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Vijay Mallya or Our Politicians, who’s thief?

Let’s get something straight 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 dues. But we seem to forget that he enjoyed a hedonistic lifestyle and had much money to spread around even before Kingfisher Airlines.

Much before his airline came into being, he reportedly lavished money on the Janata Dals of Ramakrishna Hegde and HD Deve Gowda, the Bharatiya Janata Party of Atal Behari Vajpayee and LK Advani. The allegations of large amounts of money being paid to the legislators of the BJP and and the Deve Gowda rump of the Janata Dal have long done the rounds for his two Rajya Sabha terms. The Congress may not have allotted him votes, surplus or otherwise, but it does not mean that the Congress and other parties did not benefit from Mallya. The Rs 9,000 crore Mallya is now found owing to the public sector banks and others is the money he lost on Kingfisher Airlines.

I understand the loan money is around 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 Member of Parliament or one little bank manager red-flagged the growing stain of red on Kingfisher Airlines’ debts, the bleeding would have been stopped. Mallya just did not milk the banks to keep Kingfisher Airlines afloat; he allegedly milked his own companies such as United Breweries and United Spirits to support its flight into the deep red.

More troubling questions

When a business makes a loss, it doesn’t mean the money was stolen. It just means that it has spent more money than it has earned. This means 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 Mallya was lent money when quite clearly Kingfisher Airlines increasingly showed it had a business model that precluded it from earning money. Let us not forget that during this period, Air India and Indian Airlines together lost Rs 43,000 crore. The money lost under Mallya’s stewardship was a measly Rs 4,000 crore. But we are not putting out any of the aviation ministers like Ananth Kumar, Sharad Yadav, Praful Patel and Ajit Singh out to dry for the losses of the public sector airlines. Why? We do not even want to find out how much money was made by the politicians and bureaucrats during the last decade on account of the two public sector airlines.

In the entire hullabaloo over Mallya’s last flight to the cooler and more salubrious climes of Herefordshire (remember in Hartford, Hereford and Hampshire, hurricanes hardly happen!) 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 whom 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 Mallya has flown the coop that nurtured him, and it seems that all others stand absolved.

Shifting focus

Forget 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” that don’t really want him back. They probably don’t even want him to live for too long and long for him to take his secrets to his grave. He just turned 60, but his corpulence looks unhealthy. Mallya being a betting man would probably not bet on his own longevity.

But in his going, Mallya is serving one useful purpose. It takes away the focus on how other “industrialists” fund their lavish lifestyles and have created empires overseas. Our “industrialists” all use their company assets for personal pleasure. Company jets and lavish company homes are meant only for personal use and for the pleasure of others. Money is routinely extracted from corporate coffers for those they want to oblige, be it for personal relationships or those in government and politics.

Money flows from our business houses to political groups like Naxalites in Bastar and the United Liberation Front of Asom, in addition to all the mainstream political parties. The not-too-industrious industrialists, most of whom 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 so silent? One can understand an Arun Jaitley acquiescing to this, but what keeps a Raghuram Rajan from reading the riot act to the banks?

In too deep

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 a select few, most other major business houses are over leveraged and mortally indebted. If we rock the boats now, many will capsize. The economy will further slowdown. Mallya is relatively small fish. The big sharks are still circling the banks.

Will the prime minster please stand up in Parliament and assure the nation that all the moneys lent to them are as per norms and prudential banking practices, and that the loans are not being evergreened? Will Rahul Gandhi demand that the prime minister give the nation an assurance on this? I don’t think so. Both are betting on short public memory. 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.

We welcome your comments.

By Mohan Guruswamy


3 Billion Dollars found by our Defense Ministry


The government has “recalibrated” the management of an account, which was used to pay money to the US under Foreign Military Sales route, after a review showed that nearly USD 2.3 billion had piled up without earning any interest, Defence Minister Manohar Parrikar today said.

The minister also said that the Defence Budget for the next fiscal, “nearly Rs 2.59 lakh crore” sans the pension allocation, was adequate and as per the ministry’s requirement.

India and the US have now fine tuned the FMS procedure whereby rather than raising bills case-wise every quarter, all the funds against various cases have been pooled together in a corpus.

The corpus had been created in September last year, defence sources said.

A statement released by the ministry said that as and when funds are required to be paid per case, fullfilment of contractual liabilities, the said amount is being withdrawn from the corpus.

“Consequent to this creation of the corpus in consultation with the US government, no payments have been made in the last two quarters of the financial year 2015-16, against cases which necessitated payments, against the said contracts.

