What we can learn from the withdrawal of the FRDI Bill

The 2017 FRDI Bill was torpedoed by ordinary people on WhatsApp groups. There are lessons there for today's Indian political activist: Act early, set the narrative and don't fear "overreacting".

Their supporters call it parliamentary efficiency and their critics are less polite, but the parliamentary process of the current NDA government has come in for its fair share of discussion over the last six years. The passing of the hotly contested 2020 Farm Bills with a controversial voice vote is only the latest in a long line of unusual moves. In 2016, they side stepped an entire house of parliament by classifying the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act as a money bill. (This was upheld by the Supreme Court in 2018 in a 4-1 split in Puttaswamy v. Union of India, though legal scholars have continued to point out the difficulties with allowing such a move.) Several key amendments to the Financial Contribution Regulation Act have been pushed through without discussion in the annual Finance Act (which really ought to contain just the budget). And as compared to UPA 1 and UPA 2 that regularly sent bills to parliamentary committees for review, the present government clearly prefers to push bills through directly. All of this parliamentary strong-arming has led to the creation of an impression that this government is invincible in parliament.

In this context, it’s useful to examine the fate of the Financial Resolution and Deposit Insurance Bill of 2017 (FRDI Bill), or what I prefer to call “the one where WhatsApp uncles and aunties took on the government (and won)”.

Bail-in, not bail-out

In 2017, I received a panicked call from my parents. The government, an accountant friend had told them, was going to use their bank savings to bail out the struggling financial sector - could I please figure out what was going on? The details were vague, and like all things related to parents and WhatsApp forwards slightly distorted, but a message was circulating. Without it being covered in too many newspapers or on television, people were buzzing about something called the FRDI Bill, and particularly a provision called the “bail-in” clause. The bill had been introduced in the Lok Sabha in August 2017 and had been referred to a joint parliamentary committee for further consideration.

Designed to rescue the struggling financial sector, the bail-in clause provided that a collapsing financial institution could enter into a scheme that would, among other things, cancel their liability to the depositor (hence a “bail-in” using depositor money as opposed to the conventional “bail-out”.) Each deposit would be insured upto a limit of Rs. 1 lakh. Now close to 40% of deposits in banks in India at the time were above 1 lakh. Meanwhile, the news was filled with discussions of the high levels of NPAs affecting Indian banks. As the erstwhile king of good times, Vijay Mallya grappled with bankruptcy, leaving a consortium of banks facing a mammoth Rs. 9000 crore NPA, middle class Indians began to feel a very real fear that their savings would be wiped out to keep the banking industry afloat.

The mainstream media by and large ignored the story until the chatter on social media grew too loud to ignore. In a rather late publicity push, the government attempted putting out explainers. In December 2017, news channels that are traditionally known to sympathetic to the BJP government attempted to put out what they hoped were calming videos:

A few quietly reassuring, “designed not to alarm” pieces (like this one) explaining the FDRI Bill appeared in the pink papers. Some pointed out that this really didn’t change the position for depositors, who under existing laws receive nothing else if a bank goes under, without addressing what was implicit in the bill — that if a bank failed, the depositor need not look to the government for a bail out. On the contrary, the government would look to them.

But it didn’t work. The government found the depositor both well informed and unwilling to fall for what they saw (rightly or wrongly) as someone pulling the wool over their eyes. The government continued to make statements to reassure depositors, even going so far as to say that they were open to increasing the deposit insurance limit of Rs. 1 lakh. But by the end of March 2018, news reports circulated of ATMs running dry in Telangana due to rumours around the FRDI Bill, and it became clear that uncertainty around the FRDI bill put the entire banking system at risk.

In August 2018, the government was forced to withdraw the FDRI Bill from the Lok Sabha for further deliberation and it hasn’t been tabled since.

(The Finance Minister briefly mentioned the possibility of tabling it again in February 2020, but by July 2020, with COVID and the economy in a shambles, she backtracked and said that no decision had been taken yet.)

