Govt must not refuse the offer Mallya is making

The television channels are once again going to town over Vijay Mallya’s statement about a letter he wrote to Prime Minister Narendra Modi in April 2016, offering to settle his debts to the banks, vendors and employees if he is allowed to do so in a proper and orderly manner. The amount of money in question was big enough to warrant the Prime Minister’s notice. He could have marked it as read and passed on instructions to his finance minister in green ink to examine the matter and set up a system to see that Mallya’s debts are paid off. But he didn’t do it. He must have deep-sixed the letter as if it was anthrax powder by post.

The reason Mallya ran away to London is not to escape paying his debt. If that were so, staying back and calling the debts owed by some of his buddies would have far more easily done it. And who do you think tipped him off in Central Hall to hoof it to London in first class with seven suitcases? What Mallya was obviously seeking to escape was the ignominy of arrest and being locked up in a dirty and squalid cell. It is punishment before conviction, something that is the norm in India.

Mallya is making an offer that the government must not refuse. An arrangement must be made for him to return and be confined to any one of his residences here and to settle his debts and extinguish his woes, as has been done for Sahara’s Subroto Roy by the Supreme Court. The Supreme Court, which had incarcerated the Sahara chief, quite extra-legally if you ask me, till he settled his debts, has since given him bail and is ostensibly closely monitoring his promises to the court to keep paying till his head comes out into the black. The Supreme Court has been on the job prising out thousands of crores from Subroto Roy, who like Mallya had a penchant for the grandiose and extravagant. For instance, on April 28, 2017 a bench headed by Justice Dipak Misra accepted Roy’s request to submit two cheques with Sebi for paying '1,500 crores by June 15, 2017 and another '552 crores by July 15, 2017. It, however, told Roy, who had been called to remain personally present in court: “We are warning you that if the cheque is not realised and money does not come, we will send you to Tihar Jail straightaway on June 19.” Something like this could have been done for Mallya.

By turning the heat on one of the smaller of the big defaulters, I suspect that the regime is only trying to take the spotlight off the gigantic NPAs of Essar, Reliance ADAG, Adani, GMR, GVK and others. The government banks are even offering to close several of the defaulting accounts with severe haircuts, just like the one Vijay Mallya is now sporting, but are not offering him one.

Mallya may not like this description. He is a small fry compared to NPA-loaded titans like Anil Ambani, Gautam Adani and Anil Agarwal. There is no sign that the Prime Minister is avoiding their company, as he did with Mallya’s April 15, 2016 letter. In it, Mallya wrote: “I have been accused by politicians and the media alike of having stolen and run away with '9,000 crores that was loaned to Kingfisher Airlines. Some of the lending banks have also labelled me a willful defaulter.” That much is true. But no politician of some standing has till date called even Subroto Roy a conman, thief or even a willful defaulter. I suppose that is with good reason. Who among them has not eaten his namak or not pocketed a little donation for elections and bad times? Sometimes even for good times!

Let’s get something right about Vijay Mallya. The popular narrative is that he milked the banks for '9,000 crores 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 debts. But we seem to forget that he enjoyed a hedonistic lifestyle much before Kingfisher Airlines, and he had much money to spread around even before Kingfisher Airlines. He had even taken much of his money abroad well before Kingfisher became an airline rather than just beer.

The Rs 9,000 crores he 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 about '4,000 crores 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 MP or one little bank manager had red-flagged the growing stain of red on Kingfisher Airlines debts, the bleeding would have been staunched. Mallya just did not milk the banks to keep Kingfisher Airlines afloat; he milked public companies he controlled such as United Breweries and United Spirits to support its flight into the deep red.

When a business makes a loss, it doesn’t automatically mean that the money was stolen. It often 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. Or both.

The question then is — why was Mallya lent money when quite clearly Kingfisher Airlines increasingly showed it had a business model that precluded its earning money. Let us also not forget that during this period Air India and Indian Airlines together lost Rs 43,000 crores. The money lost under Mallya’s stewardship was a measly Rs 4,000 crores.

In the entire hullabaloo over Mallya’s last flight to the cooler and more salubrious climes of Hertfordshire, 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 who 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.

The problem is that we are far too invested in this system. If the banks tighten up, as many as six of our top 10 business houses will fold up or will have to be dismantled. In other words, really restructured. Except for Reliance Industries, the Tatas and Aditya Birla, all other major business houses are over leveraged and mortally indebted. If we rock the boat now, many will capsize. The economy will slow down further. Mallya is relatively small fish. The big sharks are still circling the banks. Anil Ambani, Gautam Adani, GMR, GVK and Lanco are all well-known big fish.

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 ever greened? Will Rahul Gandhi demand that the PM gives the nation an assurance on this? I don’t think so. Both are betting on short public memories. 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.

The writer, a policy analyst studying economic and security issues, held senior positions in government and industry. He also specialises in the Chinese economy.