“Instead, payment is being effected from the corpus of 2.3 billion US dollars. It is hoped that no payments shall be required to be made till the amount of 2.3 billion US dollars is depleted and there is a necessity for us to replenish certain amount as required,” the ministry said.

It said that this has happened through “scrupulous and holistic financial management”.

Consequently, while the US government will continue to meet their contractual obligations, there will be no additional burden on the Indian government on this account.

It enables utilisation of scarce funds on other projects and hedges the country against adverse exchange rates, the ministry said.

Earlier in the day, Parrikar, who had put the corpus figure at about USD 3 billion, countered reports that the ministry has failed to utilise about Rs 11,000 crore from the capital budget of 2015-16. He said the country has actually saved money.

He said that even though the provision of capital acquisition in the budget was around Rs 77,000 crore, the actual anticipated spending will be around Rs 66,000 crore.

“We have taken measures by which Rs 11,000 crore saving appears there,” Parrikar said, briefing reporters about the defence budget for the next fiscal.
The minister said this was the “first time” that Defence

Ministry took stock of Foreign Military Sales under which defence equipment is bought from the US via a government-to- government route.

“We pay to the government in an account which is held by the US or managed by the government of US from where the payments, as per the contract, is made to private companies.

“Unluckily, because of ill management or lack of attention to the provision of this account, we had slightly less than USD 3 billion dollars (USD 2.3 bn) which had piled up in this account and was not earning any interest,” Parrikar said.

He added that somewhere around May and June last year, the ministry held a “review” and realised that “unnecessarily money is lying with the US government without appropriate contractual obligation being carried out”.

“And we are transferring the money without actually taking stock of the balance. So, it was a government of India account with the American government for FMS. I am happy to tell you that we have recalibrated the full management of the account,” he said.

Parrikar said the amount in the account has now come down to around “USD 1.7-1.8 billion”. Explaining how so much money got accumulated, he said the money is sent in stages as per the contract schedule.

“At times, for some reason the schedule gets disturbed. Sometimes, the amount is calibrated based on rough calculations and the actual expenditure is slightly less. Sometimes, it goes up but most of the time it is less.

“Suppose the issue is over and all payments have been made. Then we realise that about 2 lakh dollars are lying in that particular account.

“Secondly, is there is a disruption of staged payment… actual consumption is less. In nutshell, money got accumulated, disbursal was less. There was a delay in payment and we are now using it for clearing,” he said.

Parrikar said that last year, the ministry paid about Rs 5,000-6,000 crore from this fund for the country’s committed liability for supply against the US government’s direct military sales route.

“Money has been paid, but the government is saving from its budget Rs 5,000-6,000 crore which we paid. We have saved USD 700-800 million precious foreign exchange that has been utilised from the fund which was lying there because of lack of management. We have now started managing it,” he said.

Parrikar said that even though an expenditure was

incurred, money did not leave its coffers.

“The money was already in someone else’s pocket. We have only asked him to pay on our behalf,” he said, adding that another Rs 2,000-3,000 crore was saved because the ministry is now strictly monitoring staged payment clauses.

“We are not allowing it to be loosely paid even to defence PSUs. So, these payments of committed liability have slipped,” he said.

Talking about the budget for the next fiscal, he said there is Rs 70,000 crore for defence acquisition even though the actual capital budget is over Rs 86,000 crore. The spending through the capital route is over a period of time, he said.

As per new contracts being signed, nearly 10-15 per cent of the amount has to be paid at the onset, he added.

Parrikar explained that for the nearly Rs 1.20 lakh crore worth of contracts signed since the NDA government took over, it would have paid a maximum of Rs 17,000 crore.

“Acquisition funds provided is as per calibrated purchases which are going to be done. For the first time in Defence Ministry, we have carried out an extensive review of the next 10 years’ cash flow position vis-a-vis the requirement of the military,” he said.

Replying to a query on the Mountain Strike Corps, which was cleared by the Cabinet Committee on Security (CCS) in September, 2013, Parrikar said, “Whatever arrangements need to be made, have been done.”

Asked about large sums to be spent on salaries and pensions in the wake of the expected decision on the Seventh Pay Commission, Parrikar said the “expenditure is inevitable”.

He added that the government was keen on rationalising the strength of the army through a process undertaken by the force itself.

“We have asked army to undertake the exercise,” he said.

Parrikar said another way of cutting down expenditure was to use simulators for training pilots and drivers.