personal finance

'Interest on interest': Can’t go beyond relief already announced, Centre tells SC


(This story originally appeared in on Oct 10, 2020)

NEW DELHI: Amid demands for succour from sectors such as real estate, the Centre on Friday said it would not be possible to add to the already announced financial relief packages and waive compound interest for the six-month loan repayment moratorium period. It also urged the Supreme Court against getting into sector-specific financial assistance, arguing that fiscal policy is the exclusive domain of the Union government.

The Centre clearly indicated it would not be possible to revise the Rs 2 crore limit on loans that would benefit from its proposal. It said this had been arrived at after considerable deliberations. “Fiscal policy is the remit of the government,” the finance ministry said an affidavit.

The decision to bear the burden of compounding of interest and the categories of borrowers to be supported are taken by the government in the specific context of the pandemic and the vulnerability of these specific class of borrowers. Such decisions, including making of expenditure commitments flowing from such decisions, follow a well-established procedure within the government and these procedures cannot be dispensed with,” the finance ministry said.

The SC had asked the government to consider relief to other classes of borrowers as well as various sectors of industries after the government in its October 2 affidavit announced waiver of interest on interest for the instalments to be paid for loans up to Rs 2 crore for MSMEs and individual borrowers during the six-month moratorium period from March 1 till August 31. It had also asked the Centre to bring on record the Kamath Committee report, which considered restructuring of loans taken by big borrowers.

In response, the Centre said it has already announced a financial package of Rs 21.7 lakh crore under Garib Kalyan and Aatma Nirbhar packages that covered several sectors. In reply to the SC’s query as to why these decisions are not notified yet, the ministry said, “The decisions can mature into an office memorandum/circular/order after following mandatory procedure required to be followed considering the huge financial impact involved.”

“The said process would be to get an appraisal done by the Expenditure Finance Committee, and thereafter, would be placed for approval of the Union Cabinet. After the Union cabinet approves, OM/circular/order will be issued, which would need subsequent authorisation of Parliament to incur expenditure, which is in excess of the present budgetary provisions,” it explained.

“Going any further than what has been decided and submitted to the SC may be detrimental to the overall economic scenario, and the national economy or the banking sector may not be able to take the inevitable financial constraints resulting there from,” the ministry said.





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