📰 Safety in the sky
The DGCA should have no tolerance for laxity among airlines seeking to cut corners
•Bird hits, cracked windshields, component failures, engine compressor surges and blade failures, flight deck indicator and system-related warnings, flight diversions, mid-air engine shutdowns, pressurisation problems, and a case of severe turbulence in the monsoon — these aviation-related occurrences in Indian skies in recent months, reaching a crest over the last 30 days, with most of them affecting one airline, have raised concerns about air passenger safety. In its ‘show cause notice’ issued recently to SpiceJet, the carrier in focus, the Directorate General of Civil Aviation (DGCA) has highlighted some of the reported events. In its tersely worded observations on the low-cost airline’s operations — a fleet of narrowbody jets and turboprops — the aviation regulator has pointed to a ‘degradation of safety margins’, and touched on 'poor internal oversight’ and ‘inadequate maintenance actions’. Further, the DGCA has added, a financial assessment (September 2021) could point to a shortage of spares and, therefore, the ‘invocation’ of flying with a minimum equipment list. In its initial response, the airline management has put forward a defence of being an IATA Operational Safety Audit (IOSA) air carrier. And, second, given the scale of flight operations in India — according to Ministry of Civil Aviation data, there were 5,268 aircraft movements in the domestic sector, on July 10 — such incidents are not an aberration. It has even cited an average of 30 such episodes a day, which some official sources have backed, though feebly.
•The metric is problematic — even aviation experts concur on this. There is no comparison with a global standard, or even a category breakup. Even worse, and dangerous, is not having the acknowledged root causes addressed. In the DGCA’s Annual Safety Review 2020, edition V, for example, under ‘Deficient maintenance’ (the objective is to improve the maintenance of Indian registered aircraft), for a target of 2.16 for incidents involving component/system failure per 10,000 flight hours, the achieved performance is 2.39. Similarly, under the number of maintenance errors per 10,000 flight hours, for a target of 1.43, the performance is 1.46. Repeated snags are a red flag, pointing to faults in the safety oversight system. In an ideal ecosystem, issues with safety would be analysed in terms of the rate of occurrence using tiered categorisation, with the goal of reduction to the minimum level. Troublesome too is how an airline continues its operations despite a ‘show-cause notice’ and during the monsoon. With passenger numbers climbing back to pre-COVID-19 levels, the entry of new airlines, the existing players indicating aggressive fleet expansion plans, and an international safety audit that is happening once too often for India, the regulator needs to be nimble and more vigilant. The industry watchword — safety — cannot be glossed over.
📰 The new ‘normal’ of political splits and shifts
Parties are more closely aligned with the state; the party bond exists only as long as it ensures a legislator’s success
•Political parties sometimes break up like marriages, and like remarriages, individual legislators switch parties. In both cases, the consequences can be severe. When individual legislators or a group decide to leave a party, form another party, or join another party, it could have repercussions in terms of government formation, maintenance, and termination. In Maharashtra, recently, and in Madhya Pradesh, a while ago, splits in the ruling party and a subsequent realignment of legislators inaugurated new governments.
Distinct waves
•Splits and switches are commonplace in legislatures across the globe, and India has witnessed at least three distinct waves. The first wave occurred towards the latter half of the 1960s when challengers to the Congress attempted to displace it in the States. There was literally great shoving and pushing and a quick turnover of governments due to the free movement of legislators across political parties.
•The next phase was inaugurated with an attempt to end the free movement and regulate the behaviour of legislators through the anti-defection law. While the law discouraged individual movement, it incentivised a collective movement of legislators since it laid down specific numbers to legitimise and validate party switches. When legislators switch in groups, the costs are shared, and the move also appears less opportunistic, which in many ways defeats the purpose of the legislation. Though the law has placed hurdles before splits and switches, the activity has continued. To make matters worse, the implications of the law now influence the strategies of legislators and parties.
•The third phase was inaugurated in 2014 with the Bharatiya Janata Party (BJP) on the ascendance when already-dominant parties began to use splits and switches to weaken and destroy their competitors. Aided by friendly Governors, the BJP, like the Congress did earlier, benefited from a string of governmental changes, including Arunachal Pradesh (2016), Bihar (2017), Karnataka (2019), Madhya Pradesh (2020), and Maharashtra (2022), which were brought about by legislators switching sides. In Puducherry (2021), switches led to fresh elections, bringing a BJP alliance to power. In Goa (2022) and Manipur (2017), though the Congress was returned as the single-largest party, it was outmanoeuvred by the BJP soon after. It was only in Uttarakhand that a Supreme Court of India intervention saved the Congress government.
