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 1/4th. Of the cost at which finds are available
in India specially when more than 3/4th 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.
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