A SIMPLE 5 POINT MAGIC FORMULA GROW THE INDIAN ECONOMY AND MAKE IT BETTER THAN EVER

My 20 year’s experience as CEO and Managing Director of a Fire Protection contracting and manufacturing company has led me to understand many problems in the Indian Business Environment which have not been conducive to the growth of the Indian Business and our country.

Very briefly I am presenting the FIVE most important problems and their corrective steps which will bring immediate and rapid growth  to our economy.  Before I go into the steps let me briefly present the foundation on which I rely upon. Readers who are in a paucity of time may well skip this and read the next section.

The Foundation

We ( inspite of all our  intellectual brain drain – which is our pride- satire intended) are  a 130 crore predominantly youthful population. Our policies therefore should be oriented to tap into this large and most valuable human and intellectual resource edge  and leveraging upon it. We should avoid  doing anything that demotivates the human effort and prevents or discourages talent from meeting its potential.

 High interest rates on loans, collateral based and not enterprise quality based loans, delays in payments by customers, lack of appreciation for innovative ideas, bias against Indian Brands, Psychological reverence  towards western products, anything that undermines our national image and competitiveness, any high handedness by tax authorities or administration, disrespectfulness towards small businessmen entrepreneurs and start-ups, preference and tolerance of religious dogmatism, delayed dispensation of justice etc are some of the many banes in the society which discourage human effort an dispirit talent.  All our policies should be oriented towards nourishing and directing HUMAN TALENT TO MEET ITS POTENTIAL so that the effort of 130 crore motivated people reinforces  the growth foundations of this great nation to make it shine and rise to the position it deserves in the world.

Is it not so surprising that our DNA ( likes of Sundar Pichai,  Satya Nadella and gang) is driving the world, but here, with the same  talent available in drones and herds,  we still rot in unfulfillment and misery ( farmers commit suicides in india) ? We ought to accept with humility that there is something very grossly wrong with our system and environment.  Till our leaders and politicians do not acknowledge this and make SERIOUS changes in policies which will promote talent and help it reach its destination of success and fulfilment as against  just merely protecting  the rich and powerful of India and the world,  our dreams will only remain dreams.

THE FIVE  POINT FORMULA:

Having  explained the foundation behind the growth formula now I alight to briefly present and explain the growth formula:

1)      Payment on time: Just timely payment by customers to vendors will ensure quick rotation of funds in the economy leading to higher tax collection and higher demand. It is an irony that in India small companies in addition to marketing- sales – production – servicing – finance and HR functions also have and exclusive COLLECTION DEPARTMENT. All the people involved in small and large businesses know that in India once we supply material on credit we are not able to recover payments without extensive follow up. In fact, following up for payments becomes the single most important and costly department in all small companies. The parliament in all its wisdom enacted the MSME ACT 2006 which has been effective. But the bigger companies have found a very convenient way to circumvent this Act through filing frivolous WRIT Petitions.

·         Our government needs to immediately issue strong directive to all the companies recording above Rs 50 Crore turnover – either not to  take material on credit or make payment within 30 days of delivery of material.  The government should make it very clear that the bigger companies should not hold payments using any pretexts. The most common pretext is BILL ACCEPTANCE PROCESS.  In the pretext of verifying bills bigger companies delay payments for multiple months. Many times, they find fault with supplied material or services months after bills have been submitted. Statutes should clearly guard against all these delay tactics. The Banks should withdraw lending or not lend to any customer who has even one small unpaid vendor of more than 30 days after supply of goods.

·         Any payment delayed by companies more than 30 days should be not allowed to be taken as expenditure by the company and should get treated as income by changing required laws.

·         Companies beyond turnover of Rs 50 Crores should not be given any benefits and facilities if they are in the habit of delaying payments of their smaller vendors.

2)      REDUCE LENDING INTEREST RATES TO LESS THAN 4 PERCENT AND PAY ONLY 2 % ON DEPOSITS:  The current scenario is very grave.

·         On the one hand- There is a complete lockdown in the Hospitality, Airline Malls and some other service sectors. This loss of revenue in these sectors will lead to loss of business in the Automobile and the Realty Sectors as those who were planning to buy that new car or book their new flat will have to defer the same due to plummeting salaries or loss of jobs. Recession in the Realty and the Automobile Sectors will lead to lack of take off from the steel and cement sectors. So, we are staring at a gloomy picture for the near future.

