MGNREGA allocation will triple if money siphoned by willful defaulters stays in economy

It may similarly serve lenders well if they could, say, disable a vehicular asset remotely if the borrower attempts to dispose it or willfully default on the loan

Had the money siphoned away by willful defaulters stayed in the economy, the resulting wealth would have been equivalent in value to that needed to double the allocation towards health, education and social protection, double the allocation towards rural development, or triple the allocation towards MGNREGA, the economic survey said willful defaulters owed Rs 1.4 lakh crore to the lenders till 2018.

“The cost of such willful default is borne by the common man. Public sector banks get their equity from taxes paid by the common man. They get their debt from deposits made by the common man. When unscrupulous firms willfully default, it is the common man who loses,” the survey said advocating monitoring of assets and defaulters through GPS systems.

“GPS devices, when affixed to collateralized equipment or machinery, can alert lenders if these assets are moved out of the plant. Such tracking systems ensure that the asset never leaves the lender’s sight,” the survey said.

Renting companies that lease laptops and appliances have demonstrated a powerful use of remote monitoring using GPS. These electronic items often come with remote kill switches that disable all functions if the renter attempts to tamper with the asset, dispose of it, or delay rent payments.

“It may similarly serve lenders well if they could, say, disable a vehicular asset remotely if the borrower attempts to dispose it of or willfully defaults on the loan.

Kingfisher Airlines had pledged a few helicopters (among other assets) to obtain loans. Only when the lenders attempted to take possession of these assets did they realize that the helicopters had fallen into disrepair and could fetch little more than scrap value.

Therein lies a strong application of low-cost technology to track the presence, use and quality of assets, the survey said.

Willful default occurs when firms take loans, divert the proceeds out of the firm for the personal benefit of owners, default on loans and declare bankruptcy, thereby expropriating a range of stakeholders – lenders, minority shareholders, employees, regulators and state coffers.