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Financial Crisis Ready for All to Come Business World Opinion

Financial Crisis Ready for All to Come Business World Opinion

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Published by: ScribdRajja on Dec 17, 2008
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06/16/2009

 
BW OPINIONReady For All To Come
The PM’s advice to employers is fraught with the risk of bankruptcies and defaults, but the governmentcan find a solution for every catastrophe14 Nov 2008The PM’s advice to employers is fraught with the risk of bank-ruptcies and defaults, but the governmentcan find a solution for every catastropheThe prime minister recently met big industrialists and other rich people, and gave them advice on how todeal with the current crisis: he told them not to retrench workers. This is excellent, selfish advice. If peoplelose jobs, they may not be able to feed themselves; the government may have to feed them. They maynot be able to pay their landlords and may lose their homes; the government may have to house them. If the government does neither, the unemployed may come out on the streets and torch government offices.Such discomforts are best avoided, especially if a speech to rich guys keeps the inconveniences away.But good advice has other consequences. Airlines are in trouble; they have stopped paying landingcharges to the Airport Authority and the cost of jet fuel to Indian Oil Corporation. If these worthygovernment enterprises ask the airlines, they will tell them: the Prime Minister, no less, told us not todismiss workers. We are not earning enough to pay them, but we cannot not dismiss them either. So wehave stopped paying you instead. If you have a problem with that, go and ask the Prime Minister.This has got to work; when the chairmen of the AAI and IOC go and ask the Prime Minister, he is hardlygoing to say: collect your dues from the airlines. And if he asks them to give the airlines credit, that credithas to be financed somehow, otherwise AAI and IOC will run out of cash. AAI will stop paying its workers;IOC will stop paying Saudis and Iranians for oil. AAI’s workers will be out on the streets; the rich oilbarons will stop oil supplies to IOC.But the Prime Minister looks after his own. Through his finance minister, he has told banks to releasemore “liquidity”; what he meant was, give more credit. AAI and IOC should have no problem; if they haveto pay their suppliers and workers, all they have to do is to go to a government bank such as IOB and UBIand remind them of the finance minister’s homily. The banks, being good slaves of the government, willgive them unlimited overdrafts.But would that not lead the banks to run out of money? That should cause no problems, however. All theyhave to do is to go to the finance minister and respectfully point out their illiquidity. He will immediatelyring up the governor of the Reserve Bank of India. The governor has locked up a good deal of the banks’money in his basement; all he has to do is to open doors and let the banks carry it away. He has donesome of that: he has reduced the Cash Reserve Ratio. He can reduce it further if necessary.

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