A regional example
•It is not the BJP alone, as around the same time, ruling parties had a field day in Telangana and Andhra Pradesh. In Telangana (2014), the Telangana Rashtra Samithi (TRS) decimated the Congress and the Telugu Desam Party (TDP) by encouraging shifts. In 2018, the Congress again crumbled under pressure. Likewise, in Andhra Pradesh, first, the TDP did the same to the Yuvajana Shramika Rythu Congress Party (YSRCP) after 2014, and subsequently, when the YSRCP came to power in 2019, it paid the TDP back in the same coin. In all these cases, the ruling party already had a comfortable majority of its own and did not necessarily need additional support.
•Therefore, the current phase is bizarre when compared to the past because dominant parties appear to be actively cheering splits and shifts and having no respect for the basic rules of the game. The anti-defection law and control of institutions are now weaponised by dominant parties to intervene in the internal working of Opposition parties, and sometimes make and break them. Furthermore, legislators are switching support even if it does not count to the making or maintenance of governments.
A perspective
•So what do we make of the splits and switches? Much of our discussion is dominated by the morality of splits and switches, and this revolves around the damage it causes to the foundations of representative democracy. And these are undoubtedly reasonable arguments. First, switchers violate the trust relationship with their constituents as voters get something other than what they bargained for. Second, assuming voters vote for parties and not candidates, the argument is that uncohesive parties make it difficult for voters to draw definitive lines of responsibility. Consequently, it is difficult for voters to hold party governments accountable for their actions during elections.
•Despite sound arguments about the despicable nature of splits and switches, they continue to happen routinely. The question then arises: Why do legislators split from and switch parties without fearing the negative connotations? We cannot answer this question as long as our perspective of political parties is dated.
•While we keep track of party system change, we ignore the point that the component parts, parties which make up the system, too change and transform. Our conceptualisation of parties is static and is drawn from an era long gone by. Parties constantly adapt new modes to sustain and find success for themselves.
•Our popular image of a party is that of the classical mass party, which rises from societal movements and is essentially internally democratic. They are linked to mass organisations and groups that share a common goal encompassing different dimensions of societal life. The leadership comes from the organisation, is accountable to it and is committed to the goal. Our normative posturing comes from this ideal type. This is what even the Election Commission of India imagines a party should be since many of its guidelines lay stress on the ‘democratic spirit’ and the need for transparency and participation in internal decision-making.
•However, in reality, parties are anything but this. While they mobilise and compete around identity and group solidarity issues such as mass parties, the internal democracy element is missing, and their links with society and mass organisations are at best tenuous. Today’s parties are centralised vote-getting machines which primarily work to ensure the return of political leaders to office. Mass inputs and ideas do not matter, and it is the central leadership that counts. All party activities begin and end with elections.
•In this model, it is not surprising that paid professionals occupy a central place. They pick strategies, run campaigns and are sometimes involved in ticket distribution. New forms of communication and campaign methods have displaced traditional campaign modes. Consequently, the vast pool of voluntary unpaid labour which traditionally formed the backbone of parties and linked parties with the grass roots are no longer as closely involved as they were in the past.
•Leaders are “elected unanimously” and party conferences are choreographed events where ordinary members meet and greet leaders. These events are used to enhance the profile of the leadership elite and are indeed not a forum for intra-party debate and discussion. Since parties are mainly concerned with electoral success, anyone who enjoys the confidence of the top leadership and can help increase the seat share is likely to get a ticket. Moreover, we now know that parties prefer candidates who bring in their own money, fund other candidates and raise resources for the party. All this puts the party on the ground in the shade.
New alignment
•Finally, the most significant change is that parties are more closely aligned with the state rather than civil society. Parties exchange material and psychological rewards, and goods and services the state provides for electoral advantage. Voters also see parties as a supplier of services. This connection pushes legislators and parties to be in government or at least close to the government. This was one of the most common reasons for Members of Legislative Assemblies who switched parties in the two Telugu-speaking States. As a corollary to this shift, the party has become a shadow of what it once was and has been reduced to an instrument to defend policies and programmes of the government.
•On the supply side, the party on the ground no longer calls the shots; parties are election vehicles and a supplier of services. The party bond exists only as long as it ensures success for the legislator. On the demand side, the voter does not appear to have any problem, whether it is ‘A’ or ‘B’, as long as “services” are available. Consequently, splits and switches are not seen as objectionable by legislators and are not punished by voters as well. Legislators will, therefore, be willing to do anything if the benefits exceed the costs.
More steps to prevent frauds are needed which include tightening the internal and external audit systems of banks
•The biggest banking scam in India has come to the forefront in the midst of celebrations of ‘Aazadi Ka Amrit Mahotsav’; in this case, Dewan Housing Finance Corporation Limited (DHFL) has hoodwinked a consortium of banks driven by the Union Bank of India to the tune of ₹35,000 crore through financial misrepresentation. The DHFL case was not an isolated case. In February this year, ABG Shipyard Limited of Surat had already taken a loan of about ₹23,000 crore in a fake manner.
