National Interest: India Stinc

Jagan dropped by our newsroom Thursday evening, fresh from his suspension, along with other Andhra MPs. He outlined his conspiracy theory over tea with the precision of an experienced lawyer. First, can you really expect a chief minister to defy the high command, as Kiran Kumar Reddy is doing, in a party that is known to fire chief ministers in airport lounges? And second, do you know who Lagadapati Rajagopal is? He is the same businessman whose company got a Rs 9,000 crore reprieve in a CDR (corporate debt restructuring) process just the other day. His bankrupt companies were given further loans of Rs 3,500 crore against an equity of just Rs 239 crore. Twenty-seven banks were involved in that bailout. You think, sir, it happened without his government’s help? And would such a man dare to defy his party? He rested his case. The Congress, as usual, was playing a dual game, pretending to create Telangana while unleashing its own fifth column on Parliament to prevent it.

You could argue with Jagan over his theories. But even if he had not intended to do so, he had highlighted for us another implication of the pepper-spray shame, one which goes way beyond Andhra. It underlines the current plight, helplessness and loss of steam in corporate India, and also tells you why it is entirely well deserved.

Rajagopal is our richest Lok Sabha member on the Parliament website. He is the founder and chairman of the LANCO group, a large infrastructure and power conglomerate with listed companies. A couple of years back, LANCO became India’s largest independent power producer. It also started going bust.

By the middle of last year, it was defaulting on repayments to several of its lenders, who had given it Rs 35,000 crore or thereabouts in debt. Particularly troubled was his LANCO Infratech, with over Rs 7,500 crore of stressed loans (out of his total debt of about Rs 35,000 crore against a market cap of less than Rs 1,700 crore and declining), and struggling to pay salaries and carrying out sizeable layoffs. It was not declared bankrupt simply because there is no bankruptcy law in India.

Among its self-inflicted excesses of go-go times was the purchase of an AUD 750 million coal mine in Australia, which he has now promised his lenders he will resell. But rather than take him to the cleaners, his lenders’ consortium, consisting of 27 banks, led by IDBI Bank, and comprising a galaxy of government and private banks — including the SBI and ICICI, the largest in each category — got together in December 2012 to plan a mega bailout. Now what exactly did he spray in their eyes? Foam?

RAJAGOPAL represents a class of carpetbagging but hugely risk-hungry Telugu infrastructure entrepreneurs whom I have preferred to call Andhrapreneurs for years. There are also GVK and GMR (the builders of the Mumbai and Delhi airports, respectively), Gayatri and IVRCL, builders of many highways. They have many things in common (except GMR). Their fathers were contractors who built the giant Nagarjunasagar and allied projects in the 1950s-60s. They learnt project construction as well as political and bureaucratic management without which you cannot lay a brick in a sarkari project. In the course of time, many inevitably joined politics. Many of them are related by marriage. For instance, Rajagopal’s entrepreneurship really boomed after he married the daughter of the Late P Upendra, a senior politician who had been a Union Minister. They are a set of Andhra oligarchs with interests ranging from infrastructure, finance and real estate to the fourth estate and cinema.

The most fascinating aspect of the pepper-spray episode, however, is how quick all of us have been to jump at the throat of the political class. How they have shamed India, disgraced our democracy, sullied our Parliament and so on. Nobody, certainly not I, had figured that the man credited with the worst conduct ever in the history of our Parliament (and it would take some doing to get that distinction) was not your usual politician but a fabled and much-favoured star of corporate India, even if his stock price now sits around Rs 6.50, just about half of its 52-week high of Rs 13.50! He may not have been so hot at running his businesses, in spite of the handy aid provided by some of his own party’s environment ministers, who were obviously in pursuit of “loftier” objectives. But boy, could he wrangle for himself and his vacuum-cleaned minority shareholders the sweetest of all sweetheart deals! And, whatever his success in entrepreneurship, he is an enterprising, brave and innovative politician with a deft hand with pepper spray in “self-defence”. The stupid Lashkar or Jaish types will think twice before attacking our Parliament again. The CII, FICCI, Assocham, the holiest of the corporate lobbies in India, should hail this rare talent to have risen from their ranks.

