income. Nor does she have recourse to an RBI, which can lend endlessly on the strength of freshly printed currency. The FM can afford to squeeze one section to please another. Want to give relief to salaried class by raising the threshold of taxable income? No problem, increase the short-term capital gains tax from 10 to 15 per cent. But can you do that at home? No, because every member is important — even the family dog. But wait. There is one member whose needs can be postponed or even ignored — that of the lady herself.
So, to keep the budget on the rail, the poor thing keeps on denying herself the little pleasures of life. “Trust my intelligence”, said the FM when someone asked him how he would find the means for writing off farmers’ loans. We do. But isn’t that another way of saying that one would cross the bridge when one came to it? And who knows who the FM will be when the bridge must be crossed? A homemaker on the other hand is for life and she must cross all bridges to keep her family afloat. And yet, she not only balances her family budget but, amazingly, also saves something for rainy days! This something, called household savings by the experts, stands at a staggering 24 per cent of all savings in India, and is one of the highest in the world. Without it, it’s impossible to achieve an 8 per cent plus growth rate in the economy. For this alone, the Indian housewife — the unknown soldier of India’s war against poverty — deserves a salute.