Like the garbage mountains of Bhalaswa and Ghazipur in Delhi, the mountain of bad loans in India also didn’t grow overnight. Most of today’s bad loans are rooted in indiscriminate ‘evergreening’ under UPA-2.
This National Interest was published on 1 September 2012, when today’s NPA mountain was being piled up. This warning, like all others, was ignored in those breathless, go-go times.
Is UPA-2 the most entrepreneur-unfriendly government since the reform of 1991? Or is it the most crony capitalist regime in India’s history?
Or could it be a bit of both?
Let’s now turn these questions around. Do India’s businessmen detest UPA-2 more than any other government in three decades except V.P. Singh’s (mercifully) short raid-raj in 1989-90? And then, have so many Indian businessmen fattened themselves more under any other regime in post-reform India than under this one, even while pillaging their bankers and vacuum-cleaning minority shareholders?
Or, to repeat the earlier question, can both be true?
There is nothing incredible or contradictory about this. You don’t need a PhD to understand how crony capitalism is the very death of genuine entrepreneurship. It snuffs out the good animal spirits of enterprise that the prime minister (Manmohan Singh) is so fond of talking about. It also provides a permanent do-nothing excuse and an ATM for the political class. Worst of all, it ruins public opinion for businessmen as it confirms the worst old fears of all of them being carpet-baggers or vicious oligarchs.
The reason reform prospered in India for two decades was that its success was widely visible, and shared by a large section of our people. Why has the picture then changed so dramatically? Could it be just a consequence of the global commodity boom fired by easy liquidity flooding the larger Western economies after the 2008 financial crisis? It has created windfall-billionaires overnight all over the world, including in India: the Reddy brothers of Bellary are an example.
Or, could it be something more complex?
Also read: Modi govt’s MUDRA is feeding dreams of your local beautician, grocer… and bad loans
Let’s look at some of the new Indian entrepreneurial class before we turn on the usual suspect, the government. This decade of commodity and property price boom has seen the rise of a new generation of businessmen, or rather ‘fixerpreneurs’, with the unique talent and connections to work on that most lucrative cusp of finance, politics and natural resources. Many of these quickly got listed on the stock markets in boom times, and kept leveraging their balance sheets as if the train will never stop. But the underlying asset value was not that of their brands or products. It was made up of land banks, political connections, mining leases and telecom spectrum.
This decade of commodity and property price boom has seen the rise of a new generation of businessmen, or rather ‘fixerpreneurs’, with the unique talent and connections to work on that most lucrative cusp of finance, politics and natural resources.
That heady success story the markets have now sorted out, and brutally so. Most such “asset” companies are now penny stocks and the bankers are chasing after their promoters with auction notices — provided anything remains to be auctioned. The big collateral losers in the process are some half-decent infrastructure companies, even those with a reasonable record of efficient delivery. The two companies building and running private airports in India, Delhi-Hyderabad and Mumbai-Bangalore, are valued at no more than Rs 2,500 crore and Rs 1,500 crore and carry a debt burden almost 15 and 40 times that much, respectively.
Whether they deserve this plight, endangering their bankers, shareholders and the vital projects they are implementing, is not the point. This is precisely what you expect when the market and its customers — the investors and lenders — lose faith in governance, political as well as economic.
To go back to our original questions, the economy and markets have floundered not because UPA-2 is pro- or anti-business, but because it has been so hypocritical about private economy. Because of the Congress’s internal political reasons, conflicts and ideological confusions discussed earlier, UPA-2 decided to generally avoid even being seen in public with entrepreneurial India, while working closely with them behind closed doors. It resulted in yet another fascinating contradiction: At an institutional and larger policy level, Indian business has never been as un-influential as it is now since 1991. Yet, at “operative” levels, many of them have been able to work with government and the political class at various levels.
Think of a situation where, except in the odd instance, the prime minister and the leading lights of UPA don’t go to formal CII/FICCI-type functions, or even an IIM convocation, when the prime minister has spoken only rarely with Indian business formally and in public in this term, and yet one group after another can troop into 7 RCR for meetings and problem-solving. Not just that, individual businessmen can visit the capital on fixed days and meet who they want in the PMO and elsewhere. It is nobody’s case that only irregular deal-making and fixing take place behind closed doors. But when the establishment makes such rich, povertarian virtue of staying away from businessmen while it cultivates them fondly in dark corridors, people do wonder what is going on. Particularly when the value of their hard-earned savings has been, meanwhile, dwindling.
If you draw a simple chart of the large companies that have lost the most value on the stock markets over the past three years, you’d notice that almost all of these were doing business on the same cusp of politics, finance and natural resources. To that extent, you have to admit that the market has been the first to sense the rot and has applied a stunning self-correction, severely punishing those responsible for it. Many of those who called themselves masters of the universe until just the other day, flaunting Bentleys, private jets, yachts, Swiss chalets and more, are now hiding from their bankers and blaming the “system”. Obviously, there can be no sympathy for them or for their bankers. The small shareholder is always the victim of hype. So the markets, at least, have responded to this multi-layered crisis of governance.
But what about the government? Let’s not call it anti-business. Let us just say that compulsions of the return of ideological nostalgia made it shy of being seen to be engaging with business. When it came to an impression of big-ticket match-fixing, it even tried to separate the cronies and the capitalists here and there. But it is because it was such a weak government that a completely different quality of businessmen, or rather ‘fixerpreneurs’, moved into that space, in the company of some rampaging politicians, carrying their own favourites or hit-lists.