More likely, however, they will keep entirely silent. They can blame the UPA for all their woes. They can hail Narendra Modi as the answer to all their problems and call him king of kings, god of gods. At the very same time, they can fawn all over Rahul Gandhi, be so touched by his concern for the poor and inclusive growth as to pull out violins and start sobbing (‘Crony, crawly capitalism’, National Interest, IE, April 13, 2013). They will whisper on the side about how his government’s policies have bankrupted them. They will bitch endlessly about “insensitive” RBI governors who don’t even listen to North Block. Give us low interest rates, easy loans and no reminders to return them. Moratoriums, bailouts, refinancing or plain, wretched evergreening, are their buzzwords. Or that horrible euphemism the bankers’ community has invented for itself: haircuts, or to use a more appropriate phrase, a Tirupati collective mundan. You read any of the recent data from the RBI, reputed market analysts and brokerages, economists, even from Uday Kotak on CNBC-TV18 this Thursday. You will know that the current stressed, restructured or non-performing loans in the Indian banking system amount to nearly 25 per cent of their total assets. Kotak put the aggregate at Rs 10 lakh crore out of total advances of Rs 40 lakh crore. Scared yet? He says the banks’ total write-offs over the next couple of years could be Rs 3.5-4 lakh crore. The total net worth of all banks now is about Rs 8 lakh crore. In other words, half their net worth will be wiped out. This is not money lost to India’s farmers or millions of first-time home buyers (see how clean HDFC and most banks’ housing loan books are in comparison). Most of it is lost to people like Rajagopal, our pepper-breathing MP. You can understand the business leaders and lobbies overlooking their brethren, whose real brilliance may lie in vacuuming their shareholders and fleecing their lenders. But they will not even speak about one of them spraying mirch in the Lok Sabha?

Whatever its complaints with the UPA, corporate India has to read the writing on the wall (National Interest: ‘Fixerpreneurship’, September 1, 2012; ‘Dirty business’, December 11, 2010; ‘Wireless wimps’, February 21, 2004). The UPA will soon be history, so that alibi will also disappear. It will do nothing to repair the popular image of corporate India. Ten years back, several opinion polls showed Anil Ambani as the number one youth icon of India and Ratan Tata is the permanent icon of philanthropic corporate India.  Today, nobody in Delhi is feeling sorry for them; some may even be celebrating as their power distribution companies are being jerked around. At the same time, Anil Ambani’s older brother was being celebrated as the man who discovered India’s own Gulf of Mexico along its eastern seaboard, the man to solve India’s enormous energy problems. Today, there isn’t a whimper of protest as a totally frivolous and arbitrary FIR is filed against him, one Central cabinet minister and one former minister. Companies in the private sector that make up more than half the market cap are facing one kind of criminal investigation or the other. Wait till the virus spreads. Maybe J. Jayalalithaa files an FIR against P. Chidambaram, Parkash Singh Badal against Jagdish Tytler and Kamal Nath, and Mulayam Singh Yadav against Beni Prasad Verma.

The political class, however, will look after itself. It’s the corporates who need to be careful. They cannot repair the damage done to their image by spending a little more on corporate social responsibility. They need to embrace the equivalent of what your doctor would call lifestyle changes. You cannot flaunt the sexiest cars, homes, rocks, gulfstreams and yet claim that you are too broke to repay your loans. Let me put this simplistically: it is like saying I cannot pay my EMI but I can take you for a ride on my snazzy jet, to a champagne and caviar party on my giant yacht, these are my “personal” assets, liabilities sit in my balance sheet, go read that. Indian business has to return to basics, corporate governance and ethics to redeem its image. In my straightforward if rude view, Indian capitalism will not come of age unless some of the most visible loan defaulters are taken to the cleaners. One is still buying the most expensive IPL players, another was hanging on to his franchise and the third is buying mansions and hotels around the world. How will a motorcycle owner feel when he’s paying 14 per cent interest on his loan, to know that the group which has India’s largest debt also owns the largest “personal yacht”. India’s corporate leaders have to put their hands up and take responsibility. They can start with handing out Rajagopal a sentence of excommunication, if not something worse than that.

sg@expressindia.com