• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

G. Ramachandran

INDIA INC. has a whale of a time three times a year. Its views on the aggregate economy and expectations are sought before the Budget. Its feedback is sought after the presentation of the Budget. Acting through the major apex chambers of commerce and industry, India Inc. poses important questions each year to the Finance Minister on issues related to the economy and discusses the likely economic impact of the fiscal measures initiated by the Finance Minister. Similarly, the two six-monthly reviews by the RBI of its monetary and credit policy lead to the expression by India Inc. of its expectations and its evaluation of the likely economic impact of the monetary measures initiated by the central bank.

It is difficult not to feel that India Inc. gets the opportunity to make an impact on policy, and when and how policy could be fine-tuned by policymakers. It is also difficult not to feel that fiscal policy and monetary policy are often evaluated through the stylised lens that India Inc. chooses to use. None of this means that India Inc. unilaterally determines fiscal and monetary policies or that it should not get an opportunity to make an impact on policy. The processes related to the determination of fiscal and monetary policies are well laid out and it is inconceivable that any position taken by India Inc. could unduly alter the processes and their general objectives. Prof R. Vaidyanathan of the Indian Institute of Management Bangalore points out that the share of India Inc. in GDP is 12-14 per cent. The non-corporate private sector's share, by contrast, is over 30 per cent. The contribution of the corporate sector, says Prof Vaidyanathan, is considerably higher in the US — nearly 70 per cent of the US' GDP.

Despite the relatively small magnitude of India Inc.'s contribution to GDP, its apparent influence over fiscal policy and monetary policy is considerable. What is more, keen attention is paid to its evaluation of fiscal and monetary policy. However, India Inc. very rarely submits itself to comprehensive and dynamic scrutiny by policymakers, stakeholders and the other components of the aggregate economy.

India Inc. could argue that the stock market, institutional investors, lenders and auditors subject it to comprehensive and dynamic scrutiny. This is indeed correct, but it would be apt to point out that their scrutiny is aimed at securing and promoting their own economic interests and at their own discretion. It is also not a coincidence that the stock market, institutional investors, lenders, auditors and tax practitioners are viewed as integral components of India Inc. Hence, their scrutiny does not necessarily serve the larger interests of the economy.

Consider, for example, the recent pessimism about accelerating the economy's rate of growth to 8 per cent in 2003-04. There was intense hope, merely three months ago, that high growth rates would not elude the economy. The hope and the optimism were shared by India Inc. But India Inc. has yet to respond to the pessimism now. It has an opportunity to reinforce faith in itself and in its capability to serve the larger interests of the economy. It could subject itself to a scrutiny and then showcase its important achievements over the last five years. It could simultaneously initiate a corrective process aimed at eliminating the value-destroying components of India Inc.

Corporate advantage

India has been a throbbing laboratory for myriad businesses for over 125 years. Corporate entities have evolved and grown over the last 125 years in India. Their evolution is not a surprise. Corporate organisations possess important economic and social properties that make them a natural choice in some circumstances. In the main, they facilitate the effective management of big, unwieldy and risky businesses. They enable the funding of businesses that would not be otherwise invested in when size, complexity and riskiness are the principal issues.

Size, complexity and riskiness have been the principal economic issues in India, yet economic entities that do not conform to corporate structures seem to have successfully confronted these issues over the last 50 years. India's non-corporate private sector's contribution to GDP is at least twice the corporate private sector's contribution. The former also accounts for a very large part of the services and the value-added manufacturing economy. Its vitality drives purchasing power. It provides more employment than India Inc. It accounts for over 88 per cent of value-added manufactured exports. Are these merely the results of restrictive licensing polices of the past or do they point to some disconcerting weaknesses of India Inc.?

The relatively small magnitude of India Inc.'s contribution to GDP, exports and employment is most likely the result of restrictive licensing polices of the past. But the magnitude of non-performing assets (NPAs) that can be traced back to corporate balance-sheets by banks and financial institutions is most likely the result of disconcerting weaknesses of India Inc. There is more. The weak institutional and retail response to corporate offerings of equity points to the inability of India Inc. to simultaneously spread risk and channel household savings into corporate assets. India Inc. should begin to pay attention to some of its weaknesses. But the showcasing of the achievements should come first.

Buy one, get one free

We should be very fortunate to be in very interesting times and to conduct our personal, professional and business lives on very acceptable economic terms. It is a material world, and nothing underscores the materialness better than our intense desire to improve our physical standards of living. We want more soap, more milk, better transport, better education that leads to high-paying jobs, and better medical care so that we can live healthier and longer.

These are times when for every cake of soap we buy, we get a cake of soap free. We have begun to enjoy genuine discounts of 50 per cent on sticker prices. Five years ago, we paid for four cakes of soap and got five. The discount was 20 per cent on sticker price. Sticker prices of soaps used by most households in India have not risen significantly over the last five years but the discounts on sticker prices have nudged up discernibly. The consumer goods manufacturing sector is doing its best to soak its customers in goodwill, satisfaction and utility at very affordable prices.

It is inconceivable that the surge in customer satisfaction and utility could have occurred without the conscious efforts of India Inc. The efforts aimed at vigorously boosting productivity of human and financial capital are showing up in India Inc.'s sales and earnings after taxes. The threat of inexpensive imports remains credible, but India Inc. has stood up to be counted in the domestic market. Exports have begun to grow handsomely. India Inc. should take time off to show off its successful assault on cost, inflexibility and inefficiency. Its new vigour and the new ethos could easily become the new benchmark for the public sector.

Daring the devil

The buy-one-get-one-free ethos has percolated into some areas of the corporate private sector. It should percolate to many more areas. India Inc. should turn its latent capabilities into observable advantages. This would have a favourable impact on NPAs, lenders, institutional investors, retail investors and growth.

Growth is impossible without an expansion of private consumption. The rank correlation between growth in private consumption and growth in GDP at factor costs is 0.94. India Inc. should focus on its capabilities, skills, assets and intimate knowledge of one of the largest consumer markets in the world. An intimate knowledge of this market could well be India Inc.'s principal and most privileged asset. The utilisation of this principal asset would allow it to make more money from existing businesses and to extract greater value from new opportunities. From such a perspective, the correct question that India Inc. may ask is if the Union Budget promotes the buy-one-get-one-free ethos. If it did, the economy would be better placed to take advantage of the growth-enabling skills of India Inc. It would then justify its influence over fiscal and monetary policies.

(The author is a financial analyst. Feedback may be sent to indiagrow@sify.com)

Article E-Mail :: Comment :: Syndication

Stories in this Section
Pricing fertiliser

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line