Are you ready to pay for subsidies of riches through your taxes?
Banks don't need to bear the cost of waiving interest on interest for loans taken during moratorium. But does it seem legit that we, the taxpayers, pay for the subsidies of riches?
Two weeks back we had covered the story on moratorium and interest waivers when the nation was frantically awaiting the Supreme Court’s verdict on waiving of interest over interest. We were quite vocal about the repercussions of these waivers on banking system’s health, however, the government has submitted their final affidavit to the apex court with the main argument of waiving interest on interest for all loans upto Rs. 2 crores. This covers all borrowers under the segments of home loan, auto loan, MSME loan, education loan, personal loan, credit card loan and consumer durable loan and all the compound interest in such loans would be borne by the government. That’s too big a step taken by the government to take care of its distressed borrowers, but unequivocally waiving compounding for all; Does it seem right? Let’s try to dig deeper into how would this move impact us.
Any loan can be categorized into two main buckets: loan taken for business purpose (like MSME loans) and loan taken for personal purpose (like home or education loan). For MSMEs, COVID was a big shock and they would definitely need time to regain their business momentum. Fair point and hence the waiver seems legit for them. But for people taking personal loans of 2 crores, do they also need a waiver? Doesn’t seem so. Imagine a person taking a home loan of 2 crores and with bank financing 75% of the total cost of house, this means the borrower is an owner of a house worth 2.6 Cr. A person who can afford such a house can not be termed as vulnerable and in dire need of an interest waiver - that too from the taxpayers’ money. Rather, there’s a high probability that such a person might not be even paying income tax because as per the disclosure of Income Tax department earlier this year, only 1.4 Cr. Indians pay Income Tax and out of these, 1 Cr. people have an income of less than 10 Lakh per annum! And with our current banking system, one can be sure that with 10 LPA, banks would never lend a loan to that customer to buy a 2.5 Cr worth of house. The same principle applies to other personal loans of upto 2 Cr also.
Hence, we may easily assume that this solution of government rests on the premise of treating all non-equals as equal. A person taking a loan to buy a 6 lakh rupee Honda Amaze cannot be justifiably compared with another getting a loan to buy an Audi worth 1 Crore because disposable income of an Audi buyer would be much higher than an Amaze buyer. So, there needs to be a logic behind “who should be given a waiver” because we would never want that taxes paid by us be used to subsidize for luxuries for a person earning many times higher than us. We’re sure nobody reading this article would like that too!
Hence, a better solution in this scenario would be to further tailor down this 2 Crore limit in personal lending cases. While a 30-lakh house with upper limit maybe assumed worthy of getting subsidy, and similarly a 10 lakh worth of car can be computed in the same category. One may argue that how can these limits be set randomly? Well, if the government can come to a rational conclusion of deciding a limit of 2 Crores to waive interest on interest, it definitely has the tenability to customize the benefits too. At a time, when governments are suffering to maintain their budgetary spends, such savings, howsoever minimal, can be a big boon.
The righteousness shown by our government to understand that banks and its depositors can’t be made to pay for the waivers is praiseworthy. However, it also needs to take into account its responsibility of maintaining equality. The tax paid by a middle-class person is through his hard-earned salary in the hope of making a better India. Using it to subsidize the richer strata is no less than a betrayal for him.
Let’s hear what the apex court finally has to say on this matter on 13th October, but if you liked reading this post then please do subscribe and don’t forget to share with your dear ones.
By: Anmol Gupta | Isha Garg