Business Standard

The winter of despondency

The mood among CEOs is subdued as a result of uncertainty, lower growth, policy paralysis and high interest rates

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The long winter this year is not just making news across Europe and North India. It has left a chill even in Mumbai, known for its hot weather and optimism, where businesses have developed cold feet over the country’s macro-economic environment.

There’s a sense of despondency over lower growth, policy paralysis, the rupee’s sudden fall and rise, problems in the power sector and higher interest rates. ‘‘The aspirations are much higher. Companies had planned factoring in an economic growth of 9-10 per cent. Within a year, the mood has changed... The uncertainty is more worrying than the actual scenario,’’ said Harsh Mariwala, Chairman and Managing Director, Ltd, at the PwC-Business Standard CEO Summit in Mumbai on 10 February.

‘‘A key challenge today is how do you read the signals. Uncertainty (like the sharp depreciation of the Indian rupee) is the cause of despondency. Of course, government policy is not helping,’’ said Ajit Ranade, chief economist, Aditya Birla Group, at the CEO summit, which discussed the key takeaways from the and the key concerns of Indian CEOs. (Click here for WHAT THE PANELISTS SAID)

As a result, companies have been shy of making fresh investments, which is reflected in GDP growth. ‘‘Gross capital formation has fallen sharply. You also need investment-linked growth. You can’t just have consumption-led growth, which stokes inflation,’’ said Sajjid Chinoy, India economist, J P Morgan. Interestingly, the PwC survey reveals that bribery and corruption were far bigger concerns for Indian CEOs than uncertainty, volatile growth and exchange rate volatility, which were key concerns globally.

The mood at the PwC-Business Standard CEO Summit in New Delhi, held on 7 February, was subdued. ‘‘Some of the concern on bribery and over-regulation derives from the tyranny of the moment. There’s a feeling of depression, a feeling of hurt, which is needlessly derailing the India story,’’ said Competition Commission of India Chairman Ashok Chawla. He was responding to a question on whether there is over-regulation in India, which Indian CEOs cited as a key concern. He said what hurts is when regulation is not fair and transparent.

Rahul Khullar, commerce secretary, was less diplomatic. ‘‘India is over-regulated. We have a plethora of laws and rules, and many of them are out of sync with reality,’’ said Khullar. ‘‘We are not brave enough to concede that these acts should be done away with,’’ he said. Many in the panel said India has good laws but the problem is implementation and enforcement.

Khullar also highlighted the need to have independent regulators. ‘‘Are our regulators free? If they were, they would be better-off. The other issue is that the revolving door (culture) is bad for regulation,’’ he said, referring to the current practice where retiring bureaucrats are given regulatory assignments.

The CEO panel discussed two other issues which came up in the survey: Indian CEOs are not as focused on innovation and talent management as their peers in China (a key concern in China) and globally.

John Flannery, president & CEO, GE India, was surprised by the survey findings. He feels Indian companies are highly innovative but acknowledged that talent is an issue two-to-three layers down the organisation. ‘‘Young people are available and can be trained, but 35-45-year-old persons who can run a $200-300 million business without much supervision are scarce,’’ he said. J J Irani, former director, Tata Sons, said some Indian universities are turning out unemployable engineers; they need to reorient themselves just as good schools like MIT keep doing on an ongoing basis. Companies have to take these people, make them unlearn and retrain them, he said.

The lack of focus on innovation could be explained by insufficient competition, scale or a mindset—the survey found that CEOs were obsessed with cost-reduction. ‘‘You need value-creators and not value-monetisers,” warned Mariwala. Avantha Group chairman Gautam Thapar said the scale in many markets doesn’t allow innovation. ‘‘Telecom is one market which gave operators the incentive to innovate but the Indian market does not offer scale in many industries,’’ he said.

‘‘The link between institutions and industry is missing. The MIT professor is not dependent on the university for his living but earns enough by advising companies. We didn’t create those institutions and linkages,’’ explained Khullar. There’s a need to provide the right environment which fosters innovation. The Tata Group also rewards those whose innovations have failed. Clearly, that’s the way forward.

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