Why a section of India Inc can’t cope with Modi

It is strange, but his admirers are now his detractors, especially after Prime Minister Narendra Modi tried to ensure transparency in a coal auction. The irony is overwhelming. When Modi rode to a landslide victory in mid-2014, it was on the strength of a tidal wave of expectations of a better tomorrow, a rejuvenated industry and a revived economy. From boardrooms to drawing rooms, from factories to farmlands, Modi was Hope Reincarnate. Suddenly, a section of India Inc is disgruntled—and a whisper campaign is on against the man they once feted as their redeemer. Is it another form of resistance to change?

The disquiet in certain corporate headquarters gained momentum this April after the Modi Government sought to refer the bids placed by Jindal Power, Adani Power and GMR for Gare Palma-IV/2&3 blocks in the recently concluded coal block auction to the anti-competition malpractices oversight body, Competition Commission of India. A legal battle was already on: the Naveen Jindal-promoted Jindal Power had approached the court against the Centre’s decision to deny it the block for which the subsidiary of Jindal Power Ltd was the highest bidder. Going by the bid log, there are indications of collusive bidding. Adani Power Maharashtra Ltd and GMR Chhattisgarh Energy Ltd had made no bids to help Jindal secure the deal. A person close to the matter says the bidding pattern suggests a timing anomaly in the bids of the two companies.

True, Modi had known all along that getting India Inc used to a rule-based regimen would an uphill climb. But then he faced a serious challenge in putting India’s slumping economy back in acceleration mode. He was even more acutely aware that much of the battle would not just be one of boosting numbers, but one of drastically transforming mindsets warped by a quasi- entitlement worldview, especially in parts of the corporate sector. But he is not one to give up.

Within months of Modi’s taking charge, the World Bank had pegged growth projections for India’s economy at 7.5 per cent for 2015 and 7.9 per cent for 2016. “The world is looking at Asia,” he said soon after becoming Prime Minister, “I do not have time to waste inviting people. I need to urgently give them the address.” And he did. From China to Japan to the US to Canada to the Brics nations to France and Germany, he zigzagged the globe and engaged with heads of state, gifting them navigational systems with needles pointed firmly to the country in accordance with his ‘Make In India’ pitch, promising revised ease- of-doing-business norms, zero tolerance of corruption, single-window clearances for projects and other streamlined procedures. He was hardselling a Can- Do India: an India poised on the threshold of high growth alongside the richer nations. World leaders, especially in the West, which was keen on an Indian revival to boost their own economies, began to see Modi as a change agent. US President Barack Obama, in Time magazine’s list of the world’s most influential people, called him India’s ‘Reformer-in-Chief’.

Around this time last year, there was a heady feeling of good times to come, a kind of boardroom consensus that Prime Minister Modi would assume the role of India’s economic messiah and succeed in swiftly shaking off the effects of market isolation, poor infrastructure, limited access to technology, poor education and old regulations that had stifled business (or only selectively encouraged it).

In its first 10 months in office, the NDA had, compared to its predecessor, racked up a lot of credits—broadly, the push for ease-of-doing-business (such as shaking up the bureaucracy), restoration of governance credibility (its transparent auctions for coal mines, for example, and creation of a fair template for monetising scarce natural resources), revival of the economy’s growth momentum, and the brave efforts to push politically tough policy initiatives (like signalling an end to the open-ended nature of subsidies and diluting land acquisition norms). Some of these pointedly pro-reforms decisions came despite stiff opposition from other parties, including the Congress.

“From the start, there was never an iota of doubt in the corporate world that Narendra Modi had the political will to reboot India’s economy on priority. Institutions such as top credit rating agencies and the World Bank are well aware of the nuances of political decision-making and how they dovetail with kickstarting the paralysed economic reforms process in India. If their outlook on India has moved northward during the last 10 months, it is clearly because they see the will of the strong majority government headed by Modi to transform the economy,” argues one analyst who has tracked the Government’s initiatives. He says that no reasonable person can seriously expect such a transformation overnight. “There is a big difference between high expectations and unrealistic demands and concessions. [It doesn’t] call for a sugar-rush response from the corporate sector but sustained, sedate and reasoned cooperation with the new regime. Modi’s taking office at the head of a new government at the Centre was no routine gear change, it rang in a generational change in political and economic ecosystems, even networking. The new regime had to clear the cobwebs of a decade where economic reforms were concerned, and put transparent new templates, basic systems and standard operating procedures in place that would function with ease and credibility. In all fairness, this isn’t something that can be judged at least for two years.”

What the Modi Government had to deal with firmly, the analyst maintains, includes entrenched crony capitalism, corporate favouritism and persistent rule- tweaks to suit a select cabal in various sectors. During the UPA-II regime, for instance, two corporate brothers chose different days of the week to fly regularly to New Delhi and walk the corridors of power. Irrespective of whether or not the Government obliged, the duo used these visits as a show of clout with the ruling establishment led by the Congress party. Cabinet papers and discussions at meetings of sectoral Group of Ministers (GoMs) were routinely leaked to the media as a ploy to create an environment that would help engineer favourable outcomes for them on key issues.“The entire administrative system had become dysfunctional during the latter years of the previous regime, bypassing rules, corruption and scams became the norm in several sectors, and there was near-terminal legislative paralysis, made worse by a sustained logjam in Parliament,” says the minister. “The bureaucracy has now to urgently be retaught how to be held accountable and made intelligently responsive to fundamentals, which is no mean task.”

