09-29-2006, 04:44 AM
This Laveesh Bhandari is BSing:
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Third, if default does occur, farmers rarely take recourse to declaring insolvency. This is for many reasons. Insolvency procedures in India are quite out of tune with a liberalising, entrepreneurship oriented economy. The law requires the defaulter to not indulge in similar activity while the insolvency motion is under consideration. It also demands properly kept accounts to show that the funds were only used for the purpose declared and not for any other. Moreover, the burden of proof is on the defaulter. Last, bank managers typically respond to default by small businesses and farmers by reporting it as a case of criminal default or breach of trust. And if a criminal case is instituted, then insolvency cannot be declared.
<!--QuoteEnd--><!--QuoteEEnd-->
Liberalizing insolvency laws is not going to solve the problem. By doing that, we will simply shift the risk of farming from the farmer to the moneylender, who will immediately do one or more of the following:
1. raise the interest rates,
2. make the terms of payment stricter,
3. ask for greater collateral,
4. scrutinize the farmer's risk much more strictly,
5. commit suicide himself
All of the above will make getting a loan much more difficult for the farmer. Such stupidity among Indian economists is perhaps the cause of some of the problems afflicting India.
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Third, if default does occur, farmers rarely take recourse to declaring insolvency. This is for many reasons. Insolvency procedures in India are quite out of tune with a liberalising, entrepreneurship oriented economy. The law requires the defaulter to not indulge in similar activity while the insolvency motion is under consideration. It also demands properly kept accounts to show that the funds were only used for the purpose declared and not for any other. Moreover, the burden of proof is on the defaulter. Last, bank managers typically respond to default by small businesses and farmers by reporting it as a case of criminal default or breach of trust. And if a criminal case is instituted, then insolvency cannot be declared.
<!--QuoteEnd--><!--QuoteEEnd-->
Liberalizing insolvency laws is not going to solve the problem. By doing that, we will simply shift the risk of farming from the farmer to the moneylender, who will immediately do one or more of the following:
1. raise the interest rates,
2. make the terms of payment stricter,
3. ask for greater collateral,
4. scrutinize the farmer's risk much more strictly,
5. commit suicide himself
All of the above will make getting a loan much more difficult for the farmer. Such stupidity among Indian economists is perhaps the cause of some of the problems afflicting India.