THE EXCHANGE. It’s time to take that leap of faith

The Prime Minister’s exhortation to Indian business to resume investing, trusting the “risk-taking DNA” of Indian entrepreneurs, was perhaps overdue. A welcome move would be to intensify such direct engagement with business, more so when one can perhaps perceive some hesitation in the face of a political offensive. Any such hesitation which sends mixed signals about the vigour of implementation and reforms would be unfortunate at a time when India needs vikas like never before.

For academic interest, from India’s leading industry chamber Ficci, I had voiced our sentiments in late 2014: “…real proof of the pudding lies in re-starting of outlays on brick and mortar assets by domestic business...we (may) need balance between cultivating domestic investment and inviting FDI. It can be of value for government to deepen engagement with established and potential Indian enterprises, to address basic problems and any inhibitions”. Hopefully, a process which shifts engagement to more fundamental issues has begun; it is only through a focused process that we can strategise how to harvest gains even as others slow down.

Let us reflect on India’s economic reality. Any analyst will see obvious signs that businesses can do well by expanding and investing here. Government spending is under control and qualitatively better due to controlled revenue spending. Allocation for infrastructure has increased (though it is yet to translate on the ground). Inflation is largely under check. Consecutive poor monsoons did not hurt acutely (though there is still much distress in farming), and aggregate growth is improving. Indirect tax collection (adjusted for additional measures) is higher, in essence signalling increased coverage of economic activity and healthy future revenue streams.

The domestic market is, and will remain, the real growth driver for India. This greatly insulates us from weak global scenarios; advantage can also be taken at home of commodity price falls across the board. On the other hand, if our manufacturing is competitive enough we can become part of established global supply chains the way much of Asean did.

Why then has private domestic investment not speeded up? Is it just not taking a leap of faith or are the concerns deeper? Is it a case of “spirit being willing but the flesh being weak”? In any event, we owe it to ourselves to seek the right answers.

The macro economy comprises micro-elements: while the macro rationally inspires investment there are inhibiting micro factors. Without mounting any defence, I feel there are issues both on the side of industry and the administration — but I can see nothing that cannot be resolved through deeper engagement and administrative skill.

We cannot ignore the fact that delivery and implementation of policy in India have been creaky for decades. “Control” was the default mode of thinking at policy and executive levels. Similar to a Hindu rate of growth, we acquired a “Hindu speed of decision-making” which is simply out of tune with the time and the needs. One comes across people who even now think of the 1970s type of command-control-punish raj as the most effective. Such philosophy at nodal points needs to change.

Sector-agnostic competitiveness that the country needs cannot be supported by legacy decision-making systems, including where a decision-maker can be suspected or harassed years later for decisions that are bona fide . Despite firmness at the highest levels about simplifying the business-government interface, one has not witnessed true resonance or speed at operating levels, other than areas with largely digital interactions.

Either way, decision-making speed and processes do not yet support investment and expansion needs. Attention must also be focused on various government associates or arms — be they local authorities, professional or regulatory bodies — because the government’s intentions can be frustrated by its actions at cross-purposes. “Ease of doing business” is being pursued aggressively, but this is largely procedural and takes time. It is distinct from reparing decision processes.

Let us assume a business investor has crossed the minefield of analysing demand vs capacity, production competitiveness, infrastructure support, taxation, natural resource availability, and so on, and answers are positive in sum. The key dimension of his investment decision is then his risk appetite, which is also somehow regulated by the amount of capital he has access to. Investment decisions are always subject to risk; the deciding factor can be the risk-reward analysis and an assessment of whether the risk could be potentially grave.

Let us juxtapose this with financial and systemic realities with the aim of evolving solutions. Brick-and-mortar companies in general have stressed balance sheets due to low profitability and/or debt hangover of capital spending or loss of funding. In raising new capital or debt, returns must be foreseeable to adequately service both — traditional business does not enjoy the luxury of (say) e-commerce where entry valuations are rich and cash burn-rates actually enhance these. Companies additionally open themselves to punitive risks from shareholders and bankers if they end up making decisions that go bad, even if due to external factors. Perhaps as a society we have not matured enough to take genuine lack of success in our stride.

Conversely, industry should also perhaps not confine itself to routine requests and sector-specific indulgences or outcomes on politically contentious issues. Greater participation in nation-building can include (a) offering greater engagement in eliciting support from all quarters for intensive reform; (b) collective generation of equitable solutions for existing or potential industrial NPAs; (c) well-informed and candid debate on building the competitive abilities of Indian industry; and (d) a deeper engagement with the government on finding ways to ensure effective and speedy decision-making systems, going beyond the definition of “ease of doing business”.

Investment and growth are the raison d’être for business and central factors in creating livelihoods, particularly in smaller businesses like MSME’s and service outlets. The multiplier effects of growth at this end of the scale are profound, yet it is here that the maximum blow from weak sentiment is felt.

In summary, both sides — government and business — need to take leaps of faith reciprocally.

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