While India pats itself on the back for a good GDP growth trend, efforts continue to revive the investment and enterprising spirit (both from home and abroad). It is this investment thrust to GDP that will make it sustainable, beyond being consumption-led, and take growth to near double-digits. Without sustained high growth, the dreams of millions to achieve meaningful livelihoods stay jeopardised, even as the Prime Minister reiterates that India can be the new engine for global growth.

WYSIWYG is a somewhat dated yet useful acronym (‘what you see is what you get’). It may serve as a handy litmus test in respect of the political, legislative and administrative environment and its impact on enterprise and employment. The aim is not to be critical but evaluate where we stand, with a view to improvement.

Commitment matters

Desi commitment to expanding investment and jobs is the surest vote of confidence. Signals of staying interested yet not investing are not good enough. Mergers, acquisitions and soft-sector investment boost sentiments but the proof of the pudding remains in the restarting of outlays on brick and mortar assets by domestic business.

Global enterprises need India as much as India wants them. India is certainly a secure sweet spot offering a mix of growth potential and geopolitical diversity. Yet the combination of domestic and global interest has not brought us to the major launching pad for a new trajectory. We must improve the balance between cultivating domestic investment and inviting FDI, as well as building a mix of incremental ( fresh, long-term, stable ownership) and transactional (private equity, or based on specific market opportunities) investment.

Business and market attractiveness are necessary, but not sufficient conditions for investment decisions. Systemic trust is critical for undertaking risk. The Government gives clear signals about ending crony practices and high-level corruption. Improving the ease of doing business is high on the policy and action agendas.

Muffled signals

Yet one feels enterprises are getting blurred signals via increased regulatory (sometimes judicial) overreach and confusion. Such events have been mostly addressed by post-injury repair, but the spheres under influence are expanding rapidly and unpredictably. No business can afford to undertake risks over such wide-ranging regulatory or judicial actions. Activism has also made fears omnipresent. One cannot find comprehensive solutions for such anxieties other than to ask for clear rules that have been properly thought through, and swifter judicial disposal where needed.

The leadership has expressed confidence on reduction of high-level corruption (which was likely based on inducement or infraction in the first place); this greatly increases systemic confidence. But, while necessary it may not be sufficient. It will add value and credibility when the leadership can articulate with explicit confidence that pervasive rent-seeking at operational levels, or control-and-discretion-based harassment, are things of the past.

Promoters assume significant financial risks when they invest, contrary to opinion floating around. Aberration by a promoter must be proven promptly, and penalised; only then will the larger ecosystem and public opinion be reassured about not stifling promoters as a class.

Invested capital (be it owned, raised or borrowed) needs to earn risk-weighted returns. The word ‘return’ equates to profits but unfortunately the prevailing mood, maybe in part due to misplaced outrage or a lack of full appreciation, seems to be that profit is not a good word. Some even rush to the extent of portraying profits as profiteering or greed and thus socially unjust. Such an attitude is not healthy and does not inspire sensible businesses.

Recent banking stresses came to the forefront when the Reserve Bank of India attempted to clean up the problems of the past decade of investments in a few quarters. The timing is open to debate, as business performance of late has been largely sub-optimal.

Cleaning up bank portfolios is sound in principle, but media-led rhetoric and the compounding effects of leadership responses have whipped up sentiments and actions in impractical directions and proportions. Other countries with similar yet more serious problems have resolved matters without disproportionate public debate or ire.

It does not help if the might of the State and its plethora of laws and punishments is invoked in what is essentially a contractual enforcement matter. The substantive line between “deemed” and “proven” guilt also seems to have blurred. Painful as this seems, it may be the sum and substance of many statements and actions of late. If contracts cannot be enforced, must we not look at resolving bottlenecks to ensure their sanctity?

Too little?

Recent assertions espousing a conducive decision-making atmosphere for debt resolution may prove to be too little, too late. The likely effects of over-discussion and analysis will, to my mind, be seen in future. Lenders’ decision-making will most likely slow down and/or enforce impractical covenants on debtors. Businesses may not borrow to invest if they feel that business difficulty or failure has the potential to classify them as delinquent, and even threaten personal ruin. If genuine risk-taking suffers, the system may well be throwing the baby out with the bathwater.

Corporate structures exist for genuine purposes, and the time-tested principles of limited liability cannot be contravened without proper cause. Rationally, no matter how compelling an idealistic argument may sound, corporate debt (for business purposes) is not the same as personal debt (to buy cars/houses). Each has to be dealt with appropriately; there is no one size that fits all.

A revisit is required on the model of personal guarantee as collateral for loans, which had grown in an era of wobbly governance and centralised promoter control. If one seriously believes that the regulatory system (SEBI, Company Law and others) has brought a sea change to governance where such central control cannot rightfully exist, then extra-constitutional arrangements such as personal guarantees must lose their sanctity. Instead, have strong enforcement that punishes aberration; the potential of facing liquidation under recent insolvency laws is a solemn deterrent.

The environment must become yet more conducive for enterprise. India cannot afford continued inconsistencies between what we see and what we get.

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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