Make-believe in India

Though India Inc praised the new government at the 'Make in India' summit, the stock market beat down many of their stocks after the Supreme Court judgment on the coal scam

It’s a tale of contrasts. While Aditya Birla Group Chairman Kumar Mangalam Birla said Make in India was a clarion call that could take the Indian economy to great heights on Thursday, the stock price of one of his flagship companies - Hindalco - fell over 4 per cent due to the cancellation of coal block allotments.

ICICI Bank MD & CEO, Chanda Kochhar said: “We are very inspired by the PM's vision to 'Make in India'. This will be the next growth driver for India. Manufacturers and bankers would like to ensure that whatever gets made in India is the best product available globally, at competitive cost and is sustainable. ” The bank’s stock fell over 3 per cent for its Rs 12,800 crore exposure to Jaiprakash Associates. The latter called off its decision to sell its hydro power to Reliance Power on Wednesday, thereby delaying its ability to repay the group's debt to banks.

India Inc finds itself in a curious situation. Many top Indian companies are suffering repercussions of the 2G and coal scams. And there are other important court verdicts pending like the one on power tariffs. Then, there is Competition Commission of India which has imposed severe penalties on real estate companies, cement companies, auto companies and others. In fact, almost every corporate house is facing some kind of scrutiny or penalty.

The question our politicians and lawmakers need to ask themselves is how does an economy grow when every corporate house is under some scrutiny? Bitter rivalry between political parties has ensured that every decision one party makes, the other challenges it in court or piles up accusations of impropriety. Cleaning up the country is a good thought but there is the small question of cost of cleaning up.

If a company is under scrutiny, both politicians and babus think twice before giving them more clearances because of the hostile environment. Banks, which have already lent to them, will be in a worse situation. Do they throw good money after bad money by stopping lending to them because their projects are stalled or may get stalled (like in the case of coal)? And if they do, the company won’t be in a position to repay.

Yes, scams have taken place. Companies have got undue favours. But there have been benefits as well. Despite the 2G scam, India has more mobiles than toilets. From the days of standing in lines in STD booths at night to call family or friends (calls were cheaper after 9 pm), everyone uses a cell phone today. Similarly, thousands of watts are being generated. All this would not have happened without the so-called undue favours.

There needs to be a cost-benefit analysis before decisions are made. Better still, levy penalties but let business go on. Globally, major banks have paid multi-billion dollar penalties to government authorities in the US and other countries for impropriety or mis-selling of products. But they continue to do business in these countries. We could follow a similar model.