January 15, 2023

Freebies and Lollipops to the Corporates

Sanjay Roy

CUTTING down expenditures that impact upon the poor while bailing out the corporates has been the hallmark of neoliberal policies. Profit making by any means and favouring the rich by way of offering subsidies from state exchequer to the big corporates is being legitimised as pro-market and development enhancing strategies. Hardly any issues are being raised by the mainstream media on these sops while subsidies to farmers or to the middle class in terms of provisioning of electricity, water, education or health services has been termed as ‘freebies’ granted from tax payers money. They are also referred to as populist measures undertaken by irresponsible political parties who mobilise public support on the basis of these handouts. It is about patronising the poor who have very little contribution to the GDP of the country either as consumer or investor and any consideration of their livelihood or sustenance is seen to be motivated by a process of building political clientele without any link to economic rationale.

On the other hand, quid pro quo with the corporates makes sense to the ruling establishment because the political payoffs are more direct rather than depending on reciprocity based on moral grounds. Here money comes back as money and in capitalism voters or ‘informed opinions’ can be exchanged against money. The subsidies and exemptions to corporates offer double benefits to the ruling establishments: the propaganda machinery will easily pose those subsidies and exemptions as good for the business, hence good for the country. And secondly, a part of the huge benefits derived by corporates from public money would fill the coffers of ruling parties through instruments like electoral bonds. The neoliberal state is not actually withdrawn instead it is very much active to serve the purpose of the profiteering class in the garb of ‘free market’. When it comes to the question of the capitalist class interests, ‘freedom of market’ and norms of allocative efficiency can be subverted, when it is about subsidies to farmers or ensuring social wage to the toiling masses all these economic rationale and their admirers suddenly raise their heads.


In the context of appreciating the rapid decline of non-performing-assets (NPAs) of Indian commercial banks from March 2018 to March 2022 as a response to an RTI query, the Reserve Bank of India reveals the fact of huge write-offs given to loan defaulters, majority of whom are big corporates. In March 2018, NPAs accounted as high as 11.2 per cent of gross assets of commercial banks which rapidly declined to 5.9 per cent of gross assets in March 2022. The financial stability report also forecast a further decline to 5.3 per cent by March 2023. The process however involves huge cost of loan write-offs to the tune of 9.91 lakh crore during the five year period ending 2021-22. No denying the fact that write-offs are regular practice adopted by banks to handle bad loans in order to keep their balance sheets clean, but this also indicates the failure of financial administration in using existing legal procedures of debt recovery. Writing off loans is an accounting exercise usually practiced by banks while reserving the right to recover the loan from defaulters. By writing-off this huge amount, the recovery of NPAs was only 1.32 lakh crore.

The government has not published the list of wilful defaulters who misused public money through public or private sector banks. Between 2018 to 2022 the average share of large borrowers in bank loans was 51.5 per cent while their share in NPAs amounts to 76.3 per cent. Hence big corporates use public money for their business and they are the major defaulters who once again can eschew loan payment due to relaxation in recovery. Government’s expenditure figures suggest that except for pandemic years, the average expenditure on food and fertiliser subsidy has been less than Rs 2 lakh crore in a year and the large share of discussions on budget either in pink papers or on television prime times are devoted to the ‘waste’ of taxpayers’ money recurrently done by the government on account of subsidies extended to the poor. The amount of loan write-offs given to big corporates was on an average close to a similar figure but didn’t attract much public attention and criticism that it deserves.

It is also important note that out of the total amount of loan write-offs, the public sector banks wrote off 7.27 lakh crores. The figures of NPAs suggest that public sector banks account for the major share of NPAs which is also being used as a pretext to push forward privatisation of public sector banks. This is similar to the strategies adopted by the advocates of privatisation in case of other sectors including telecom, railways and so on. It is the public sector commercial banks who had to render the responsibility of lending to long term industrial or infrastructural projects which had been earlier the domain of specialised development banks which were all being dismantled in the wake of liberalisation. Private banks can easily deny those responsibilities and define their priorities of lending and portfolio of debts. Despite having those choices the NPAs written off by private banks is also as high as Rs 2 lakh crore. Taking both public and private sector banks together the biggest loan defaulters are those who have an exposure of five lakh crore and above. The big corporates account for half of the loans of scheduled commercial banks and share three-fourth of NPAs of banks.


In the past few years, the corporates substantially deleveraged their balance sheets while maintaining high profit rates. The demand for borrowing increased once again due to rise in commodity prices. The borrowings are primarily being made to meet working capital requirements. As a result borrowing is growing faster than the growth of net fixed assets. In fact CMIE while referring to listed non-financial companies identified shrinkage in net fixed assets of corporates. On top of that, the cost of borrowing is also increasing due to rising interest rate. In an uncertain future, if the commodity prices continue to be high and if interest incidence to corporates increases, investment in fixed assets for capacity expansion is not likely to be on the cards. In other words, private corporate investment has not actually picked up even after the pandemic.

The cover up for this crucial fact of low investment demand in the economy seems to be the rise in private investment proposals in the post pandemic period particularly 2021 and 2022. According to CMIE, chemicals, machinery particularly semi-conductor sector has attracted major projects. Vedanta-Foxconn group, IGSS Ventures, SRAM & MRAM hit the news headlines as they came up with new projects. First of all the number of proposals recorded in 2022 is less than the number of investment proposals made even in the years immediately after the pandemic  that is 2020 and 2021 and less than half of that received in the year 2018 before the pandemic. Secondly, these are not investments driven by market stimulations. Huge subsidies are being offered to domestic and foreign corporates under various schemes. Only in the India Semiconductor Mission scheme, the government announced an outlay of Rs 76 crore. The government has set aside more than Rs 2 lakh crore under production linked incentive schemes to subsidise the corporates. These are lollipops to woe domestic and foreign investors at the cost of public resources.

It is not the invisible hand of the market but the visible handholding of the neoliberal state and its generous offerings to the corporates out of public exchequer that is often buried under the orchestrated noise made by media on ‘freebies’ extended to the poor.