Debating solutions without acknowledging the problem isn’t always helpful, nor is a bird’s eye view macro analysis of the economy without a worm’s eye view from the trenches of business. People say “5 per cent is 5 per cent and there’s nothing to debate about it,” but indeed there is.
There are two problem elephants in the room that should be acknowledged if we are to have an honest debate on what ails the economy and the ways to fix it. The elephants are the debilitating pain and weakness that large parts of India Inc are suffering from and the “shoot first think later” policy changes and policy-speak from the government.
India Inc is promoter-driven and much of it is promoter (or shareholder) managed, and there is little separation between ownership and management. For the first time, promoters are under siege. Many big boys have lost — or are about to lose — their companies these past few years. Google it, the “who’s who” list will boggle one’s mind, and this is happening in “jaante nahin main kaun hoon” India. Troubled companies have troubled revenue growth, so we need to read India Inc’s revenue growth numbers alongside the “revenue (growth) at risk” — combined turnovers of companies in NCLT proceedings or being threatened by them. Harsh and persistent measures, being pushed by the regulator for the system to go after the large NPA base of Rs 10 lakh crores, cannot be without the collateral damage to corporate sentiment, leave alone animal spirits. Banks are also asking companies to de-leverage, given the banking regulator’s toughness on defining and disclosing NPAs. Thinking about future investment in this atmosphere is tough. So let’s not blame weak investment on the stubborn consumer, rather it’s the other way around of stubbornly-low investment creating a weakened-income consumer.
At the same time, SEBI hasn’t been playing nice either. Promoter-active (in management) listed companies dominate in India. SEBI activism about independent directors was benign compared to the new and proposed guidelines tightening the noose on disclosures of all kinds and disrupting a variety of time-honoured practices. For example, in 2020, it will not be possible for dad or uncle to be the non-executive chairman of the company while the son or nephew finds his feet as CEO or MD. The atmosphere is, dare we say, demotivating to many and seen as needless fixing of what ain’t broke. Boosting consumption for Diwali isn’t going to remove the fundamental pain.
The courts are being simultaneous spoilers too. Ask the real estate sector — rules, unchallenged for decades, of builder on top, are being disrupted and there are penalties for not adhering to promises. No surprises that real estate developers, used to growing via half-baked plans funded by customers money and easy loans, are not announcing new projects. And, being asked to pay back definitely dampens their animal spirits.
What choices do we have? Grit our teeth and go through the clean-up with all its collateral damage or hold the view that double-digit GDP growth has many benefits and even if becoming cleaner is not one of them, why bother, who cares. This is a set of “rock and hard place” choices that is not being debated at all. Why not? A debate may throw up pragmatic prescriptions of cleaning up in a calibrated fashion, defining a glide path over five years.
This debate is not for the macro economists and stock market analysts alone. It is also about the values we want as a society (the question whose India and whose society should also be addressed). The war on black money has added to our GDP woes. The black and white economy have always been joined at the hip and no one will dispute that — if the bad part is growing slower (perish the hope, it isn’t declining), it is dragging down the good part also; blended profit margins in many cases do not look as attractive as they did earlier. Reviving the animal spirits in a forced declining profitability situation is hard. Again, do we accept the Deng Xiaoping-inspired “it doesn’t matter if it is black money or white money as long as it is the driver of GDP” or should we think differently and cynically and say “it’s never going to go away so let’s use it for the larger good”. Or do we say “in this era of technology we have a real chance to cut it to size” and go forward?
The second elephant in the room is government policy unpredictability; what a foreign board colleague of mine once called “shock and awe” regulation, and what many others call unguided missiles that have been fired first and then thought about later. So many weapons of mass distraction, all good but bad for expansion. Ask the auto industry. I saw a TV show with three CEOs of auto companies, with a combined turnover of well over Rs 100,000 crore, talking about the challenges of the sudden switch over required to meet the new emission norms and how everyone was focused on making it happen, gearing for zero pipeline stocks. Statements emanating from the Niti Aayog, later downplayed by the FM on an electric-only 2W and 3W world, the to-ing and fro-ing on the GST rates, FPI tax, angel tax, and on several other things over the last few years, has lead us from policy paralysis to policy spooking. A public debate focusing on why this is happening and what the government can and must do to set policy predictability and stability as one of its key objectives will be helpful.
Discussion of these may not deliver double digit growth, but they will be a real step in that direction. And they would be certainly better than telling businesses that their regulatory troubles are over because the economy needs a boost.
Bijapurkar is the author of We Are Like That Only and A Never-before World: Tracking the evolution of Consumer India