Corporate grandees who frequent Davos and other business club meetings were gushing over the governance emphasis of the new Government. True to style, they spared no opportunity to preach the values of competition and virtues of lower tariffs. Back home, it was a different story, at least for a section of India Inc. There is a story, perhaps apocryphal, that is being narrated by many in the BJP. Expecting to become the chief economic savant of the new dispensation, a top banking honcho had prepared a comprehensive blueprint for reform reforms. It contained radical suggestions that slaughtered virtually every ‘holy cow’ from labour laws to FDI caps across sensitive sectors. Besides that, the paper also called for a sharp pruning of the subsidy bill, possibly in Modi’s first year of governance, and other measures to deliver the commanding heights of the economy to the private sector. The big idea was to unleash the country’s ‘animal spirits’. At the time, Modi had yet to appoint a cabinet secretary and a key security advisor, and was actively engaged in that process.

Senior BJP leader and Modi confidant Amit Shah, yet to be officially elected party president, politely declined to oblige the senior banker, adding that should such advice be necessary, he would be sent for. That position, endorsed by Modi later, didn’t go down too well with him and a section of the corporate clique.

The banker had probably not forgiven the leadership for the snub delivered to him and vented his anger against the Government just before the Union Budget for 2015-16. Around mid-February, newspapers had stories of a growing ‘boardroom disquiet’ over slow economic decision- making. Most of these reports were based on the banker’s observations of the economy.

One of the corporate leaders who spoke out against the Government was HDFC Chairman Deepak Parekh. “There is a little bit of impatience creeping in as to why no changes are happening and why [reforms are] taking such a long time to have an effect on the ground. The optimism is there, but it is not translating into revenues. In any industry you see, when there’s a lot of optimism, growth should be faster,” he said. A day after Parekh made his statement, HDFC Bank’s Managing Director Aditya Puri backed Modi, praising his execution skills: “There was a time when inflation was high, we had a current account problem, the fiscal deficit was an issue, and there were questions of political stability. We have a stable government that is clear about what it intends to do on land acquisition, etcetera.”

Finance Minister Arun Jaitley maintained that the Government was being criticised (by political opponents) for acting too fast. This reference was to the flak Modi got for adopting the ordinance route on key issues, including land acquisition, despite his party’s landslide victory. The Government, he said, had chosen to have ordinances issued to expedite legislative changes to promote business. “At a time when competing economies are facing severe challenges, history has given us a rare opportunity where the world is looking to us for investment. The present Government is determined, having eased many processes, to go on that path,” Jaitley had said.

Power and Coal Minister Piyush Goyal was more direct in his response to Parekh. He pointed at the soaring stocks of HDFC and HDFC Bank to contend that the economy was well and thriving. And the following months saw these voices of criticism going silent. Modi himself declared that economic reforms would be pursued determinedly but gradually. As Jaitley quipped in his pre- Budget interviews, “The Budget is not the newshour, so there need not be big-bang announcements.” He underscored that the Budget only signalled a start of the process to boost annual growth to 7-8 per cent over the next four years. “It wouldn’t be wise to expect everything that can and must be done in the first Budget,” he said.

In line with that commitment, one of the Centre’s most significant of reforms came several weeks after, on the contentious coal block allocation front. When India’s Supreme Court cancelled allocations of all coal blocks last September, the country had been staring at a crisis. Already, the crony capitalism associated with the Congress-led UPA and subsequent court-ordered probe had cast a shadow over coal production. The Comptroller and Auditor General (CAG) had estimated the loss to the exchequer at Rs 186,000 crore. By backdating the cancellation, now there was a threat to the entire energy sector. Not only did the NDA have to come up with a solution quickly, it would also have to ensure that it stood up to the test of transparency. This was especially relevant because the apex court had cancelled the allocations on the contention that they were based on discretion and did not meet transparency standards. (Several companies that were awarded coal blocks were found to have furnished bogus addresses.)

Not only did the Modi regime manage to come up with a remarkable solution that met all the demands, it did so in record time. E-auctions of coal blocks not only ensured a transparent system, but also let the Government maintain an arms-length relationship with bidders. The total proceeds from the auction of 33 blocks crossed Rs 200,000 crore (over a 30-year period, including royalty). The NDA demonstrated that India can employ a purely rules-based regime, one that would be fair to investors and not shortchange the exchequer. The template for the coal sector could be effectively used for other natural resources, too. “Fetching over Rs 2 lakh crore from an auction of just 33 coal blocks has shown that policy- driven governance can rid the system of corruption. If we run the country based on policies, if we run it efficiently, the system can be rid of corruption. We can develop a graft- ridden legal procedure,” Modi recently told a meeting.

