For the last few days, senior officials of many government banks and financial institutions have been assuring us (by us, I mean the rest of the country) that the unfolding realty loan scandal is nothing to get worried about because it's just bribery. Apparently, it isn't really bad news because it's not a systemic failure. According to some secret scale of wrongdoing, bribery is bad, but if the alternative is systemic failure then bribery is not so bad. In fact, we should be happy that this is just good old bribery.
However, I've been trying to figure out what is the practical, on-the-ground difference between widespread bribery and widespread systemic failure. In the current case, the CBI says a whole lot of loans were given away in exchange of bribes. Presumably, the bribes had to be given because there was something wrong with the real estate companies and projects, and they would not have been able to access financing in the normal course of things.
So what would a systematic failure be? A problem in the process by which the loans loans are approved? Sounds fair. In the present case, loans would have been given to real estate companies and projects to which they shouldn't have been given - because the procedures were not competent.
Do you see a practical difference between the two? I don't. The end result, for ordinary people trying to buy a house without going in to a lifetime of EMI-bondage, is the same. Realtors have managed to get their hands on lines of credit to which they shouldn't have had access. They have managed to sustain criminally high prices and simulate (not stimulate) demand because they had this money to play with.
Even in the worst of times, even when equity financing and most legitimate debt financing has been closed to them, they have managed to hang on to assets instead of having to sell them at realistic prices.
The final impact has been on the buyer who has either not been able to buy a house, or has had to pay much more than he should have. To that ordinary Indian, the fine distinction between bribery and systemic failure doesn't seem to quite bring joy and relief.
This column appeared first in Hindustan Times on November 28, 2010