India Inc has started to wonder aloud whether the Narendra Modi government’s avowed agenda to clean up the system has gone too far — an articulation that appears to have gathered traction after veteran industrialist Rahul Bajaj spoke out last Saturday in Mumbai.
These are still hushed voices: not everybody wishes to come straight out in the open like Bajaj, who had called out the atmosphere of fear that has frozen dissent against the policies of the Centre. Acknowledging Bajaj’s “guts”, Bengal chief minister Mamata Banerjee had a few days ago drawn a causal link between the environment of uncertainty and the slowing of the economy.
The discreet voices — in the C-suites, closed gatherings and off-the-record conversations with the media — say the government must learn to distinguish between an unfortunate business failure and egregious fraud.
Government institutions, regulators and the state-owned financial institutions must not give misfortune the colour of deceit and treachery, the voices say; otherwise, they risk crushing the spirit of entrepreneurship in the country.
“Unfortunately, we are not making a differentiation between fraud and failure. The moment there is a problem in a business, it is being labelled a fraud. A business might fail because of several factors; most of the time it is because of external factors and is beyond anyone’s control,” said Hemant Kanoria, chairman of Srei Infrastructure Ltd.
The fear of being hounded by investigative agencies or hauled up by state-owned banks for any delay in loan repayments has gripped the industry so tightly that leading business figures are becoming wary of making fresh investments.
“If we are not able to segregate failure from fraud, we will kill the spirit of entrepreneurship in our country. No one would want to take a risk and do business,” Kanoria said. (See full interview in Business)
Businesspersons believe that sentiment is just as important as regulatory changes to the ease doing of business. The Modi government is working overtime on the second aspect — to leap up the world rankings — without doing enough to soothe the fears of severe retribution for a business risk gone wrong. The result: it has crushed the sentiment to do business by taking a risk.
“A salaried person in the private sector is worried about his job; if he is sacked, will he get another equally remunerative position? Businessmen and traders are not sure if their income will remain the same, let alone rise. As a result, all discretionary purchases are being deferred. Nobody is buying a house or an apartment unless it’s urgently needed,” a leading developer said.
A Reserve Bank of India (RBI) survey shows that consumer confidence has swooned to a five-year low of 85.7 per cent in November — the lowest since the Modi government came to power in 2014.
“No amount of reform or tax cuts will work. The trust between industry and government has broken. It must be rebuilt and the signal should come from the top,” said a top industrialist.
He believes it is analogous to the state of Bollywood in the 1950s and 1960s. “The women who danced their way into the film industry those days were widely regarded as easy pickings — though they were not. Sadly today, we industrialists are being looked at in the same way,” he rued.
The chatter in the corporate cocktail circuit reflects the changed mood, the tycoon said. “Earlier when I went to an evening party, folks used to talk about new projects. These days, the conversation focuses on lifestyle pursuits: ‘I went to that ski resort’; ‘Have you tried that bottle of wine yet’, or ‘I am planning to take a trip to Amarnath’.”
The industrialist said he had been peeved enough to ask his friends why they didn’t talk about their businesses. “The replies were sheepish and diffident. ‘Arre chhoro yaar, dhanda ka baat toh maat karo (Forget it pal, let’s not talk business),’ a friend said. ‘There’s no point taking fresh business risks,’ said another,” the tycoon added.
India’s economic growth rate tumbled to an over-six-year low at 4.5 per cent in the July-September quarter while the RBI has cut its forecast for the full year to 5 per cent. But many suspect the “real” growth rate will not be more than 1.5-2 per cent.
“The funds tap has been closed a long time ago. The driblets came from what was left in the pipeline, which has since run dry,” an industrialist said.
At least one industrialist said the situation was worse than that in 2008 when credit flow froze following the collapse of Lehman Brothers.
“We were helping each other personally then, even as the banks stopped lending. But now the informal channel is frozen too. Why take risks after all? Nobody knows if there will be an ED raid or a CBI inquiry and they shall get dragged into it,” he said.
Spend to save
A senior executive with a leading company said the consumers, both at the premium and the low end, were looking to save as much as possible.
“At the bottom end of the spectrum, we are seeing goods carrying the lowest price tags fly off the shelf because people don’t have too much cash.
At the top, the buyers are going for the larger packs because of the bigger discounts they offer,” the executive said.
According to him, the only way to come out of the vicious cycle — perpetuated by a propensity to save by slashing consumption which, in turn, triggers an economic downcycle — is to get the government to increase its spending.
“This is what China has done. Higher public spending will put money in people’s hands,” he added.
But the Modi government has turned its face against increased borrowing to fund its expenditure while reaffirming its resolve to cap fiscal deficit this year at the promised 3 per cent of GDP.
Kanoria, however, holds a contrary view. If the government doesn’t want to spend on its own account, the least it can do is to release the overdue tax refunds that are creating their own stress in companies — and allow them to stoke a revival.
As the chatter goes on, the wheels of business are locked and the engines of growth are sputtering.