THE EXCHANGE. Dilemmas of the diligent promoter

India needs investment in all sectors — agriculture, industry, services and infrastructure — without which anticipated economic growth and worthwhile livelihoods (self-employment or jobs) will not materialise.

Finance Minister Arun Jaitley recently confirmed that public and foreign investment remain intact but private sector expansion (participation) is needed in a big way for the economy to fire up to its potential. He also hinted that returns here for foreigners might be greater than almost anywhere else.

Foreign firms have the advantages of low direct cost of funds and of capital which is willing to wait for returns — a which luxury we do not have. They additionally leverage brand/intellectual property as part of global strategy, which yields profits here and valuation multiples for them at home.

Still, I believe in-depth consideration is warranted as to why private investment remains elusive.

Should not the potential of profits and value-creation (that foreigners presumably see) inevitably trigger investments by Indians? If they don’t, should we not try to understand why?

I relentlessly pursue the contention that commitment of desi (homegrown) entrepreneurs, new or old, is the surest endorsement that can prompt all future investment from home and abroad.

There are those who risk a material skin-of-their-own in the game (including finance/reputation), and those who as professionals manage or mentor businesses funded by institutional capital or others’ pockets. Loosely defined, the former are what our ecosystem calls Promoters. While not downplaying the roles of other entrepreneurs, I just point out that the motivations or outcomes for both categories are diverse in the long term.

The term Promoter is variously described in laws and regulations. But I am more concerned with the “softer” side encompassing the risk-taking vigour to set up the business, assuming certain fiduciary duties and establishing and dynamically shaping ethical and business value systems of the enterprise.

These are all key to the long-term well-being of the business and its stakeholders.

It is sometimes argued, and sometimes owing to ugly confrontations, that Promoters don’t always cover themselves in glory and leave lingering questions about their value to society.

In truth we must remember that like in every vocation — there are good, not-so-good, and occasionally dishonest persons. Happily, laws of averages apply to ensure that any bad apples are atypical and in significant minority.

Yet in a time of snowballing media avalanches, enterprises traditionally held out as paragons of virtue, trust and governance could be portrayed in ugly or undeserved light. Cacophony takes over. At such times it is maturity in the larger ecosystem that must separate the wheat from the chaff.

Promoters are diligent at their core; their intentions do not centre on undue enrichment, the basic aim being to earn risk-weighted returns on invested capital and — more often than not — undertake value building that can span at least a generation or two.

More often than not a large number of promoters have struggled through years of the control-raj and confiscatory-taxes era, without the benefit of any “ease of doing business” initiatives, and with the familiar ambience of discretionary power and lack of certainty in interpreting laws and regulations. Promoters don’t only exist in industry but operate in every area —services, financial sector, education. What then holds back such spirit from undertaking fresh risk when the future looks bright?

I have neither answers of my own, nor are investigative surveys particularly helpful. Professional surveys continue to exude confidence; most economic participants and commentators wax eloquent about better times — but never now, always “in the future”. So, one must only rely on a “sense of the house”.

It is vital to respect that entrepreneurs (old and new) will shun risk if they perceive that business difficulty or failure can classify them as delinquent, threaten personal slur or even personal ruin.

Loss of peer or systemic respect is as big a risk to promoters as a financial one. These risks climb in intensity if promoters as a class can even be perceived to slide from a place of pride in the eyes of society or in the attitudes of the administration. Unfortunately, I feel both have happened.

This risk becomes more relevant in an environment when untold notices, show-causes and “look-behinds” can rapidly follow up allegations. When judicial defence and disposal is almost surely delayed, risk aversion can outweigh risk appetite.

Will diligent promoters further prefer to wait and watch how policies and statements on debt recovery pan out in real life? After all the experience of a few bad eggs clearly impacts how all accounts are dealt with; years of goodwill could well vanish in a few moments of transient difficulty.

How do ground realities harmonise with growth statistics? Future weak domestic and global demand may reignite the cycle of capacity underutilisation and the perils of defaulted debts and other problems (including manpower).

How will the realities of tax administration (including GST) will match up to the stated intentions of leadership? The gap has not really narrowed for businesses, and with impending introduction of GAAR (for domestics also) life may become difficult compared to the promise of ease.

How will the desired “hygiene” levels to support decision-making, discretion and implementation percolate from central leadership to the lower levels or the States? Realities in India are well known to citizens, businesses and foreigners, and hold out unspecified risks for enterprise.

Indian business also has the unhappy record of being caught on the wrong foot, with inadequate preparations; this happened with Companies Act/related SEBI regulations, accounting standards, could be happening with GST and may well happen with GAAR.

Let me evoke Ayn Rand in her novel Atlas Shrugged ; in fiction, prominent and successful people abandoned enterprise. But more pertinent was her stated goal for writing the novel: “to show how desperately the world needs prime movers and how viciously it treats them” and “what happens to a world without them”.

We owe it to comprehend the dilemmas of the diligent. We cannot afford to let Atlas shrug!

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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