Some aspects of this are unique to the sector and the FRDI Bill. First, and most importantly, banks survive on deposits. Any jitters expressed by depositors can bring the entire system crashing down. Second, the FRDI Bill was seen as coming after everyone’s money. There were no caste or religious lines that could be drawn to polarise, and the idea that ordinary peoples’ savings would be used to rescue a sector decimated by unscrupulous large corporates was universally loathed. Third, the deposit insurance amount was too low. Nearly 40% of deposits fell outside the insurance limit, which meant a large number of people stood to lose. Finally, the class of people affected (people with savings deposits of over Rs. 1 lakh) was not one that is accustomed to being voiceless.

But there are other lessons that are transferable to all political activism.

Mobilise Early

As a fundamental matter, once parliament enacts a statute, it’s extremely difficult to get it repealed. Occasionally, like with the dreaded Prevention of Terrorism Act (POTA), the repeal can form a part of the manifesto of the next government. Even then, the provisions of laws that are on the books tend to be resilient. (The repeal of POTA in 2008, for example, was accompanied by the amendment of the Unlawful Activities Prevention Act (UAPA), to mirror some of the provisions that were being lost including extended pre-trial detention without bail.)

CAA NRC

The protests across the country against the Citizenship Amendment Act began to really pick up steam once the CAA was passed in parliament on December 11, 2019. While it was too late for the CAA, which was already law, what the protestors did well was hammer home the link between the CAA, the proposed National Register for Citizens and the haunting detention centres being built by the government. Once that message got through (ably assisted by the Home Minister’s now famous “chronology” comments), it mobilised even the most “apolitical” of urban Indians to express horror. States ruled by opposition parties took out huge rallies and West Bengal declared that they wouldn’t implement the NRC and the CAA.

While the government, after December 2019, was very unlikely to repeal the CAA (which would involve a loss of face with their Hindutva base), its plans to implement the National Register of Citizens were put on hold.

Farm Bills

Objections to the 2020 Farm Bills were articulated in the national media in early September as the Monsoon session of parliament approached, and mostly centred around the dramatic resignation from cabinet of Harsimrat Kaur Badal, and the Shiromani Akali Dal leaving the NDA government at the centre. The Congress called it a new zamindari system, and farmer organisations in Punjab called for a bandh. Unfortunately, all this activity was concentrated in the week preceding the introduction of the bills in the Lok Sabha.

The ordinances (on which the bills were based) were promulgated in June 2020, to surprisingly little real objection from the opposition. Embarrassingly for the Congress, the state of Maharashtra (where they form a part of the coalition government) had even implemented the ordinances on August 10 (a decision which the Shiv Sena led government later withdrew, stating that it had been made without sufficient consultation with stakeholders). By the time the very real pain and anger of the farmers of India exploded onto the streets and the railway tracks and was seen by everyone, it was once again, too late. The Bills were law, and the centre and farmers from the state of Punjab were left locked in a grim battle, with the centre undertaking shocking measures like holding back goods trains with essential supplies from the state to force them to capitulate. Both sides remain locked in negotiation, while Punjab slowly runs out of power and essential supplies.

The information about the FRDI Bill and the impact it could have on people’s savings by contrast began circulating early. Well before the mainstream media coverage began, lawyers and wealth advisors were receiving calls from their clients. In early December, an online petition started in Mumbai on change.org went viral and received over 40,000 signatures in the first 24 hours. The All India Bank Employees Association, threatened to strike if the bill was not amended to protect depositors. Opposition politicians joined the fray. Mamta Banerjee called it an assault on the common man. The scale of the reaction caught the government on the back-foot, and by the time they thought of countering the narrative, the doubt was too entrenched to be shaken. But critically, all of this happened while the bill was still under consideration by the joint parliamentary committee.

