Narendra Modi has charisma. He has great ideas for the growth of the nation and is the rare personality that we have Indians have sought for a long time. Four months down the line, the nation is still living off a sense of euphoria. The public is being accosted by blazing headlines nearly every day, talking about deals with Japan, with China, with the US. Investments will run into tens of billions of dollars and words like ‘growth’ and ‘development’ have made their way into daily conversation.
BUT. Are we ready? Success comes to those who are prepared to receive it and is India ready for investment of such magnitude? The time for talk and lofty promises has come to an end, it’s time for action now. Retrograde laws, outlandish monetary policies and a total lack of amenities, combined with an obstructive bureaucracy, have Indian industry in a stranglehold.
Yes, $41 billion in investments has been promised by the US-India Business Council, but even they acknowledge the hurdles in their way. They have expressed great doubt about Indian taxation laws and the retrospective amendments that have caught telecom giant Vodafone in their snare. Our Prime Minister has assured them that these matters will be dealt with on a case-to-case basis and that no retrospective law will be allowed to affect investment inflow. However, this is not enough. The government’s policy simply isn’t as clear cut as it should be, retrospective amendments continue to exist whether or not they will be put to use in every case that comes their way.
These doubts were expressed in equal measure by both China and Japan. China’s investment promises fell from $100 billion in five years to $20 billion. The bottom line is that doing business in India is extremely difficult. The process of registration, sanctions and approvals takes a huge amount of time. The pollution control and environmental clearances are a big hurdle as well. Modi countered this with a promise, saying that he will establish a single cell that will comprise all the people who need to give approvals for an industry. The deadline is December 2014. According to this plan, applications can be made online and will be cleared in 21, 30 or 45 days, depending on the type of business. Despite these assurances, India ranks 134th when it comes to the ease of doing business. The cost of doing business is another seemingly insurmountable factor.
Modi needs to attend to these issues, all of which have assumed mega-proportions, but they are not for a single man to tackle. The bureaucracy must cooperate. Take the budget, for instance. It was full of promises that covered several key areas of investment and seemed quite comprehensive. However, the bureaucracy has brought nothing but trouble to industry, through service tax, for example. If the businessman doesn’t avail his credit within six months, he will lose it. If he doesn’t pay up within six months, he has to pay 18 per cent interest, which increases to 30 per cent if the delay is one year. When a refund is due it comes either with only eight per cent interest or not at all.
Most cases, I have come to realise, are piled onto the law-abiding businessmen. By reading between the lines and attributing all sorts of interpretations to the existing rules and regulations, show-cause notices are slapped on businessmen. The first level of appeal - requires the businessman to pay 10 per cent of the amount claimed in the notice as deposit. Whether or not they succeed, the second level of appeal, which is to a tribunal, costs 25 per cent of the amount as deposit. These are retrograde steps and don’t encourage industries. This is the attitude of our bureaucracy.
It is up to the Prime Minister to send out the right message to our country’s bureaucrats. The ones who perform well will get the credit due to them, but the ones who don’t will be hauled up. That is what needs to be said, but so far, Modi has survived purely on rhetoric. Statements like these should leave no room for doubt and Modi’s earlier remarks about cleaning up the bureaucracy was overshadowed by his later intent to protect them.
The Index of Industrial Protection (IIP) is at a nine month low. If this is any indication of the situation, the supply side is far behind the demand. Several welfare measures introduced by the UPA have been retained by the NDA government, for Modi chooses to continue with them and retain his own popularity. He will add a requirement of '1.75 lakh crore for Swachh Bharat. Where is this money from and even if it is raised, will it not just pile onto the already high inflation? Tax money is being spent on subsidies and the manufacturing sector just hasn’t been able to keep pace. Why? Interest rates are sky high.
I was in China last week and found that loans there were available at an interest rate of 7 per cent for industry. In India, it is anywhere between 12 and 18 per cent – a tremendous leap. We hoped Raghuram Rajan would be able to bring in changes, but he has made it quite clear that he will not reduce interest rates. At an executive meeting of FICCI in Mumbai last month, where Rajan was an invited speaker, he said he would not cut rates because of inflation. Why is inflation so high? Because supply is less than demand.
The list of woes is seemingly endless. The Land Acquisition Act is a ridiculous piece of legislation. The NDA government was party to it as well, although they seek to amend it now. When and how, though? We don’t know. No industry will be able to afford the cost of setting up a business under the Act. If we were to draw another comparison with China, as they are our closest peer, so to speak, land was offered to me at Rs 25 lakh per acre by the government. In Bengaluru, the same deal will cost me Rs 1.5 crore, will be given on lease and the condition is that if you default a payment to the bank, the KIADB will take the land back. Which bank will finance you under those conditions?
Then, there are the amenities – power and water. There is an acute power shortage in all the southern states and costs industries about '8 per unit. We are still dependent on the monsoons for water, after all this time. With hurdles like these standing in our way, India will never be able to compete in the global market. What does the Modi Government want to do in these problem areas? He gives grandiose speeches and everybody claps.
Meanwhile, negotiations with states over the Goods and Services Tax regime are in a critical phase. This indirect tax regime has been in the pipeline since 2006 and the PM has received party backing, too. However, the clearing of the CST compensation arrears has been the major bone of contention – nearly '60,000 crore will need to be paid to the states to meet their losses. Where is this money coming from? The states will not accept GST unless this compensation is given and industries are, at the end of the day, dependent on the state governments for land, water, power and labour.
The Deloitte report talks about the incredible opportunities that India holds, investment-wise. You have IT, health, pharmaceuticals, R&D, civil nuclear cooperation, the Make India campaign, the Mumbai-Bengaluru and Bengaluru-Chennai industrial corridors and the smart cities, all of which invite huge foreign investment. Countries such as China, Japan and US have promised to seize these opportunities, but only if Modi addresses the issues that are plaguing the industrial sector.
Narendra Modi has a mammoth task on his hands. It cannot be accomplished unless the bureaucracy mends its ways to keep pace with someone as dynamic as our newly-elected Prime Minister and the dreams he has instilled in the minds of the people.
— The writer is President, Federation of Karnataka Chambers of Commerce and Industry (FKCCI)
