Macro Matters

Honeymoon over: Why India Inc feels Modi has let it down

Industry feels ten months is a long enough period to bring about substantial changes.

 |  Macro Matters  |  5-minute read |   09-04-2015
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India Inc is slowly losing patience with the Narendra Modi government. Their principal grouse, the change promised by the National Democratic Alliance has not translated into action on ground – the pace of reforms is slow and bureaucratic procedures continue to obstruct smooth functioning of businesses. Industry feels ten months is a long enough period to bring about substantial changes, while the government contends there is only so much it could have done in that period.

HDFC chairman Deepak Parekh was the first to go public with his disappointment with the pace of reforms in mid-February. He said that there was still a lot of optimism among industrialists and entrepreneurs, “however, after nine months, there is a little bit of impatience creeping in as to why no changes are happening and why this is taking so long having effect on the ground”. Yesterday, Marico chairman Harsh Mariwala reiterated the same point in a tweet.

Many businessmen at the recently held annual session of the Confederation of Indian Industries (CII), too expressed concern over the slow pace change and decision making in the government. Bosch India managing director Steffen Berns lamented at the CII event how getting clearances to use company’s own properties is taking a lot of time and that results in loss of business opportunities.

And it is not just actions or inactions of the Union government that has India Inc worried. Decisions of the Maharashtra government such as ban on cow slaughter and consumption of beef as well as the directive to multiplexes to exhibit Marathi movies too is seen as infringement of personal choices. RPG Enterprises chairman Harsh Goenka and investment banker Udayan Bose have tweeted on this.

Parekh, Mariwala and Goenka are not the only ones who are disappointed and are recalibrating their expectations. And reasons to be disappointed go beyond changes to rules and regulations.

Here’s what has upset businesses over the past few months:

Slow pace of reforms and poor infrastructure: Let us face it. Businesses were upset with the stand-still approach of the United Progressive Alliance (UPA) government during much of its second term as corruption scandals made bureaucrats wary of taking decisions. Thus, it was hoped that the resounding victory for BJP-led alliance would put reforms and decision making on fast track. Reforms are taking place, but not at the pace industry would like to see. Improvement in power availability and conclusion of coal mines auction count among major achievements.

While there is no magic wand to improve infrastructure, what counts right now is the time taken to get routine clearances – slower clearances leads to loss of precious time for businesses. Inflexibility in labour laws to adjust worker strength with changes in the business environment and poor state of infrastructure remain a worry.

High cost of funds: A recent Ficci survey identified high cost of funds as major constraint affecting expansion plans. However, cost of funds is strictly not the government’s domain. Making available funds at cheaper rate is the prerogative of the Reserve Bank of India. To be fair, the central bank has lowered interest rates twice this calendar when it felt inflationary pressures in the economy was easing but it was not until yesterday that commercial banks decided to lower their lending rates. Further easing by RBI depends on how government deals with inflationary pressures in future, particularly food inflation.

Demand from tax authorities: Finance minister Arun Jaitley had assured India Inc that they would not be terrorised with unreasonable tax demands nor would demands be made applying the regressive retrospective tax law. Yet, the tax department sent a notice to Cairn Energy demanding Rs 20,495 crore in taxes for capital gains on transfer of shares of its Indian venture in an internal reorganisation. Nokia’s troubles with tax authorities also continue, and it remains a hurdle in the sale of its Chennai plant.

Communal disharmony and infringement of person freedom: Ghar Wapsi campaign by right-wing activists such Vishwa Hindu Parisad and certain attacks on minority communities have made India Inc uncomfortable. There are fears that communal disharmony could tarnish India’s image among potential foreign investors and, in some measure, hurt India’s attractiveness for foreign investment.

A possible country-wide ban on beef also have sections of India Inc worried. It is seen as a possible precursor of other restrictions governments, at the Centre and states, may impose to restrict freedom of citizens.

Writer

Tina Edwin Tina Edwin @tinaedwin

The writer is a Delhi-based journalist.

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