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Five reasons businessmen are gloomier than they should be


I was recently invited to speak on the current economic scenario to a group of senior managers of a very large and highly diversified industrial group. Over the phone, I had sensed the gloom in the voice of the top executive who had contacted me, so I decided that, without misrepresenting any facts, I should try to cheer them up a bit.

I spoke about the current clamour from economists about the need for “bold structural reform”, which basically comes down to land and labour law reforms. But we have known for 20 years that these are needed. Question is: are they politically possible? In 2015, the Narendra Modi government got the Land Acquisition Amendment Bill passed in the Lok Sabha, but, with no hope of getting it through the Rajya Sabha, dropped it. Labour reform is something trade unions across the political spectrum oppose tooth and nail. So these things are easy to talk about, but extremely hard to get done in a democracy like ours.

Here, reforms have to be often carried out in stealth mode. Yet, I pointed out to my audience, the Modi government has brought in a number of far-reaching structural reforms—the Real Estate Regulatory Authority Act (RERA), the Insolvency and Bankruptcy Code (IBC), the many-pronged Aadhaar-based move towards direct benefit transfer and a thorough clean-up—from benami companies to ghost subsidies to the public distribution system.

I said that we cannot keep demanding bold reforms but expect no short-term pain. RERA and demonetization crashed real estate prices, but the meltdown that would have come at some point anyway would have caused far wider damage. The recent sale of Essar Steel under the IBC, though delayed, is a true harbinger of hope. I reminded the glum managers that the one pollster who had got the 2019 Lok Sabha election numbers spot-on had said that, in his countrywide travels, he had not met a single rural household which had not benefited from some government scheme or the other. But in every face in that room, I only saw scepticism.

The Modi government, I said, had changed the basic rules of the game, and Indian business—from the highest echelons to the kirana shop owner—was taking time to adapt. As industrialist Anand Mahindra put it last week, the economy is going through a process of “detoxification” and, by 2021, will hopefully emerge strong again, and greatly free of corruption and rent-seeking. In the meantime, there is anguish; rattled bankers and bureaucrats have turned risk-averse, and consumers who have been living it up (in 2014-19, real household disposable income grew at 5.1% a year, and real consumption expenditure at 7%) have put away their wallets. Change is disorienting, and this change has attacked a 70-year-old way of life.

Of course, the government has bungled a lot. It inherited an economy whose brazenly fudged figures hid some terrible truths. But all was well as long as global oil prices stayed low, and the savings were not passed on to the consumer. But then, those prices rose, the government started running out of money, the non-banking finance sector blew up (something the Reserve Bank of India should have foreseen), and there were serious policy missteps. The economy has still not recovered fully from the body blow of demonetization. The goods and services tax (GST) was implemented with a haste that reeked of egotism, and the system remains a mess, small and micro enterprises being the worst sufferers. A friend of mine, who lost her husband, a GST payer, had to file zero GST in his name for nearly a year before the system let go of his soul.

Trying to shore up the ramshackle public sector banking system by merging weak banks with strong ones, without a slash-and-burn of their management and work culture, is a bit like the joint family patriarch ordering the hard-working son to keep his wastrel cousins in clover. Disinvestment so far has been a sham, as has been “minimum government”. Faced with a funds crisis, the taxman has been set insane targets and is running riot.

Yet, while global foreign direct investment (FDI) remained stagnant in 2019, FDI into India rose 16% to $49 billion; our foreign exchange reserves remain at an all-time high; and, according to Employees State Insurance Corporation payroll data, 1.96 million new jobs were created in November 2019, up from 1.24 million in October. And ESIC covers only a fraction of the total workforce.

So why is the mood so black? Five reasons, in my opinion. One, extremely high expectations from Modi, who may have encouraged a superman persona to be created. Two, a habit of announcing unnecessarily grandiose targets like a $5-trillion economy by 2024. So even if you achieve 85% of that, a remarkable feat, you will be considered a failure. Three, the absolute refusal to admit any mistake even when they are lit up in neon. A little humility never cracked any pedestal. Four, a chronic inability to communicate successes effectively. Five, the use of fear as the primary weapon to drive home the new rules. These five factors are a sure recipe for despondency. When I left that room of senior managers with the customary bouquet and memento, the glass was still as half empty as it had been when I had entered.

Sandipan Deb is a former editor of ‘Financial Express’, and founder-editor of ‘Open’ and ‘Swarajya’ magazines

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