·         On the other hand we have a situation where our interest rates on business loans, education loans,  cost 10-12 % with a debt to equity ratio of 3:1. For laymen I would just like to say that if Rs 100 is being deployed in a company Rs 25 is brought by the entrepreneur and Rs 75 is brought in by the bank. Now during a recession say which lasts for 2 years a company would end up paying Rs 14-20 ( assuming @ 15-20% including penalties etc) which completely erodes the capital (Rs 25) of the entrepreneur. Hence at higher interest rates the capability of companies or an economy to weather recessions is highly diminished. Where as, if a company borrows the same money in a country like USA the promoter would lose his wealth in 7-8 years assuming 3% interest rates.

·         In any case how can a company paying higher rates be as competitive as a company paying lower interest rates on its borrowings. How can an Indian company compete against companies in America and Japan who have access to funds at 1/4^th. Of the cost at which finds are available in India specially when more than 3/4^th of the funds in any company are deployed by banks.

·         A higher interest rate ensures that the people with money keep getting returns without efforts . This cannot be allowed in India which has to give more value to efforts rather than focus on wealthy becoming wealthier. For senior citizens government should implement a decent social security package which enables them to live with dignity during their sunset years. Of what use is a society which cannot provide or those who nurtured them during their childhood and teenage.

·         Reduction in deposit interest rates would compel people to invest in entrepreneurship or real estate. This will complete the cycle. Entrepreneurs will have to become accountable to the society. Politicians will have to become  responsible to keep areas neat and tidy and disease free failing which people’s wealth will get eroded in real estate and stock exchanges. Currently irrespective of whether that pile of garbage near the main road is cleaned or not the depositor is assured of getting his interest on his savings. The rich will continue to grow richer till the bank goes bust as companies collapse. I have written in more details about this here. Please take out your precious time to read this too. I assure you that it will be worth it if you are truly worried about our economy.

3)      REMOVAL OF INAPPLICABLE IMPORTED NORMS FROM THE BANKING SYSTEM:  We have been naïve enough to copy some irrelevant norms into our banking system- like BASEL norms (for eg.) which enumerates so many frivolous conditions to declare a company NPA. Some of them I will list here below just for a glimpse-

·         if a customer does not pay a vendor money within 90 days of supplying of goods the vendor’s account gets negatively tagged and not the customer’s account who actually did not pay the money after accepting the material, strange isn’t it?

·         An account that has become NPA can be given a strange restructuring package- while it was not able to service just interest on the outstanding working capital loan it is now made to convert the working capital loan into a working capital term loan. Now it not only has to pay interest on the outstanding working capital loan but also has to return the principal in a matter of 5 years.  How can a company, which could not afford payment of interest money pay interest along with principal? Strange, isn’t it?

·         A company can be declared NPA just because it did not submit its audited balance sheet, or just because it declared loss for a year, or just because it delayed interest payment by one day after the last day of payment so on and so forth.

 It has almost come to such an extent, that, if the banks do not declare sufficient number of companies NPA, then it seems that there is some problem with the banks’ moral standards. Banks and their policies have become anti -  business. Most of the banks take collateral from the parties before extending loans unlike their western counterparts, who study the credit rating of the customers and then extend loans. Here even if the real estate industry is loaded with collateral the banks refuse to fund them and on the other hand even though some business are good banks force them to give collaterals and the entrepreneur ends up pledging his family property to these banks. It is very strange that banks- once they get a collateral,  are more interested in declaring a company NPA than growing them. Small statured inexperienced managers who have nothing at stake  are left to decide upon the fate of entrepreneurs who would have pledged their everything to the banks. It is high time that the Banking industry becomes more relevant to the needs of the industry so that we see some real growth coming from leveraging-  like  other developed  nations. Banks should lend based on business strength and not based on collaterals. Banks should be assessed on how many companies grew in revenues under the umbrella of their financial support rather than on imported Basel Norms.

4)      GIVE PRIORITY TO RECOVERY CASES IN THE JUDICIAL SYSTEM:  When people are not able to resolve their differences it assumes the form of a dispute and the parties approach the court.  We are all aware that the judicial system of India converts this into an extremely prolonged affair spanning decades. What is a country when there is literally no justice dispensed in time?  It is needless to say, that, lack of  early dispensation of justice is a major weakness in our system. It is sufficient to say that the person who wins the case should win early as he will utilise the funds and a person who will lose should lose early so that he can cope up in time with other alternatives. When there is a logjam for years it affects the rotation of funds and hence the economy. It is always essential to understand that for the economy loss or profit is least important. What is most important is rotation. Anything which stops rotation should be immediately dispensed with. The judiciary should act so fast and so firm that their aggressiveness serves as a deterrent against  committing any act that adversely affects anyone’s business and rotation.   Isn’t it strange that cases are getting delayed in our country due to shortage of judges when we have so many people in the country and so many capable lawyers. Has anyone ever complained about shortage of lawyers ? It is lawyers who are appointed as judges. But we have an extreme shortage of judges. Why?...