Still, a few corporate heads have begun to display impatience with the Centre. L&T Executive Chairman AM Naik, for instance, has said the reform measures taken by the Government are “not adequate”. In his words, “Implementation [of policies] will be our biggest challenge. For the past 10 years, we have talked about $1 trillion for infrastructure through five years. We need $20-25-trillion of infrastructure to come, in line with China. The Government has articulated its macro policies and vision for the next five years; it’s time for implementation on the ground. For that, you need a very sound monitoring system.”

In mid-April, Marico Ltd’s Chairman Harsh Mariwala was even more scathing: “The sheen is wearing off the Modi Government in the context of promises and very slow delivery. We need to move fast… I heard from a leading politician today that if elections were held today, the NDA will barely win 200 seats despite a weak opposition.”

Irresponsible statements made by aggressive Hindutva elements have also come in handy for sections of industry to grumble. Adi Godrej, chairman of the Godrej Group, recently chose to dwell on this aspect, although he asserted that the Government had made the right moves for an economic, industrial and corporate revival. “A lot of steps have already been taken in terms of reforms, in terms of objectives,” he said, “I expect that economic growth will pick up very soon.”

Distinctive voices of reason and patience within India Inc have been few. “All of us should understand that it’s a new Government and we need not get disillusioned and dissatisfied with it so fast. We should support Prime Minister Narendra Modi for delivering on his promises. We really need to support [the Government] if we need to have a new country and outlook, both internationally and domestically,” said Ratan Tata, former chairman of the Tata Group.

A senior government official offers his take on the sense of unease among corporates, especially the established ones that had enjoyed the perks of proximity to politicians. “Our captains of industry suffer from a bad case of bipolar disorder when called upon to adapt to the transparent and graft-free policies of the Modi regime. They attend international platforms like the World Economic Forum at Davos, for instance, and vocally take a stand in favour of opening up sectors across the board and bat for open competition in their own markets. So, either the reaction to the Modi Government is over the top and leans toward the superlative, or, if they don’t have their way on key policy decisions, they behave akin to their counterparts in the licence-quota raj era. Cornering concessions and culling favours becomes the primary currency of interaction, rather than working with the Government to reinforce even-handed and open policies,” he observes.

The carping about the ‘slow pace of reforms’ appears to have also been triggered by the Cabinet clearance of the third phase of FM frequency auctions. For this auction of spectrum, the Government decided to put 135 frequencies on the block in 69 cities, with the intention of hiking that number to 839 frequencies overall. A restrictive clause introduced prescribes that no one radio company can run more than 57 stations of the frequencies put on the block now. Large stakeholders such as South Asia FM Ltd (which runs Red FM) already run that many, thereby ruling out their participation in any upcoming auction. Others such as Reliance Broadcast Network Ltd (Big FM), one of those complaining, runs 45 stations and sees little or no advantage in bidding for only 10 or 12 frequencies, on the argument that this does zilch for the station’s expansion. Against this background, some of the major broadcasters feel that owning fewer if bigger and more lucrative stations is better than cramming one s portfolio with smaller and fewer, less profitable frequencies.

The new rules and policies have clearly not gone down well with all players. Their grouse is met with indifference by the Modi Government, which is determined not to allow anyone to dominate policy decisions. Throwing his weight behind such an approach that’s fair to all concerned, RBI Governor Raghuram Rajan has warned against crony capitalism. “One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today,” Rajan has been quoted as saying. “An important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is why people tolerate it. Why do they vote for the venal politician who perpetuates it?”

Rajan said that “one widely held hypothesis is that our country suffers from want of a ‘few good men’ in politics”. He added this view is unfair to the many people of probity in politics. “But even assuming it is true, ever so often we see the emergence of a group, usually upper middle-class professionals, who want to clean up politics. But when these ‘good’ people stand for election, they tend to lose their deposits. Does the electorate really not want squeaky clean government?”

In an interview to Hindustan Times, Modi said, “I would request the media to counterpose two things together— the allegations our Congress friends level against us and the complaints that businessmen have; the Congress says we are a government of industrialists, and industrialists say we do nothing for them.” He seemed to have chose his words cleverly when he said “industry has to come forward to take the benefits of the process we have set in motion”. But he also emphasised that his government was working for the common man. “Our job is to run a policy-driven government. Red tape nahin hona chahiye. Ab red tape nahin hona chahiye matlab Mukesh Ambani ke liye red tape naa ho aur ek common man ke liye red tape ho, waisa nahin chal sakta (Red tape should not be there does not mean it shouldn’t be there for Mukesh Ambani, but be there for a common man; that won’t do).”

A day before the second leg of the Budget Session of Parliament, Modi had reiterated his position in a meeting of BJP parliamentarians. He brought up Reliance Industries’ Chairman Mukesh Ambani in his speech— the second time he had done so in 10 days. Speaking in the context of the Government’s affordable housing scheme and how land acquired under the proposed new law would benefit the poor, Modi asked, “Who is going to live in them? Are industrialists going to stay there… will Mukesh Ambani live there?”

The man who lives in the world’s biggest private residence may not have appreciated such a mention by the Prime Minister. But then, who would figure better in a rhetorical question by a prime minister who wants to be a compassionate capitalist?

economic reformsIndia IncNarendra ModiPrime Minister