Former India Prime Minister Dr Manmohan Singh hardly spoke while in office, but from the little words he uttered, there are certain expressions that did make an impact on the country. One of them was in 2012, when he urged his officials to revive ‘animal spirits’ in the country’s economy, simply meaning revival of investor confidence. It’s another matter that some of his colleagues in the party interpreted ‘animal spirits’ as a permit to commit colossal corruption. However, there as some business entities that took the hint and invested heavily in their businesses mostly funded by debt. In 2014 new Prime Minister Modi under pressure to project that he was going after corruption, seems to have started a campaign of relentlessly going after all investors unable to pay debt, as if they were some big game hunting animals, thereby breaking the spirit of business in the country. A lesson to all businesses, never take business decisions based on what the Prime Minister’s say’s during office.
When businesses take on debt it is definitely their duty to pay back, agreed there are some fly by night operators who start companies with the sole intention to swindle bank loans, but when bank’s Non-Performing Assets (NPA) increase exponentially, it is time to find out why there are so many businesses unable to service and meet their debt obligations. Sometimes it could be technological disruptions or change in business cycles which business are supposed to take it in their stride and move on, but if businesses are failing because of delay in government decisions or flip-flop on faulty policies or contradicting regulatory controls, that situation is unforgivable.
The recent default of commercial paper obligations by Infrastructure Leasing & Financial Services (IL&FS) not only brought the country’s debt market to an almost halt, but also had an impact on the equity markets too. IL&FS is not an ordinary company but almost a sovereign like corporation, as its majority shareholders are state owned, such as Life Insurance Corporation (LIC), HDFC Ltd, Central Bank of India and State Bank of India together holding 48% of the equity in the company. Its foreign investors are ORIX Corporation of the Mitsubishi group Japan, and Abu Dhabi Investment Authority and together they hold about 36% of the company.
Apparently, IL&FS over the years had accumulated a massive debt of Rs 90,000 crores to fund or finance some of the most prestigious infrastructure projects in the country. When the company started struggling to service its debt obligations and was unable to come up with a solution, the government rightfully took over the company and appointed a new board headed by the able Uday Kotak. Hopefully things should get sorted out quickly with an infusion of capital and when the temporary liquidity mismatch gets addressed.
This is an ongoing episode and we should not be in a hurry to give a clean chit to the previous board from any wrongdoings if they occurred at all, but to place the entire blame on the old board of directors for all the ills of the company, will sidestep the real issues IL&FS faced in the last few years. While the whole country is talking about the possibility of LIC having to bail out IL&FS out of the mess, nobody talks about LIC’s adamant stand on blocking a deal with the Piramal Group in 2015 as a strategic investor in IL&FS by not agreeing over valuations. The story does not stop there; the National Highway Authority of India (NHAI) has till date not cleared around Rs 16,000 crores of dues IL&FS claims it has to get from NHAI. Fine, some cases are stuck in litigation, but no company can survive if you find an excuse to stop payments of this magnitude.
IL&FS is almost a government company, and if this company finds the going tough, imagine other public listed companies operating in this space. Nobody is complaining the disruption in the telecom sector by a deep pocket company which might eventually result into a three market player industry. But one cannot accept the financial mess in power companies for example due to tariff related disputed or for want of coal supply. Even the companies that build swanky airports in the country are in financial stress.
The system seems to be broken, government instead of being felicitators have created maximum hurdles, some intentional and some due to delay in not attending to genuine problems in a timely manner. It is possible that decision makers delay decisions so that they can blackmail businesses into a quid pro quo arrangement or because lawmakers instead of drafting rules fast for a dynamic world are behind the curve because they mostly shout and yell in their offices without transacting any business. Too many overlapping regulatory controls are also one of the reasons projects are delayed and delays usually costs money to private parties, bankers or the government.
Goa has so many ongoing projects that are still in the works and have overshot their completion date, not only inconveniencing the public but also increasing the costs of the companies building it. It is time these companies speak up if there are any politicians or bureaucrats or even faulty policies that create hurdles before the company. Let’s not be under the impression that politicians give businesses a free ride to conduct their business without any interference. The fact that Goans let their business enterprises get inaugurated by politicians proves no business can be run without the blessings of politicians. If we don’t change this scenario, then we will have to teach the Generation Next the art of sucking up to politicians, notwithstanding the professional degrees they have acquired with so much hard work.
Uday Kotak while turning around IL&FS will do the nation great service to give his professional inputs as to what systemic or policy changes are needed for businesses to flourish without political interference. Something Dr Manmohan Singh chose to keep silent about even after demitting his office, no point if you don’t speak up and enjoy the present government mistakes, the nation suffers in the process.
(The writer is a business consultant)
