Poor Governance: Corporate India also to share the blame

India Inc should be firm in insisting on good governance in governmental administration with the least interference in business and industry instead of running to Delhi to get interest and tax cuts and subsidies

The ruling neta-babu nexus is not the only ones who are responsible for the present sorry state of economic affairs. Corporate India, going by the term India Inc, has a major role for its lack of valuable contribution leading to the Indian economy going awry.

 

Immediately, after Independence, essentially the Post-World War II era conditions necessitated rigid controls and regulations. In the absence of large capital formation there was an urgent need for massive investments in the core areas that saw the rise of the command public sector going into remote areas across the country.

 

The 1980s witnessed Indian entrepreneurial skills coming into its own with more and more entering the capital markets and the existing companies going for increased public holdings. The stock market boom was on. Little was said of the need for protection—the existing licensing laws pre-empted any worthwhile competition from within or abroad.  Industrialists were smug that they could merrily carry on unhampered.

 

The throwing open of the economy in 1991 under trying circumstances brought about a howl of protests calling for what they termed the need for level playing fields from the captains of industry—the Bombay Club. They were used to jealously to protect their private turfs by taking care of the netas-babus so as to ensure that no one dare enter their protected terrain or activity. Those once opposing licences and permits were now openly seeking it! The liberalisation process not only brought in competition from overseas MNCs but also from the lower-cost budding domestic small and medium entrepreneurs. This was not to the liking of the interests that were so far firmly entrenched and manipulating prices and controlling supplies of cars, scooters and consumer durables. Unfortunately they are still here to stay and they are all past masters at rule bending.

 

The 2G (second generation) spectrum scam brought out in the open the arrival of a new tribe of fixers called Corporate Lobbyists whose services were availed by some of the biggest and well known names in Indian industry. Their fabulous pay-off charges went to take care of biggest guns all the way right up to the top of the echelons of power at New Delhi. Their retainers made unsuccessful legal bids to stop further exposure by crying invasion of privacy. They didn’t hesitate to resort to backdoor corruption that is punishable under the Prevention of Corruption Act. Today they also oppose vehemently the application of the provisions of the Right to Information Act, even when the public equity holding in their entities and their borrowings from public sector institutions exceeds more than 50% of their own stakes. Their clout is such that they have succeeded so far. They need to be reined in, too. Sooner the better.

 

The insulated Indian economy has been able to withstand the vicissitudes of the South-East Asian and Latin American financial crisis and the 2008 Western Meltdown, thanks to one astute governor of the Reserve Bank of India (RBI)—Dr YV Reddy—who refused to succumb to political pressures to further open up the rupee.

 

The post-1990s Indian economy has witnessed a dramatic shift in the economic milieu. It has seen the rise of world conquering heroes who have won for India a place on the top of the world’s great economies; be it G20, BRICS or ASEAN. They have not only disproved the trickledown theory of getting rich themselves but also creating a vibrant, affluent consumption-oriented enlightened IT-savvy risk taking middle class by going on a massive world wide M&A spree hitherto not witnessed—acquiring major international automobile, steel, liquor, chocolate, foods, teas, drugs and pharmaceuticals, IT hardware and software, engineering goods and consumer durables companies. Their appetite for acquisitions remains insatiable. All this at a time when major Western economies were reeling under financial downturns and job losses. The vast Indian middle class with a bludgeoning domestic market has been eagerly lifting all that is produced from here but from abroad too, fascinated as they are by the foreign/imported stuff. It is no small wonder that every large international manufacturer— be it BMW, Mercedes or Volkswagen or white goods or food or retail giants— wants to set up shop here.

 

It is the same India Inc market heavyweights who are whining about policy paralysis and trust deficit and bleating for interest cuts preferably with some tax cuts thrown in.  All of them are sitting on mountains of cash without any worthwhile plans to put them to productive use.  They’ve chosen to flee to the safety of conservative risk avoidance—detesting risk taking decisions following the ostrich approach when they could have listened to what Intel co-founder Gordon Moore said “You can’t save your way out of recession”. Intel proved it in 2001 when the dotcom bubble burst. It ramped up R&D spend to levels where it made its bottomline barely profitable but stood to reap benefits in higher turnover numbers and profit growth in later years. Proving thereby a counter-cyclical approach to business and counter-institutive spending during rough times has paid off handsomely.

 

The best of companies have succeeded in using recessionary conditions as an opportunity to try out something new, by radically changing business model and strategy, explore newer opportunities, products and markets where there may be risks but ultimately reward with a potential towards higher returns in the long run.

 

The same companies, who cry hoarse of shortage of talents, do not hesitate to issue pink slips during downturns to trim excess forgetting that they often shave off the very home-grown talent that helped drive their business in boom times. They could possibly help develop newer products or improve the existing.

 

It is rather unfortunate that India Inc still has a mindset of complacency—coming as it did from highly protected conditions moving into a few short years of high growth trajectory and wanting to be hand held at every step.

 

Instead India Inc should be firm in insisting on good governance in governmental administration with the least interference in business and industry. Mind its own business of keeping  manufacture, marketing and services going instead of running to Delhi to get interest and tax cuts and subsidies. Make full use of free market competition and free enterprise. Goad the authorities in getting funds locked up in tax havens for productive use back home.

 

(Nagesh Kini is a Mumbai based chartered accountant turned activist.)

Comments
T D Sharma
9 years ago
Oh, what a wishful thinking! Who after all runs the bureaucracy? The India Inc., as it is fashionably called now. Corruption is a two-wat traffic--the giver always has the upper hand. And, then, which political party enjoying power depends on subscriptions from "supporters" without corporate alms? Even the Left parties threaten and collect, and now beg and get, "donations" from the real power in the driver's seat of governance. Every bureaucrat in the IAS, IPS, etc., is sold out to one or the other business house (or even a small-time trader who tips all those serving him!) right on the very first day in ervice. Most of these bureaucrats rise to the top!
It would be unfair to blame the giver as long as the eager "receivers" (beggars, actually) are too ready to serve the bread-givers taking care of all the prosperity for all their progeny, with children studying abroad and spouses becoming "painters of acclaim selling works of art" for lakhs, or starting dubious NGOs, etc.
It is safer to avoid these filthy issues.
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