Stinks to High Heaven: Air India Bailed Out by Life Insurance Corporation (LIC) of India

Against a backdrop of rising concerns over NPAs in the banking system, it was reported that Air India was looking at the possibility of availing a new scheme, the Scheme for Sustainable Structuring of Stressed Assets (S4A), to rejig debt to the tune of a minimum of Rs 100 Bn. Since 2012, the airline has been on a life support with a Rs 300 Bn bailout package from the government, spread over ten years. In fact, this may be one of the biggest sums that LIC has ever loaned out till date: this new loan to Air India of Rs 100 Bn (If that number is correct), will grow its loan book by an enormous 9.26%.

Who reported this? A Secret deal? Was it leaked?

Since, at the time of writing, Air India has made available annual reports only until FY 2013-14, all the financial figures and plans of rejig coming out in the newspapers, if true, are very likely being leaked from Air India/ Civil Aviation Ministry itself, and being dealings in material non-public information, this constitutes a situation of non-uniform dissemination of sensitive information, and possible violation of securities law.

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Indeed, the public sector bank index was up by a chunky 1.5% today, being the first day since the story broke, with two of the three stocks mentioned in the story (Bank of India, Bank of Baroda) up over a per cent and the third stock (Punjab National Bank) within 3% of its 52-week high.

Best of socialism at its worst?

There are many facets to this development that stink to high heaven. As Firstpost pointed out – Why the bailout when it was already turning around? It has also been queried before on multiple occasions when LIC was bailing out public sector Companies and investing aggressively in public sector disinvestments, who has the authority to approve this and why isn’t there a public outcry? And all this for a saving of Rs 3 Bn (A 3% saving on Rs 100 Bn), which Air India could save anyway by paying its fuel bills on time, as has been reported here by the Business Standard.

Hypocrisy unlimited

Arun Jaitley: “LIC is not a body which invests only to bailout the government in disinvestment. In issues by private companies, LIC also participates.”

That’s right. The (dis)honorable Finance Minister had agreed, last year, that LIC bails out & bails out repeatedly. And that LIC, with the public’s insurance money, routinely bails out private Companies too!

The government speaks highly of transparency and accountability, yet hijacks the public treasury to bail out desperate banks and monopolies, placing an incremental debt burden on the public.

Here’s another quote from ex- Finance Minister, Yashwant Sinha, a senior leader of the current ruling party, while he was in opposition in March 2012, around the time LIC bailed out ONGC’s disinvestment auction with an unnecessarily high-priced bid:

“LIC is a captive source of funds for the government. They have misused the status of LIC to misappropriate policyholders’ money and brought it to the government’s coffers through the ONGC disinvestment.”

Now that his party is engaged in the same treasonous act, in his own words, a “daylight robbery”, I’m sure he will stand up for the public and do everything in his power to stop this transaction.

Fat chance!

A case of honest kleptocracy

But the Bullish Bear wouldn’t write this if there wasn’t a silver lining to this all. There is an honest side to this, y’kno.

This bailout has proved that the government can openly rob the public of its money, via the LIC, to bail out bankrupt Companies.

Such instances of naked cronyism can at least serve to warn the public that their savings and insurance are at risk. The Life Insurance Corporation of India is not a safe house, nor are any of these banks offering 4-7% return on savings, making loans to extremely indebted Companies while maintaining tier-I ratios of just 10%.

Related reading: Debt-ridden Government makes more claims on LIC (NDTV Profit) >>

This amounts to a rather more transparent & direct socialistic involuntary bailout. Which is bad no doubt, but incrementally better than an indirect socialistic involuntary bailout! As Canadian billionaire and philanthropist Eric Sprott warned, “Whenever you think of the word bank, you should think risk.”

For a brief education on bailouts funded with public money, it can’t get any better than this short video segment, in which Peter Schiff, an Austrian economist and a guru & mentor to yours truly, lambasts a pitch for a government sponsored bailout of American car manufacturers by Lansing, Michigan Mayor Virg Bernero on live television! “If you think these Companies are such good investments, you put your own money into it!”

In conclusion

As mentioned previously, the Bullish Bear is an ardent fan of free markets and open competition. Yet, I have sympathy with Air India’s Chairman & Managing Director, Ashwani Lohani. Coming from the head of a public sector enterprise, these are astonishing words, admitting that a public sector entity does not really care about the delivery of its services. Although he does shy away from writing the public sector off completely, the Bullish Bear believes that he is headed in the right direction!