5)      DO EVERYTHING POSSIBLE TO STRENGTHEN INDIAN PRODUCTS AND ENGINEERING: IT IS A FACT THAT INDIA IS THE GLOBAL HUB FOR TALENT. Once upon a time the Chinese welcomed offers for setting up manufacturing bases in their country. Their vision was twofold. One- generate revenue and employment and second -learn / copy the technology and over a period of time become better than the originator of the technology as they had more manpower to deploy and work on the same technology while western nations had to import costly people from India to build technology. We in India happily allowed and took great pride in exporting our qualified people and buy into our own country products made by them abroad and lose  our costly money to the outside world  creating an ever-widening trade deficit and ever increasing dollar to rupee gap. It is a shame that such a thickly populated country like India with a huge bank of talent could not even develop software like search engines, operating systems, social networking software or e commerce platforms.  The Chinese developed all this in China. Wechat  Alibaba etc.. Even platforms like OLA and OYO which we claim to be Indian only have Indian face value with Japanese or American Owners/investors.

Can one ever imagine large Japanese companies like Toyota or Sony being taken over by western companies. Can we ever imagine big Chinese companies being taken over by companies from other countries.  But how often we hear product companies like Kingfisher, Flipkart or others being taken over by foreign companies. We in fact, quite on the contrary take pride and celebrate such takeover entrepreneurships.  Here entrepreneurs are considered successful only when they are able to get their companies to be taken over by a BIG FOREIGN ENTITY. We do not have the same reverence for Coffee Day like we have for Starfish sorry Starbucks. WE allowed the assets of Coffee Day to get easily taken over by the American bosses. The facts are on our faces. The advanced countries regard their  products  and engineering enterprises as their proud winning stallion. They  nourish and enhance their local and international image. While we on the other hand behave very differently. It would hurt many sentiments if I write more about this here. But a person who is interested in the welfare of our own country should deeply contemplate on what is happening and how and why it is happening.  The least we can do as of now is to  not take too much pride in serving foreign companies as employees, ancillary units or offshore development units and start taking pride and diverting support and investments into whatever is ours and try to strengthen and grow the same.

·         Make a list of items that can be exported as products or end  services ( not exporting manpower) and push hard to build their image by local consumption      – feedback and support in international marketing.

·         Make a list of items that we import and build companies which can make products which  can give tough competition to them.

As a closing note to this important topic I would like to say that the famous earthmoving equipment manufacturing company JCB has 45% of its revenue coming from India in spite of our own BEML manufacturing the same equipment. We should stop accepting our treatment as a mere market.

I am a small entrepreneur. What is known to me is surely known to the policy makers. But still I am having to write this. It is high time that vested interests give way to national interests.

It is not by sitting with the Tatas and Godrejs that the government will get the right inputs for spurring growth. It is by discussing with the failed businesses and their Directors  that the Government will come to know which of their policies paralyse businesses. The true intelligence as always will come from failures.

From my 20 years’ stint as an entrepreneur I have written the above and not copied this from any book or other source of hollow economic or business gyan. I have evaluated  every aspect of what is written above and have always dreamt of what a powerful nation our country will become if the above business hurdles are removed. We should focus on motivating the only power we have MANPOWER towards achieving our goals of international leadership. When 130 Crore people work with passion there is nothing that cannot be achieved withing a short period of time.

I pray to the Almighty to lead us  and our leaders in the direction  which will bring glories to our motherland.

Jai Hind.

FRIVOLOUS WRIT PETITIONS RUINING THE ESSENCE OF THE VITAL MSME ACT

The Parliament in all its wisdom passed the MSMED act 2006, which enabled MSME units to file recovery suits within their own jurisdiction, through a simple application to The Commissioner of Industries acting as a Quasi Judicial Authority empowered to conduct arbitration between parties. The law explicitly provided that the cases should be resolved within 90 days after the application was filed with the Commissioner. It provided for above 30% interest on payments delayed to MSME units beyond 45 days with compounding effect. With respect to the matter of recovery, the Act overruled all other terms of the purchase order. The appeal procedure required the appellant to deposit 75% of the award amount to the court with court having jurisdiction to pass on the award amount or part of it to the aggrieved party.

