Since the last few weeks my major job as CEO of the company I founded has been - recovering my dues from my customers. Everyone is aware that since the last 3-4 years business in India has taken a beating and many companies have gotten themselves into major problems. The art of running business is very subtle. A business leader has to contend with many situations and possibilities. While an entrepreneur is always energetic towards expanding his business he has to foresee market situations and tread cautiously when he encounters compelling opportunities. A classic case is the acquisition of JLR and Corus by the Tatas. While the latter appeared a more prudent business decision during those times given the more than hundred years legacy of Tata Steel it is JLR that gave meaningful returns to the Tata group while Corus has been a drag on their performance resulting in huge write offs and erosion of networth. The point is that even the legendary Tatas misjudged and wrong timed. But due to their deeper pockets have been able to keep themselves comfortably afloat. The same may not be the case with other business houses in the scene and their failures hav eto be looked at with a practical perspective rather than uniformly and unintelligibly discarding business failures as diversion of funds as we usually do.
Coming back to our recoveries, in my interactions with my customers I have found all of them complaining about their recoveries not coming in and their cash flow difficulties. Every one of them without an exception have come under very heavy cash flow stress. In all the cases without an exception the top management has told me that they have not been able to take their monthly salaries for almost 10 months, that they are contending with lot of legal cases both from vendors and customers, that they are entertaining me just because our outstanding with them is relatively less and they could avoid additional litigation with us if they closed our outstanding. With the business house that I met today for recovery of funds we mutually agreed to square off with an arrangement to pay the outstanding in 15 months in equated monthly installments. The company I met today belongs to a group which has 40 companies listed in BSE with a net staff strength of 15000!!
While I see all these business houses in India trying hard to make both ends meet I wondered about the 5 lakh crores that have been declared as NPA by various banks. On the one hand our honorable prime minister and his government are trying their level best to cultivate a spirit of entrepreneurship to foster independence self sustenance and larger accountability in the society I wondered about the thousands of business accounts declared NPA by our banking system. Is it not our responsibility to investigate why so many of our enterprises are failing.
Being an entrepreneur myself and having dealings with the top management my clients I am able to identify a common pattern in all these struggling enterprises which I cannot but feel like sharing with every one.
The banking system of India has been considerably tightened with the adoption of international banking guidelines i.e. the BASEL banking accord. Year on year these norms are getting stricter with guidelines which will declare a bank account NPA at every small instance like- non submission of stock statement, not regularizing TOD within 90 days, non renewal of account for more than 12 months, non submission of returns of statutory dues... fall of a hat. While these norms have been adopted out of our insatiable urge to ape the west and our indelible impression that they are always right-- we need to understand that our environment drastically differs from theirs.
While giving any credit facilities to Indian businesses the banks unlike the west ask for more than 125% of collateral back up ( just like the old time Zamindars) . They also compulsorily seek the personal guarantee of the promoter directors. If this was not enough our main difference is the interest rates. The interest rates in Inda range form 15%-20%. the interest rates in the west are in the range of 2-4%. With an allowed debt to equity ratio of 4:1 in India @ 15% interest a company would lose its's 100 percent net worth definitely if the business is down for 2 years where as the same business can sustain for 12 years without much erosion @ 2 % interest per anum in the west. This is the huge impact the high interest rate regime has on the sustainability of our entreneurships. It is easy to conclude that our Indian entreprenuerships are atleast 10 times more vulnerable to the banking system due to high interest rates compared to their western counterparts. No surprise that there are 5 lakhs crores defaults spanning thousands of enterprises.
Thus according to me Indian industries and their promoters are victims of a flawed banking interest and operations regime which erodes their net worth within months of a market downturn or delayed recovery.
No wonder that FDIs get attracted to India as they are able to source funds at lower interest and deploy in high interest financial environments like India. No wonder that when a Kingfisher airlines or Jet Airways face losses we only look at foreign suitors as no Indian company can source funds at lower interest rates and revive companies. There are endless consequences of this skewed and incoherent interest regime like for eg the whole money laundering act and the huge resources that have been deployed to prevent money laundering, accumulation of black money, availability of money at very high interest rates like 50 % to the lower sections of the society like vegetable vendors etc..
The most important consequence is however that Indian industries and entrepreneurships can never compete at par with foreign companies and products. The Indian companies will increasingly get acquired by foreign players and slowly and definitely our whole work force will be serving foreign companies who would have got established in India.. As of now more than 50 % of the stocks in BSE is held by foreign companies which unmistakably means that we are all working for foreign companies. This is what we have achieved in the last 60 years of independence. We have lost our financial independence to the west again and are fully under their control.
Coming back to the US and OURS it is obvious that we need to reorient our ideas of business and entrepreneurship. Entrepreneurs are the jewels in the crown of an aspiring economy and it is only through their energy and initiative that we can become financially independent and regain our identity and independence. We should shed our ideas of entrepreneurs and businessmen as selfish megalomaniacs and rather look at them as risk taking wealth creators who provide movement and flow to the society by their indefatigable endeavors ( Subroto Roy Sahara has written 3 books of leadership during his current prison tenure). We should provide conducive environments for businesses and that is the only sure shot way to progress and sustainable growth if we as a society are interested to retain our independence and not go back into slavery of the powers that be.
