Time to shape up the Economy???

The words seem to echo in every quarter of the business world- industry is in a slowdown, there is no money and there are no new projects to latch on to.  India is marking its 67^th independence day and the mood around is nothing close to rejoicing. The days of double digit growth that we enjoyed in the late 90s and early 2000s is no longer the case. Today, very few companies are posting strong profits, most stocks are falling and rupee against dollar has gone through the roof. Expectations rely highly on speculation that the government will call for some reforms and announce new projects and policies in the walk up to the elections next year. But it is disturbing to know that hope is riding speculation and nothing hard core in the pipeline.

So how are we still holding on? What is driving the country today is predominantly is the Indian Middle Class, the strong workforce India possesses which is skilled and competitive in terms of cost on the global sourcing front. Even in these trying times, IT/ITES is surviving as the back office development hot shop to the world. The consumerism and the ‘want more’ attitude of the middle class are driving the sales for FMCG, pharma and retail finance. It is more on consumer led confidence than industry drive which is maintaining the money cycle.

I remember I had studied an economic model known as the circular flow of income; a symbiotic relation between industries and people.  People produce for industries, industries pay wages to people; people buy goods and services from industries and industries make money. There was another angle to this relation, the government. They collected money in the form of taxes from people on their income, buying of services as well as from industries as they manufactured or sold goods to people. This income for the government was then invested in infrastructure and welfare which boosted growth. At times, industries themselves invested their profits or used funding tools to facilitate growth by themselves. Also, banks which hold saving for people also finance governments and industries and propel growth.

The above scenario is still valid but has a new element called the overseas sector which is altering the balance. The post-1991 India attracted an influx of overseas companies into India as the country held immense potential waiting to be tapped. Possibility of joint ventures with Indian companies, the SPVs for investments into infrastructure projects was all seen as the perfect growth platform. But the government is still very much in control as the facilitator for driving this structure and the lack of clarity on policies and slow response is today choking the country’s growth.

I read in a report on ease of doing business index, India is at the bottom of the heap. Clearing the hurdles and seeking the permission to set up something has become such a task that Indian companies today prefer to go and set up or buy companies abroad rather than invest in our own country. While projects in India are stuck in the long chain of approvals, companies from India are setting up businesses in Africa or East Asia as their next big market. It is amazing to see that an industry flagship like Tata Motors is bleeding in India and its growth is actually coming in from sales from its JLR division which is boosting heavy profits in China. 

Not to mention, the interest for private partnerships in infrastructure projects like the trans-harbour link in Mumbai just talks of the faith in partnering governments in long term. Delays in approvals, clearances from various ministries, changing policies and political intervention have more often run into project cost overruns which reduce its profitability as well as putting a strain on the financial machinery behind the project. Energy, Telecom, Retail, Airports- all sectors which actually build the infrastructure to rise have seen either delays or misdealing.

I do not wish to get into the favourite past time of government bashing- but I do feel that the system of governance has broken down somewhere. Why should a bureaucrat take any strong decision which might be industry friendly but against a political promise of the government or likely to unsettle his position? Irrespective of which political party rules, governments are corrupt and the common man in India has accepted this at par with a direct sermon from god.   

Political willingness can make a difference and there are states in India which have demonstrated its success in many ways. 22 years after India opened its doors to the world economy; the growth potential as well as the advantage of its mass consumer market is still intact. What is required is the government to clear its hurdles and put the house in order. Governments have no business to be in business- but they do need to clear the path of progress. Else, I don’t see the rupee devalue further and the balance of trade drive us back into the pre 1991 situation.