Transparency, fair regulation, clearly-stated policies and open communication are the engines of a reformed free-market economy. But underlying all of that has to be a strong, decisive and clear-headed government, which UPA-2 has most certainly not been. So, you have seen brazen cronyism visible in some mine and spectrum allocations as well as the selective targeting of some of India’s largest, most substantive business houses, particularly in the field of minerals, and oil and gas.
A remarkable illustration of this destruction by crony capitalism in reverse is the loss of value of India’s three largest showpiece oil and gas exploring companies — RIL and Vedanta (Cairn Energy) in the private sector and ONGC in the public sector. Manmohan Singh’s reform 20 years ago brought Indian entrepreneurship — and passports — global respect, admiration, and $300 billion of reserves. Today, it’s all in a shambles. Can he, and the political class, now pick up the pieces and rebuild this wreck? Or, the India story is gravely in danger of going the way of Russia, and of course, without any of its stupendous “resource” riches?
Also read: SC only quashed RBI circular on bad loans, insolvency law still hangs over private firms
What India needs: (1) a clear commitment to anti-bribery at points of vendor-buyer interface. All individuals in government and private sector should take a small anti-bribery course and get a certificate; it is kind of psychological contract with integrity, an oath to self, reinforced year after year; (2) rules-based capitalism, i.e. enforcement of corporate gvernance in letter and spirit; (3) legal agreements that are brought to swift justice in cases of breach; (4) legal system that has zero-tolerance for economic offenders, commission agents, touts etc. This might strengthen the foundation for further privatisation, the most radical of which is in the grocery sector. However, knowing India, this may be a Utopian wish.
“Fixerpreneurship”, a word coined by Shekhar Gupta has had a continuous graph in India, given the culture of corrupt people in power and fly-by-night entrepreneurs we have ALWAYS had.
Bad loans started in UPA – 2 as Shekhar says,(though if it’s a continuous graph, because people’s nature did not suddenly change with the onset of UPA 2, they must have existed even before), but they POSITIVELY PEAKED under the previous BJP government due to the direct initiatives of Mr Modi himself. I am talking about his pet projects of demonetisation and GST. In those days Mr Modi himself used to say that in previous four years as much as 52 lakh crores of loans had been disbursed. Now, if this was a fact and he admitted to it, then common sense should have told Mr Modi,
“industry has taken too much risk, borrowed too much money of late, so nothing should be done to disturb its momentum.”
But what did he do? He first inflicted the shock of demonetisation which crushed the MSME sector which was supposed to contribute 40% of our GDP, and in quick succession he unleashed a rag-tag GST which further spelled confusion and doom for the entire business class at large, small and big alike.
Mr Modi himself is squarely responsible for the desperate situation Indian economy finds itself in, AND NOT any previous regime, of the Congress, or of Atal ji. It’s a “writing on the wall”, brother. I have not read the article fully, but if Shekhar Gupta is suggesting anything different than this, then I can only say that it’s unfortunate – – it is unfortunate that even a senior journalist like him is unable to muster courage to call a spade a spade.
For the last 5 years or so, Shekhar Gupta has been mortally scared to name & shame Modi. Period.
Shekhar Gupta is regaining his journalistic vigor that he had lost during UPA-I and UPA-II. Had he and other journalists written such analysis during the UPA regimes, many small investors could have been saved from the loot by ‘fixerpreneurs’. I have myself lost in companies who have obviously cheated small investors by manipulations. These ‘fixerpreneurs’ might have been using similar tactics that had been obvious to journalists of the caliber of Shekhar Gupta. Though voters have rejected UPA for valid reasons but their losses remain. At least now people expect fare and fearless journalism. I wish other journalists who are still faithful to ‘fixerpreneurs’ also follow Shekhar Gupta.
Why list of wilful defaulters is not being published?
Rahul also scared Modi by labelling him of Suit Boot ki Sarkar because they were externally against the businessmen and internally they were hobnobbing with them.
Correct perspective unless banking system is given independance these cycles will get repeated Modi and his party need to act on this descicively
This column ages gracefully; one hopes senior figures in what was UPA II go through old accounts of what went so horribly wrong, what are the mistakes to be avoided if there is a UPA III. Shri Kapil Sibal – buoyed by one acquittal by a trial court which complained that it would sit idle the whole day, no one seemed interested in bringing incriminating material before it – now claims that his party lost the battle of “ perception “. 2. One cannot expect a political party which has suffered such a numbing defeat in 2014 to exclaim, Mea culpa. However, as it prepares for its national campaign, voters should get a sense that it has some worthwhile ideas on how to revive the economy, which cannot be done without private business playing a much larger, more visible and legitimate role. Dr Singh did once, feebly, as was his wont, flag the dangers to the Indian economy from “ crony capitalism “ but then chose to keep at arm’s length from the havoc unfolding around him. 3. This may well have been the genesis of the NPA problem as well. However, a tumour of 2.5 trillion ought not to have been permitted to metastise to 12 trillion plus today. Not sure how much ice blaming everything on the past will cut with voters anxious for better days.
Now that the government has another five years to helm the economy, banking and power should be placed on a firmer foundation.