What 'climate of fear' or 'hawa' Manmohan Singh and Rahul Bajaj are talking about?
Is India Inc really living in a climate of fear? Are industrialists scared to invest? Has the Modi government failed to create an atmosphere conducive for the industries? We try to decode.
On 29th November, former Prime Minister Manmohan Singh called the latest GDP growth figures of India 'unacceptable and worrisome', and attributed the economic slowdown to a palpable climate of fear created and enforced by the Modi government.
Though this statement came as a reaction to the news of GDP growth rate (for the July-September quarter) hitting 4.5%, further declining from 5% in the previous quarter, this is not the first time he voiced his worry regarding the 'climate of fear' and economic slowdown.
Just a day after his speech in New Delhi, Bajaj Group chairman Rahul Bajaj rose from his seat at an Economic Times event and expressed his grievance about a 'hawa' or atmosphere of fear in which India Inc lives, but is scared to talk about.
The noted industrialist hit a nerve with the crowd full of India Inc elites, who cheered and clapped almost throughout his charge. On the other side of his questions were 3 key NDA ministers- Amit Shah, Nirmala Sitharaman and Piyush Goyal.
“None of our industrialist friends will speak, but I will say openly… An open environment will have to be created… When UPA II was in power, we could criticise anyone… You (the government) are doing good work, but despite that we don’t have the confidence that you will appreciate if we criticise you openly,” said Bajaj.
Amit Shah was quick to dismiss his charge saying that "I don't think that there is an atmosphere of fear".
Bajaj not only spoke about insecurity regarding adeverse effects of dissent and criticism of the Modi government, he also touched upon how the societal factors like a BJP MP purpotredly hailing Godse as a patriot inside the Parliament and lack of action in mob lynching cases contribute to this 'climate of fear'. Bajaj even reiterated the charge of 'tax terrorism' against the government.
Another industrialist- Kiran Mazumdar Shaw of Biocon - also echoed Bajaj's sentiments tweeting that “Hope the govt reaches out to India inc for working out solutions to revive consumption growth. So far we are all pariahs n govt does not want to hear any criticism of our economy”
What is 'tax terrorism' or the 'climate of fear', which are apparently plaguing the India Inc? Is it the atmosphere which has taken the GDP growth to a six-year low? Let's try to decode.
On the last day of July, the body of Cafe Coffee Day founder V G Siddhartha was found on the banks of the Netravati river in Karnataka. He had purportedly written a letter just before his suicide.
It alleged that he faced harassment from the Income-Tax department despite filing revised return. This story shook India and India Inc.
Though tax terrorism is nothing new in India and has been typified by the ‘Raid Raj’ years, this government has been regularly criticised for using the tax departments to collect more and more tax to meet its stiff revenue targets. This might have led to a situation where industries are afraid of borrowing and investing.
"Many industrialists tell me that they live in fear of harassment by government authorities. Bankers are reluctant to make new loans, for fear of retribution. Entrepreneurs are hesitant to put up fresh projects, for fear of failure attributed to ulterior motives. Technology start-ups, an important new engine of economic growth and jobs, seem to live under a shadow of constant surveillance and deep suspicion. Policymakers in government and other institutions are scared to speak the truth or engage in intellectually honest policy discussions"
-Dr Manmohan Singh
Many economists and industry experts think that the slowdown is partially a result of the government using harsh methods to eliminate corruption, black money and tax evasion. And since the Modi government has taken a hard stance against corruption & tax evasion, it has partially choked new projects, investments and bureaucratic decisions; which in turn contributes to fear and insecurity of the industries.
India has a nightmarish regulatory system, inherited from the British Raj and subsequently from its socialist Licence-Permit-Raj era. Despite some deregulation in the 1990s, India remains overregulated.
Over-regulation combined with a weak state chokes the Indian Inc. Cumbersome rules that make market entry difficult or impose costs on legitimate economic activity, if well-enforced, tend to hamper growth because they create high barriers for new projects, investments and entrepreneurial ventures, and this hurts economic activity.
A bleeding India Inc
It's not only the GDP growth rate that has plummeted, there is a massive fall in nominal GDP growth that has come at just 6.1 percent, the lowest in almost 15 years. On the other hand, unemployment is at a 45-year high; household consumption is at a four-decade low; bad loans in banks are at an all-time high; sale of automobiles are falling, growth in electricity generation is at a 15-year low. This paints a terrible picture for the market, which is screaming for some fresh investments and return of the animal spirits.
While government says that this is not a recession and the GDP growth will bounce back because the 'fundamentals are strong', The profit-to-GDP ratio of companies on the Nifty 500 index dropped to a 15-year low of 2.8 per cent in FY18 from 5.5 per cent in FY08.
This means that much of the GDP growth not only jobless growth, but largely profitless as well. Explaining why the industrialists are not showing the confidence in investing in India.
Just ahead of the budget, CMIE data showed that investment in new projects plunged to a 15-year low in the quarter ending in June 2019. Indian companies, across both private and public sectors, announced new projects worth ₹43,400 crore in the June 2019 quarter, 81% lower than what was announced in March quarter and 87% lower than the same period a year ago.
Then there is Demonetisation and GST. Those two 'masterstrokes' dealt a severe blow the medium and small industries, which constitutes over 45% of the country's output and employs over 60 million people.
The enormity of those was such that the unorganised MSMEs still haven't recovered. The way DeMo was announced and what followed has also made the industries anxious of another such unprecedented blow.
Such a worrying economic situation where India Inc doesn't feel secure to invest and create jobs is affecting the purchasing power of the people, and stalling the growth. Many experts point to the need for making industries feel safe and confident about borrowing and investing. That wiil be key to the revival of Indian Inc and Economy.