With Punjab National Bank episode hitting every headline, national attention is drawn to an issue that is not fully understood in terms of its scale and importance. Non-Performing Assets (NPA) that is a massive phenomenon, and hence, like all massive phenomenon, can be best looked-at from biological perspective.

In simple terms, our banks have lent about 8-10 lakh crores to businessmen that aren’t likely to be re-paid. Even for a large economy like India, that number is huge, as it means that nearly 10% of all the money lent is not coming back.

While the popular knee-jerk explanation for these NPA numbers is to look at them as product of unethical business practices common to our culture, the scale of them demands that this premise is questioned vigorously, especially because of yet another big number, i.e. extremely high interest rates charged on business lending in India.

The rate at which money can be borrowed from an Indian bank far exceeds lending rates common to developed nations. The rate at which an Indian businessman borrows money from a Bank is above 12 %. As the base-rate of interest is defined by RBI after considering various factors like inflation, growth rate, liquidity etc, it is a product of fiscal wisdom of experts.

As we have had great minds like Raghuram Rajan, the erstwhile governor of RBI, deciding what is good for the nation, it is not appropriate for me to apply my limited understanding of economics to the lending rates in place; but, as a man on the street, it looks a bit strange that we have been lending at a rate that appears to be not working for so many people. If we apply really common sense in retrospection, if the money now lost to NPA was converted to interest subsidy, it could have brought down interests rates, possibly making them more viable to our economy.

In simple terms, what makes better business sense – losing money by lending money at more than 12 % that nearly 10 % businesses are unable to return or at a lower rate that should enable more businessmen to pay back?

As our economic growth, and hence our future as a nation rotates around lending rates, we need to shift to biology to understand economics of India and why we have ended up with so many big players defaulting with massive borrowings while our SME and MSME sectors are crying for help.

Just as economics is about transaction of money, ecology is about transaction of energy. Just as a business will die out if it ends up with loss of money in transactions, a biological being will die if it makes net energy loss in living. If a cup of tea contains 10 calories and lifting it to drink demands 12 calories of energy expenditure, you can’t survive on tea. So, biology-based ecology has to evolve in a way that ensures that energy transactions are viable for its members.

As earth has different locations with different amount of resources, a viable ecology of any region has to yield positive outcome within the resource limits. In simple terms, small energy-efficient scrub is all that can grow in arid region, and not a banyan tree. Hence, if you insist on growing a banyan tree in a desert (possibly because, like many green crusaders, you think that growing trees is an act of saving nature), you have to provide it with resources from outside. As long as you can do that, the tree may live and impress its viewers by towering over unimpressive but naturally growing scrub. But, the day infusion of resources stop, the tree can’t survive.

If we return to Indian economy from the ecology, similarities are striking. Economy of our poor nation is capable to grow shrubs and not giant banyan trees. If left alone, an Indian roadside would naturally develop viable economy of hawkers and small shops, but surely not swanky malls. But, as we look outwards and get impressed by the prosperity of other nations with completely different economic environment, we get tempted to grow our own banyan trees.

When we plant banyan trees, we turn natural self-sustaining scrub ecology into an artificial garden that may be more pleasing to the eye. But, unfortunately, banyan trees are unable to form a viable ecology around them; and hence, they live only till they can be fed with loans and support policies. Withdraw the artificial support and garden falls apart.

The brutal learning from biology for us is about real state of Indian economy. Though lending rates are worked out by best experts of fiscal theories, they are unable to reflect the true state of our market.

The more diabolical result of our lending policies is, if a young IIT engineer and a tenth-fail rich kid sit on a table to become partners, the IIT kid with real technical merits won’t be calling shots. With lending rates we have, money has become a real monster with enormous power that has destroyed meritocracy in business.

What we honestly need to accept is true nature of our local economic ecology. We are like a resource deficit land with top soil nutrients lost during years of bad land management. We have little water and fertilizers that we can’t waste after those who show us dreams banyan trees. Our SMEs and MSMEs are the local scrub with hardiness and potential. We need to invest in them, and that is possible only if we can lend them money at the rate that matches with their repayment ability. If we want giant trees, we will have to wait for them to emerge from local shrubs.

India needs a massive shift in lending policies. The fear of inflation and growth-overheating has to be set aside if we want a repayable and hence really viable lending rate. We need to lower capital cost to undermine empowerment that money enjoys. With better processes and stronger liability-fixing, we can allow meritocracy to replace Shylocks.

If we refuse to learn from nature and continue with our experiments with garden economics, we are a doomed economy.


I am happy to admit that I have managed surviving till now with minimum effort as all my intellect has be used to avoid doing anything meaningful. As I needed to while all the free time I generated in course of being lazy, science has been my favorite muse that I have enjoyed company of. As an effort to kill time (in a way, to get even with it) one fine day I decided to write a science column, more for my personal amusement than to attract readers. After getting educated about the attention span of modern readers from my editor, it became more like a challenge to tackle esoteric subjects in 600 words that I have managed to remain interested in for more than a year now. I do not want to add my worldly profile here as these are ideas that need to be considered only on the merits they carry and not as an opinion of a certain human being.

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