Q: What's your opinion of State Bank Of India writing Off loans Of 63 Wilful defaulters and also Rs 1201 Crore Of Vijay Mallya just after demonetization?
People are confused with “write off” means here. Write off doesn’t mean Mallya need not return the loan. Write off means that State Bank of India doesn’t assure its investors that it can get back the amount.
Banks give loans to people and sometimes the people don’t return. These loans are termed “Non-Performing Assets”. A high NPA is negative for a bank and also means the bank is unreal. Often times the banks would realize that the borrower would never repay. This purging happens periodically. In those cases, they will take it from their assets. Their assets and value would come down to reality.
While this happens in their balancesheet, the bank’s loan department can continue to pursue the defaulters if and when they find that the defaulter can afford to pay.
Q: Should India copy the Irish economic model aka the investment-driven, low tax model?
Ireland’s model works for them as they are a small country adjacent to major economic powers. Their membership in the EU allows them access to all these big markets and they in turn sell this access to major companies around the world, including Apple and Google. It is a controversial model as other countries accuse Ireland of misusing the economic bloc.
There are many other small countries that have used this strategy - notably Switzerland, Singapore and Mauritius. All of them are tiny countries that are economically connected to major powers. They use huge low tax rates to be the doormat for global corporations to enter these major powers, who have higher tax rates.
Given that their populations are quite small relative to their neighbors, these countries can sustain a tax haven and not charge much tax at all. In fact, any tax is bonus for them as the multinational companies headquartered there make their actual sales & profits elsewhere. However, for their bigger neighbors on whose cost they grow, it is not very sustainable to have that low tax rates.
In the next few years there will be further pushback against this model as indicated by US government’s push for more data from Switzerland and EU’s hefty fines on companies such as Apple using the Irish route.
(The author, Mr.Balaji Vishwanathan, is a Top Writer on Quora with 216,000 followers)
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