Taking a hit
•On February 1, 2019, a consortium of banks had held a meeting to take cognisance of the serious allegations of loan repayment default against the DHFL. Subsequently, a core committee of seven of the largest banks — the State Bank of India (SBI), the Bank of Baroda (BoB), the Bank of India, Canara Bank, the Central Bank of India, Syndicate Bank and the Union Bank of India (UBI) — was formed. KPMG (a ‘global network of professional firms providing audit, tax and advisory services’) was roped in as the evaluator to lead a unique survey review of the DHFL for the period April 1, 2015-March 31, 2019.
•The Central Bureau of Investigation (CBI), in its first information report, has shown that the State Bank of India was the most badly hit with a non-performing asset (NPA) base of ₹9,898 crore the very sum the DHFL acquired from it. Essentially, the Bank of India and Canara Bank have been plundered to the tune of more than ₹4,000 crore each by the DHFL. Also, more than ₹3,000 crore each has been supposedly cleaned up by the DHFL from the Union Bank of India and the Punjab National Bank.
•The banking system of any country is the backbone of its economy. Excessive losses to banks affect every person in the country because the amounts deposited in banks belong to the citizens of the country. The NPAs that banks incur are mainly due to bad loans and scams.
•Data by the Reserve Bank of India (RBI) show that around 34% of scams in the banking industry are on account of inside work and due to poor lending practices by and the involvement of the junior and mid-level management. The data by the RBI also show that one of the fundamental problems in the way of the development of banking in India is on account of rising bank scams and the costs consequently forced on the framework. Strangely, as in a Global Banking Fraud survey (KPMG), the issue is not just for India alone; it is a worldwide issue.
An NPA projection, a list
•In a Financial Stability Report released by the RBI in December 2021, there is a projection of the gross NPAs of banks rising from 6.9% in September 2021 to 8.1% of total assets by September 2022 (under a baseline scenario) and to 9.5% under a severe stress scenario. Frauds in the banking industry can be grouped under four classifications: ‘Management’, ‘Outsider’, ‘Insider’ and ‘Insider and Outsider’ (jointly). All scams, whether interior or outside, are results of operational failures. Research by Deloitte has shown that limited asset monitoring after disbursement (38%) was the foremost reason behind stressed assets and insufficient due diligence before disbursement (21%) was among the major factors for these NPAs.
•There are news reports every few weeks of some fresh/new bank scam or the other which is breaking the trust of the common man in the banking system. There are many examples of bank scams: the Nirav Modi and Mehul Choksi scam involving the Punjab National Bank (₹11,400 crore), the case of businessman Vijay Mallya (₹9,000 crore) involving nearly 13 banks, the Andhra Bank fraud (₹8,100 crore), the PMC scam (₹4,355 crore), the Rotomac Pen scam (₹3,695 crore), the Videocon case (₹3,250 crore), the Allahabad Bank fraud (₹1,775 crore), the Syndicate Bank scam (₹1,000 crore), the Bank of Maharashtra scam (₹836 crore), the Kanishk Gold Bank fraud (₹824 crore), the IDBI Bank fraud (₹600 crore), and the R.P. Info Systems Bank scam (₹515 crore) to name just a few.
•A high NPA also reduces the net interest margin of banks besides increasing their operating cost; these banks meet this cost by increasing the convenience fee from their small customers on a day-to-day basis.
•According to the RBI data, corporate loans account for nearly 70% of these bad loans, while retail loans, which include car loans, home loans and personal loans, account for only 4%. A study by the Indian Institute of Management Bangalore has shown that poor bank corporate governance is the cause behind rising bank scams and NPAs.
Steps that need consideration
•Over time, bad loans lead to higher NPAs. So, banks have to exercise due diligence and caution while offering funds. The regulation and the control of chartered accountants is a very important step to reduce non-performing assets of banks. Banks should be cautious while lending to Indian companies that have taken huge loans abroad. There is also an urgent need to tighten the internal and external audit systems of banks.
•The fast rotation of employees of a bank’s loan department is very important. Public sector banks should set up an internal rating agency for rigorous evaluation of large projects before sanctioning loans. Further, there is a need to implement an effective Management Information System (MIS) to monitor early warning signals about business projects. The CIBIL score of the borrower (formerly the Credit Information Bureau (India) Limited) should be evaluated by the bank concerned and RBI officials. This must also include the classification and responsibilities of the lending and recovery departments.
•Financial fraud can be reduced to a great extent by the use of artificial intelligence (AI) to monitor financial transactions. However, the adoption of digitisation beyond a point may have limits as AI provides quantitative information but does not take into account the qualitative aspects.
•While the Government of India and the RBI have taken several measures to try and resolve the issue of scams in the banking industry, the fact is that there is still a long way to go. Rather than having to continuously write off the bad loans of large corporates, India has to improve its loan recovery processes and establish an early warning system in the post-disbursement phase. Banks need to carry out fraud risk assessments every quarter.
•Only establishment of National Asset Reconstruction Company Ltd. (NARCL) or the ‘bad bank’ is not a real solution. These measures can help only after a loan is bad but not the process of a loan going bad.
