India?s leading industrialists felt a sense of catharsis after their meeting with finance minister Pranab Mukherjee at the North Block on Monday. Such was the feeling of catharsis that it made some of them describe the experience in hyperbolic terms. Anand Mahindra said, ?If there was a trust deficit, it was dispelled today. It vanished today.? The ageing IT icon NR Narayana Murthy went one step further to say, ?It was almost like the spirit of 1991 when we met the finance minister and the industry minister.? Obviously these were exaggerated emotions. But why?
The reason for such hyper venting of relief?almost as if industry leaders had collectively escaped a train crash?was simply that a real dialogue between the government and industry had effectively not happened in the UPA-2?s tenure. The relationship between New Delhi and Mumbai had been increasingly marked by suspicion and distrust. Even the structured Prime Minister?s Council on Trade and Industry, which has leading industrialists as members, is not as active as it should be.
Industry has been accusing the government of total policy paralysis over the past year or so. Perception about the policy inaction had grown to such an extent that industry leaders simply concluded there was no point in talking to policymakers. The most cynical conclusion would be, ?Things are on autopilot.?
Interestingly, for the first time in decades, a new dimension had developed in this climate of suspicion and distrust. The problem of lack of communication was not just between the government and businesses. A growing distrust and unhealthy rivalry had developed among businesses. In the past, there had been rivalry but industry spoke in one voice when it came to the crunch. There was, indeed, a sense of collective self-preservation among the big businesses.
For the first time, this sense of collective self-preservation has been abandoned and consequently one has witnessed a relentless war of attrition among the big industry players over limited resources like spectrum, coal, minerals and land for urbanisation. This war of attrition got so dirty that big businesses today openly express the fear of suffering a backlash from the state investigative agencies or the judiciary, which have become very powerful and menacing.
So, why has this consensus among industrialists broken down? Corporate affairs minister Veerappa Moily told FE that unhealthy rivalry among the big businesses has partly resulted in the investment climate getting vitiated. There must be some self-governing code of conduct among industry groups that prevents such internecine battle among themselves, whether it is for grabbing scarce resources or simply to put someone else down in the eyes of the regulators.
Of course, one important reason for the war of attrition among big industrial groups in recent years was the stock market boom based on precious natural resources that businesses could grab because of their clout with the state actors. Recent years also saw an unprecedented liquidity-driven rise in hard commodity prices in the international markets. This boom in the prices of natural resources created untold greed among many Indian industrialists who thought it was enough to capture natural resources and see their companies? market capitalisation soar.
Indeed, for quite a while, it was a competition not among real businesses being developed on the ground but simply an unhealthy race for higher market capitalisation. This even prompted one leading industrialist to remark that it was time real engineering gained precedence over financial engineering. In fact, the stock market has taught this very lesson to many big business groups that always looked at market capitalisation ahead of other substantive issues on the ground.
The positive development is that the market capitalisation of all businesses which depended on natural resource-based boosters has eroded considerably over the past year. These companies have learnt the lesson that simply grabbing resources by hook or by crook will not yield dividends in the future.
For instance, all telecom company shares are stagnating today and the perception that telecom was forever a boom sector has been totally dispelled. The same goes for mining, real estate etc.
This reality check has helped in bringing down past animosities among businesses. Collective suffering, too, has a positive side effect! Therefore, now they are regaining their sense of self-preservation. The government, too, has learnt a few lessons in the past two years or so. The policymakers had got involved with business interests in the market capitalisation game. Politicians who thought they were too clever by half had begun to form benami shell companies in which they would try to capture the high rents that would accrue from natural resource allocation to businesses. This is the new form of crony capitalism which has begun to distort the policy on resource allocation. Various investigative agencies are now looking at all manner of violations committed in this respect, whether on allocation of spectrum or mines.
These excesses committed by the government and businesses have resulted in a more proactive judiciary and regulators taking control of matters. This is another cause of worry for India Inc. It is clear that business will have to be conducted much more transparently in the future. Perhaps this is the one positive outcome of all the mess one has seen over the past year or so. You might as well see the glass as half full!
mk.venu@expressindia.com