However, though this Act has benefitted many MSME units, some  MSME companies are not getting any benefit of the same, as the big and the mighty companies specially in the field of construction and contracting, which are vital sectors for any growing economy, use the route of filing writ petitions in High Courts and drag the procedures of the MSME Council.  The writ petitions are admitted by the High Courts and the Honourable Supreme Court though they do not have any major locus standi.

It is obvious that the small companies, who are not in a position to hire able lawyers and are already facing cash flow problems due to stoppage of  payments, do not have the wherewithal to fight at that level.

There are cases where for a single outstanding case filed by the MSME Unit the customer, instead of paying money, has filed 3 writ petitions in 3 different courts of India and after having lost one of the cases has moved the Supreme Court.

If the acceptance of frivolous  Writ Petitions against the conduct of the MSME Council proceedings are not admitted by the High Courts and the Honourable Supreme Courts, and the Honourable Higher Courts ensure that the parties strictly comply by the APPEAL PROCEDURE LAID DOWN BY THE MSMED ACT 2006 it will do a lot of good to  the MSME companies who many times suffer at the hands of the bigger companies. Needless to say, the MSME companies are the blood veins of the economy and facilitating early justice to them is a major responsibility of the society.

Strict adherence to the MSME Act will without allowance of frivolous Writ Petitions will deter the delay of payments by the bigger companies to smaller companies.

I have written here how just making payments on time would lead to a robust economy.  Would feel privileged if the reader also goes through this article in conjunction with the current one.

Jai Hind.

NOIDA REALTY THE EPICENTER OF EMPLOYMENT FOR THE NEEDIEST

 The sight of the mass exodus of labour from NOIDA to UP and Bihar after the Prime Minister announced a lock down would have stirred the compassion of even the most stone hearted.

The entire country through their TV screens would have got a glimpse of the  massive number of unlettered  people employed by the real estate businesses of NOIDA. It Is highly important to note that the real estate sector provides wages and livelihood to the lowest of the low strata of the society. But sadly,  this sector faces gross neglect from the financial support system. While sectors like automobile, metals and minerals, power,  Oil, FMCG,  which today do not give any large scale employment to people because of dizzying levels of automation  get red carpet welcome and government support everywhere,  the real estate sector, on the contrary in spite of providing  employment to the large section of the  most underprivileged people does not get its deserving  honour or support.

I am the CEO of the only Indian end- to- end manufacturer of Fire Alarm systems  and our speciality is the real estate sector. We have deployed  fire alarm systems in around 25000 apartments spanning 160 high rise  towers in over 27 projects. As I have been front ending the marketing activities of our company, I have had the opportunity to closely interact with the directors and founders of many of these real estate companies and I have a very important perspective to present.

An entrepreneur, whether successful or not is basically a person who ventures out of safe havens to the  rough risky high seas. He is zealous and wants to do something which will create an impact. This is the DNA of  an entrepreneur. So is the case with the builders of Noida. Most of these builders in Noida are   new generation businessmen who ventured out and launched massive projects when the local state government provided a conducive opportunity around 20 years ago.

Their “drive to build and create” has seen millions get affordable low-cost homes. Providing affordable but decent quality homes has become their passion and second nature. Their core  teams after 20 years of exposure to the industry have acquired cutting edge, engineering, commercial, legal and statutory  expertise in mass construction of residential and commercial infrastructure. Their teams are assets of our country. A massive new city called Noida,  with broad roads and facilities, the likes of which have been never seen  in the country has been established owing to their enthusiasm to make a mark.  The biggest bonus however has been the continuous livelihood  that these entrepreneurs provided to the unorganised  labour community. Millions of labours have been employed in this belt from Uttar Pradesh and Bihar.

This unorganised labour community is unlike the organised industrial labour, who,  owing to their continuous presence in the same area  are affiliated to unions and hence have political clout. The labour in the construction industry is  the most unrepresented class, without any social security, insurance and  free access to medical facility. They mostly sustain on weekly wages. Either they get their wages and survive or they do not get their wages and suffer and sacrifice without an option. Their numbers are really big.

This lockdown for the first time exposed their numbers. And, believe me, as I tell you from my first-hand experience, that only a very minor percentage  of them actually came down to the streets. Majority of them are still staying put as many of the landlords and employers  have been benevolent.

One of our main duty as a society and as a nation is  to take care of this class and provide for them. The strata beyond them, starting from the organised industrial labour, are well protected and represented. Any major disturbance from the other upward strata would be highlighted in various arms of media.

