Is law making the only panacea?

December 30, 2017

Progressing to 2008, Indian economy witnessed an  expansion of the market impelling precipitation of loans by the banks at a higher interest rate. This served twin benefits. Higher loans not only induced profits for the banks but  also elevated investments by the corporate groups and companies. However with the setting in of recession in the year 2008, loans which were once asset turned into Non-performing assets(NPAs). Along with the principal, banks were not able to recover the interest at which the loans were given, impoverishing the competency of the banks to provide with loans as well as the firms to invest.
Insolvency and Bankruptcy Code, 2016, was introduced for the resolution of the bankruptcy cases against the large borrowers that contribute a major share of bank NPAs and hence the passage of the same is believed to bring the NPA under control. Also, recapitalization of public sector banks, i.e., infusing 2.11 lakh crore into the banks to encourage loans has been passed under the government.
But is the solution of NPAs restricted to laws alone? These measures address how the problem moulded can be solved. But it runs aground by failing to address why was the problem of NPAs constructed. NPA was created in the year 2008 because banks were not able to recover huge loans they offered to companies. Government’s influence allow the banks to offer huge amount of loans to their people and hence the problem of NPAs is augmented. How will this code and the plan construe the predicament created by the government’s influence in the bank?
Therefore, “why was it created” should be preferred to “how can the problem of NPAs be solved” which both the code and the plan fails to address. 

The problem of law making can be exemplified by another act.
In the year 2016, Compensatory Afforestation Fund Act was passed. According to this act, any company converting forest area into a non forest area has to pay a prescribed amount to the Afforestation Fund. Before 2009, this fund was managed by the central government and the state government was subservient to the central government. However in 2009, supreme court gave an order to make suitable amendments as forests were not being properly afforested and the state government was not receiving its share to manage these forests at the state level. Though this act has been finally passed, it has been more on the paper and has witnessed mere impact.
How will the Afforestation Fund generate the same ecosystem that has been dissipated ? How will it assure that the diversity of  the flora and fauna is retained in the new area? How will this act rehabilitate the tribals whose livelihood will be obliterated?  How will this act protect the lost habitat of the wildlife?
With the help of the Afforestation Fund, growing trees in the new area will substitute forest with plantation i.e. a single type of tree would be grown. Hence, dearth of diversity won’t sustain different types of wildlife whose habitat has been lost in the areas where forest has been converted into non-forest areas. Though laws have been enacted to renew the lost forest, along with the improper execution it has failed to look after the different aspects that is related to deforestation.

Unequivocally, these measures and acts are a step forward. However, improper analysation of the problem from various  aspects would result in short term gains rather than structural reforms i.e. the long term gain.
Henceforth, law making should not be the only solution for the constructed problems. It should be accompanied with the comprehensive understanding of the reasons for which the problem was created following which substantive and indisputable laws would be formulated. Successful measures aren’t the ones which solve the matter for once, but for ever.

Bishakha Jajodia is a first year student of Economics at IP College for Women, DU.

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