THE EXCHANGE. A new Independence Day

We have had a spell of parliamentary gridlock and lack of meaningful legislative reform. We are upon the first anniversary of Prime Minister Narendra Modi’s call to ‘Make in India’ which, many like me believe, has the potential to change the face of our economic maturity for the better — not tomorrow morning, but over time.

The declarations this Independence Day will be debated in good measure, so I take time to pause and reflect on the present and where we go from here.

The electorate’s expectations have been high and many expect good outcomes ( achhe din ?) almost at the same speed as new initiatives and social schemes are announced. It’s not practical in the real world. The breadth and scope of such initiatives have long-term outcomes; so short-term deliverables are limited, and this creates expectation mismatches.

The economic environment has been trying, both domestically and globally. So, business has not really been enabled to focus on growth the way it wants to; it continues to be plagued by debt overhang, excess capacity and deficient demand. Financial results have been decidedly indifferent — some believe that recent results are among the worst in a long time (even if profits of some companies benefiting from lower commodity prices have looked up). In essence, market-led economic forces are weak. The fact remains that aggregate returns on invested capital are insufficient and cost of capital (principally, interest rates) continues to hurt both commerce and consumers. The recent investment announcements in manufacturing are statements of intent and will potentially replace an existing Indian market-share Chinese manufacturing, rather than create new demand or ‘real’ global capacity.

Much mega-investment is taking place in the e-commerce space, which is essentially service or distribution driven. One has but to take a look at physical or virtual (for example, Amazon) markets to see the penetration of imports. We are as much a ‘shopping’ nation as a ‘producing’ one, and the trend is intensifying.

So how does a true ‘Make in India’ take off?

Despite some rumblings that the government may or may not have done enough, I feel it is fair to say that it has covered a lot of ground, with much more work in progress. It is a different matter that consumer markets have not picked up and therefore commerce finds it expedient to soothe its pain by pointing elsewhere.

But in fairness one must evaluate the government’s progress only against what it is supposed to do — principally create conducive conditions for consumption, as well as for consumer investment (for instance, in realty), commercial investment (manufacturing and services), and health in agricultural production.

This government has frequently articulated that it finds no contradiction in being concurrently pro-poor and pro-business. It is thus vitally important that it sticks to this principled stand and does not dilute it in the face of a political onslaught. It is important that this philosophy be frequently reinforced in both word and deed, while being as tough on crony capitalism and other misuse of state discretion as warranted. Unless the populace and youth wholeheartedly continue to believe in the development potential so frequently articulated in the first half of 2014, minds can quickly go astray with undesirable results.

The main legislative disappointments have been the Land Bill and GST — both in terms of content and signalling. Nevertheless one can argue that, while delay can depress growth and progress on key infrastructural investments, it is not fatal for the reforms agenda. There is a huge amount that can be achieved through executive and other non-legislative policy actions.

For one, the government seems to have brought under grips the overall fiscal deficit situation. This has, in turn, supported the front-ending of centrally sponsored infrastructure spending which most likely will not really depend on the Land Bill.

A higher sharing of revenues by the States should also trigger their own spending programmes. Effective implementation creates positives.

However, our implementation mechanisms and methods and their monitoring have been “creaky and infirm” for decades. The approach of the administration has been to write more ‘control’ rules than ‘develop’ ones, which also burden many for transgressions by a few. Taking up the challenge to deliver via the same systems requires strong political will and stern management.

A positive fallout of the government living within its reasonable means must be examined. For example, with a relatively lower government appetite for borrowings, can related risk-free returns offered under its instruments be moderated significantly? Minimal-risk tax-free returns of (say) 8 per cent create artificial floors for general interest rates.

An obvious fallout could be moderating of interest rates beyond what the Reserve Bank of India effects from time to time. This in turn could change fortunes for many existing borrowers and for select consumer markets, and definitely change the equation for future business investments. Without globally competitive interest rates, new outlays just don’t make sense.

Much of the agenda on ease of doing business can be speeded along via executive actions. Many FTA issues hurting domestic manufacturing, and inverted duties, can be attended to with an open mind. Many steps can be taken on an ‘improved competitiveness’ front, be it energy/power cost rationalisation (savings on theft and grants can be a way) and better labour laws to improve productivity (saving overall employment rather than saving particular jobs).

Corporate and tax laws and regulations can certainly do with much tweaking and streamlining, both from the point of their legal onus and the way they are administered. Removal of discretion, overdone activism, and fast, robust dispute or contract resolution will go a long way in providing certainty and building a lasting conducive environment for existing and new businesses alike.

Political constraints in a noisy democracy are here to stay for a while. But alternative and parallel steps are available, which — supported by greater systemic conviction — will ensure that economic essentials for larger economic prosperity and more livelihoods can be realised.

This column explores ideas and opinions on Indian enterprise and economy. The writer is an entrepreneur and former president of Ficci. The views are personal

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