If these voiceless people are victimised even after 70 years of Independence, then what kind of a progress are we witnessing or creating. By victimization I am not talking about the lock down. This class is resilient. They will brave this out. What I am trying to refer here is a larger problem in our economy – the gross neglect and lack of support to the real state sector which is the largest employer of this unorganized labour community.  

For the last 2 years I have been trying to organise working capital for my company which has been serving the real estate sector. On knowing that we are supplying to the real estate sector the banks instantly refuse to fund. I have heard cases first hand from the Directors of the builders that the banks have refused to fund them even if they are willing to offer 95% construction completed infrastructure as collateral security.  If looked at logically, funding the real estate sector seems to be the safest option for banks as they have very saleable fallback collateral in the form of property. The disinterest of the banks and their drastic distancing from the real estate sector is beyond my understanding.

After the implementation of the RERA act the sector has had to increase their compliances and transparency multi-fold. This has of course added to their cost. But still the banks have not opened up their purses to this vital sector.  Everyone is aware that the demonetization has hit this sector the hardest. The upwardly revised  in the minimum sale price by the government in many cases is higher that the market rates of the  property.

I was informed that  a  top level delegation of builders tried to meet up with the Chief Minister of Uttar Pradesh but were denied an audience as he was not interested to meet realtors
.

Like most others I was also under the opinion that the realtors have diverted funds to create personal assets and have misused and over leveraged the funds. In one of my meetings with a senior director of a big builder when I brought up this topic he had an altogether different story to tell. He said that the erstwhile Chief Minister encouraged and pushed these Builders to acquire more property from the Noida Authority and assured every kind of Support. The Builder only had to deposit 10% of the amount and the rest could be paid in installments. When after demonetization the demand plummeted they approached the Noida Authority to take back that portion of the land for which they have not been able to pay installments and allow them to retain part of the land proportional to what they have paid. The Noida Authority was ruthless  and sent them back saying that they will get back only 5 Crores irrespective of whether they have paid 100 Crores or 500 Crores in installment and will not get any proportional retention of land. He said that most of the builders are suffering from this liability and are somehow trying to pay whatever installments possible so that they not lose all the money deposited. Again, this approach of the government goes beyond my comprehension.

CREDAI is the most popular  industry guild of the Noida Builders. The membership of CREDAI has fallen down from a vibrant 300 to a stuttering 80 currently in the NOIDA region.

It is high time that the Government acknowledge the contribution made by the Noida Builders and reinforce their entrepreneurship. The government needs to take two important steps to bring growth back to the industry.

            1)              Infuse strong liquidity into the segment based on collateral provided by the builders without asking for theoretical and unfounded dictum of the Basel norms.  I am not here saying that these funds should be disbursed without proper control. The system set up by RERA is sound and should be fully enforced for utilization of the funds. In  the older projects also, which are not under the purview of  RERA, the recommendations of RERA should  be followed. Many of the norms followed by the banking system are not practical. Like for eg: If a B2B outstanding is not recovered within 90 days the RBI. instructs the banks to declare the supplier of the material NPA rather than declaring the buyer( who is not able to make timely payments) as NPA. 

Kindly note that the RERA Act has ensured that the funds belonging to a particular project either deposited by the customer or the bank is not diverted to any other sources by routing the funds through an mandatory ESCROW account.

            2)      Bring down the lending interest rates for home loan and construction loans to around 4%. Drastic times call for drastic measures. If lending rates for builders and home buyers are brought down to 4% the EMI per lakh would come down drastically and there would be a spur in demand which will take care of everything else. After all, it is the responsibility of the government to spur demand. Right? ( I have written more about why reducing interest rates in the most important step to grow our nation here.)

      

I just hope and pray that this economy should realize  the importance of the Construction sector. A vibrant and competitive construction sector symbolizes growth, energy and movement in the economy.

It is important to lower the interest rates in India as we are a nation of 130 crore people. We need to give more thrust on human talent rather than be worried about how the rich will become richer by keeping the interest rates high. As a society we will be happier if our children are able to afford to buy their homes a year or two earlier than wait till a time when their salary can afford to buy a 50 lakh home at a Rs 900 per lakh EMI. Now that we cannot reduce the simmering high cost of education will we not be a more satisfied lot if our children got that educational  loan at a lesser interest rate.

Finally, most importantly,  the companies involved in this industry are all Indian companies with very less external involvement. Their consumption of steel, cement, wooden items etc is mainly of local. So it is high time and more than appropriate that we take strong action to facilitate and push growth into this most important industry.