“Often my airline is questioned on its inability to match the private sector on various operating parameters, and this is unfortunately always done without due appreciation of the fundamental reality that there is no level-playing field… A course correction is the need of the hour, for contrary to what many may think, the public sector has still not lost its relevance in entirety… Unless and until we all, and that includes the mighty government machinery, start believing in the supremacy of deliverance over everything else, such dilemmas would always continue.”

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Government Continues its Regulatory Onslaught with Aadhaar Despite Supreme Court Orders: 6 Separate Instances of Flagrant Abuse in 25 Days

Deepening the erosion of civil liberties, subsidies of LPG now cannot be received unless you sign up into the club of Aadhaar. A firm warning was fired to the some 20% subscribers who have not yet given in to enrolling with UIDAI’s database by the Oil Ministry. Chief Executive of the UIDAI, Mr A. B. Pandey cited Section 7 of the Aadhaar Act to rifle home the point that Aadhaar numbers are mandatory for the receipt of subsidies that fall under the Consolidated fund of India.

The Bullish Bear has earlier neurotically documented the hidden abuses of the UIDAI system in this blog at Liberty Here and Now. Here, I document how, contrary to the claims by politicians, the UIDAI system is extremely costly, insecure, exclusionary and is basically meant to control our existence and identity. On 22nd April, 2013, a Parliamentary panel headed by former Finance Minister Yashwant Sinha, who himself was a prominent member of today’s ruling party, had stated that the UIDAI was “discharging its functions without any legal basis.”

Murky legalization

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Since then, the same party has come into power, but instead of terminating the program, continued throwing money into the system, making a terribly awkward push for its legalization via the route of the money bill (which avoids formal scrutiny of the Upper House) as late as March of 2016! This only proved how dubious the whole system was – that it had to be dressed up as a financial matter of transfer payments – whatever happened to all the social motives! But let’s leave aside the question of whether LPG subsidies make economic sense, and focus solely on the technical aspects of the use of Aadhaar by the government.

Alert readers may recall that the Supreme Court, in a much publicized ruling in August 2015, had rebuked the RBI and the Election Commission, who tried to mandate the Aadhaar card for banking and voting purposes. It instructed the Government to make people aware through public advertisements that Aadhaar card was not mandatory. Moreover, in February 2014, Petroleum and Natural Gas Minister Veerappa Moily had admitted in public that the Aadhaar was not mandatory for receiving LPG subsidies. A year is all it has taken for the  public to lose focus and for the government to continue its unethical database building.

A report filed by the Mint newspaper also suggested that the Aadhaar number could be mandated for use in the PDS, MNREGA and pension schemes.

“There can’t be a situation where you say, ‘I don’t want to enroll for Aadhaar’”

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This latest transgression by the government, Center or State is far from the first. Readily searchable, I document 6 such instances over the past month alone:

#1 Maharashtra’s state level education boards mandating Aadhaar card for registration in examinations and disbursal of scholarships (Times of India, Oct 6, 2016). This was the second time the Maharashtra government was caught openly flouting orders issued by the apex court. In April, 2015, the same government had issued a resolution for making Aadhaar mandatory for all students up to 14 years of age in the state and connect it with their school admission number (Moneylife, Oct 5, 2016)

#2 The Wrestling Federation of India requires that wrestlers have an Aadhaar card to participate in national level tournaments (The Indian Express, Sep 27, 2016)

#3 Central Board of Secondary Education (CBSE) schools not only forcing students to provide the UID number, but also arranging camps for enrolment of Aadhaar for those who do not have the UID number (Moneylife, Sep 27, 2016)

#4 A letter on July 14, 2016, addressed by the Center to States and Union Territories demanding that Aadhaar card be made mandatory for students for applying for pre-matric, post-matric and merit-cum-means scholarship schemes. (The Hindu, Sep 26, 2016)

#5 The UIDAI instructed all the Union and State Ministries that the Aadhar card will be mandatory for all services, benefits, and subsidies funded from the Consolidated Fund of India. He was quoted as saying, “There can’t be a situation where you say, ‘I don’t want to enroll for Aadhaar.’” (Inc42, Sep 20, 2016)

#6 Indian Railway Catering and Tourism Corporation (IRCTC) Chairman and Managing Director A.K. Manocha: Senior citizens will be unable to get ticket concessions without Aadhaar from December, 2016 (The Hindu, September 12, 2016)

 

Aadhaar [Hindi “आधार”] means “base” or a “foundation”. So far, the UIDAI’s Aadhaar system has been destroying the foundation of citizen’s privacy and the bureaucratic class has been desperately ramming home this database shamelessly and baselessly.

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