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Bailout packages to revive the economy – How far justifiable?

Every time recession hits an economy, demand for bailout packages erupts from almost every direction. Usually, ‘organised’ sectors like Finance and Real-estate make the maximum noise for want of bailout package, in order to, save themselves from entering into the state of insolvency. Eventually, as a normal practice, the Government comes to the rescue and infuses oxygen, in the form of a bailout package, into these sectors, which claim to be on the verge of collapsing.

However, do we ever give it a thought that is this practice even justifiable? Do granting of bailout package in this manner actually fruitful in reviving the economy? Shouldn’t ‘organised’ sectors like Finance and Real-estate, “as-a-whole”, be self-sufficient to deal with situations like a recession? There are a lot many of such questions that should be answered before pumping funds in the name of bailout package in any sector.

Before analysing whether the bailout packages are justifiable or not, let us understand what does bailout actually mean. In financial terms, “Bailout is a financial help extended to those ‘businesses’ that incur huge losses and are on the verge of shutting down if adequate financial support is not provided to them”. Herewith, do keep in mind that the financial help is provided from the hard-earned money of the common man, which the government collects in the form of taxes.

Now, anyone who tries to analyse bailout in light of the above-mentioned definition will straight away adjudge that a bailout package is an essential requirement to revive the economy, especially at times, when it is captured in the clutches of a monster like a recession. On the contrary, if we simply examine the impact of past bailout packages on the economy of any country then we will realize that the bailout package might not necessarily be fruitful in reviving the economy. Shocking…is it?

Well, nothing to be shocked about because this is what happens when we blindly follow the path taken by the developed nations, without even thinking about it.  Although, there is no argument on the point that financial support should essentially be provided to the sectors going through a rough phase. But this should be done only and only to those sectors which are in DIE-HARD need and not otherwise.

Now, the question arises that which are the sectors which are in die-hard need. As per my view, ‘organised sectors’ like Finance and Real-estate are comparatively less impacted by the recession than unorganised sectors like Agriculture. And this is not a baseless statement, rather the ground reality, which can be easily vouched by stepping out of the air-conditioned offices.

Hence, any unorganised sector like Agriculture should be the first and foremost one to be taken care of, in time of recession. And mind it, just issuing of Relief Funds, in no way tantamount to taking care of, especially in light of the corruption prevalent in the economy, which ensures that in spite of granting huge relief funds, not even a single penny reaches the hands of the poor farmers, in reality.

Simultaneously, it should be ensured that the bailout package, is in no way made available to all those Financers which incur huge losses solely on account of bad/fraudulent decisions taken by their management in investing funds or issuing advances to ‘intentional’ defaulters and later on writing-off the bad debts of such big corporate clients. It is interesting to note here that these financers make a lot of hullabaloo when they have to write-off advances of farmers but writes-off huge advances of big corporate clients in utter silence.

At the same time, if at all, bailout package is required to be issued for sectors like Real-estate which is the epicentre of black money then it should be done on a case by case basis only, after identifying the business houses that are fair in their practice (hard to find though). The government should be extra vigilant while dealing with such sectors which make a lot of unaccounted profits during the booming period and run a parallel economy on account of the black money.

As it is, the organised sectors are run by professionals, so they are in a far better position to come out of losses incurred by them on account of bad management decisions than the unorganised sectors which mostly incur losses on account of reasons out of their control like natural calamities. Only when the bailout packages are issued to all those who are in die-hard need it will be able to revive the economy as a whole and would be justifiable, not otherwise.

I do hope that the Government and the Finance Ministry takes thoughtful decisions, which in turn benefits the economy. It is one of the topmost duties of the government to ensure that the hard-earned money of the common man is properly utilized. “Help the needy, not the greedy” should be the motto.

Stay in touch.

God Bless!

Peyush Jain