In information wars, first off the block almost always wins

We live in a world where information (both false and accurate) runs through the population in a matter of days. Facebook and WhatsApp groups transfer both accurate and inaccurate information with unprecedented efficiency. And while there is an ongoing struggle to curb the spread of false information and to hold these platforms responsible for such spread, for the time being, this world is here to stay. In a system dominated by screams of “fake news”, no information has complete credibility. More often than not, the narrative that is set first prevails.

Information about the FRDI Bill was circulated early — in conversations at the bank, in WhatsApp messages, on Facebook groups. It was circulated months before it was proposed to be considered and voted on in parliament. It was circulated with explanations of the bail-in clause and what it would mean for deposits. Most of it was circulated as simple information that should concern people about their savings, without really targeting the government or any political party.

It embedded itself in people’s imaginations, and by the time the government sought to clarify their position or explain the need for the bill, the narrative had already been set — the government was going to use deposits to bail out banks, and nothing the government said could shake that belief.

Similarly, during the CAA- NRC protests, the link between the CAA and the NRC was established early. Once established, the idea was difficult to shake. It set the narrative, and the government was left with the task of trying to deny it.

Some “overreactions” are good

Most governments are good at making political activists seem like crazy fringe overreactors. The message, which is surprisingly effective with Indian audiences, is “give it a chance”, “see how it works before deciding”. It was used to justify the selection of hindutva hardliner and then murder accused Ajay Singh Bisht as the Chief Minister of Uttar Pradesh. (He has since been acquitted of the murder charge and his government has also ended certain other investigations against him). It was used with demonetisation, where an emotional Prime Minister Modi even asked the nation to “hang him” if he was wrong. (He was almost certainly wrong about the amount of black money he would recover, and is still very much our prime minister, four years on.) It has also been used (with less success) against the farmers agitating against the Farm Bills.

The appeal of this argument is easy to see. It allows people to reassure themselves that things are fine and supports their natural instinct towards inertia. The only problem is that once people have seen how the measure in question works, there is little opportunity to reverse the decision.

The information that began circulating about the FRDI Bill didn’t allow that to happen. People were told, quite unequivocally, that their savings were at risk. There was very little complacency, or “lets see how it plays out”. While many commentators have fairly pointed out that the problem was not the FRDI Bill as much as the low level of deposit insurance in the country, the FRDI Bill was too entrenched in the pubic imagination as a threat to their savings to survive. An overreaction? It’s arguable, but it was most certainly effective.

Democratic engagement is an ongoing process

Democratic engagement is not a once in five years affair. Elections are dramatic and exciting, but they’re not the be all and end all of public engagement with the government. And as much as any government would like to create the impression that they are all powerful autocrats, there are still little boring democratic checks that they need to pass through. Bills, once introduced in parliament, are made public. And legislative research organisations (like PRS), almost immediately produce very accessible summaries of most legislative developments.

The Citizenship Amendment Bill (including the controversial religion based fast tracking of citizenship, and exclusion from the definition of illegal migrants) for example, was first introduced in the Lok Sabha in July 2016 — three and half years before it was passed. The ordinances on which the Farm Bills were based were promulgated in June 2020, and were publicly available three months before the bills were passed in parliament.

Ideally, a responsible political opposition would track and promptly mobilise people to challenge ideas that they don't support. In the United States, for example, in 2017, the Democrats managed to stave off an attempt to repeal their flagship healthcare law (Obamacare) largely by ensuring that people were calling their representatives and telling them how they felt about the law. Three Republican senators broke ranks and the repeal failed.

Now politicians in India are a cautious lot. Most of them prefer to see which way the wind is blowing before aligning themselves with a side. But the fate of the FRDI Bill shows us that ordinary people don’t have to. They can use information available publicly to track issues that affect them and that engaging early, loudly and wresting control of the public narrative can help. As governments in BJP ruled states set their sights on inter-faith relationships, it’s a useful lesson to keep in mind.