By Vivek Pattanayak in Bhubaneswar, November 8, 2017: The World Bank Report showing that index of ease of doing business in respect of India has gone up by 30 places came as a much needed respite for the Narendra Modi led NDA government at the centre. But it can’t be considered as the best way to gauge the country’s economic performance.

The union government was under attack for a steep slowdown in the economy followed by surprise decision on demonetization without having an adequate mechanism to promptly replace high denomination notes and subsequent inefficient implementation of Goods and Service Tax (GST) – a reform which was considered as an epoch-making move towards achieving a seamless economy in a large federation. In this context, the World Bank just ahead of polls in two states provides the ruling regime some good talking points.

There is absolutely no reason as to why the hard work of civil servants who played a big role in streamlining procedures should not be celebrated.  The leadership should take due credit legitimately for enabling improvement of all the 37 factors identified in the Index in the last four years.

At the same time, it should stop there as we must recognize that index is based on two metropolis Mumbai and Delhi. Incidentally, Bhubaneswar has occupied third position in the all India list, undoubtedly a significant achievement of the so-called backward State for which public functionaries should be lauded. The same report also reveals dismal position India occupies in starting business, enforcing contracts and obtaining construction permits in addition to many other indicators.

That India is far below a country like Rwanda is a cause of concern. The euphoria expressed in some sections of the media is highly misplaced and in fact sends a wrong signal to prospective investors from abroad who have many other ways of knowing how things work in the government and in the Indian society. It is not the index which will determine investment decision but practical experience of investors, past and present.

That the domestic investors have not so far come forward in any significant manner to invest in new projects either under flagship programme of Make in India or under any other much publicized schemes of the Government speak volumes about the business environment. Vedanta is still struggling to get assured supply of bauxite for its alumina and aluminium complex. POSCO left after waiting for more than ten years. Both Anil Agarwal and Sunil Mittal known to be very dynamic and optimistic businessmen have expressed their reservations about business sentiments in no uncertain terms.

Undoubtedly the sickness among PSU banks has contributed to the sombre atmosphere. Global economy was also in torpor for a long time for variety of reasons including long shadow of financial crisis of 2008.

Things seem to have not been helped due to political reasons like American Presidential election and ultra-nationalistic inward looking economic policies of the new Administration, Brexit, long military and civil strife in the Middle East, the Western sanction against Russia, emergence of rightist political forces in Europe giving hard time to immigrants who play a big part in the Western economy, political instability in Spain with Catalonia having threatened to secede and last but not the least, the unabated Islamic terrorism affecting Western Europe.

Despite these negative factors Germany, Japan and USA have shown some vibrancy in the last few months which have opened opportunity to the engineering industries of India as reflected through export showing improvement.

The Indian economy was fortunate since 2014 as it got continuous unearned benefit of falling oil price which plummeted from US $ 115 per barrel to US$ 28. We did not take any steps to insulate the economy from any future uncertainty taking advantage of this bonanza. Now the oil price is rising, and it has touched US$62 and OPEC’s recent decision to cut production would have its consequences in future months.

Although belated the recent central government announcement to address the sickness among Banks is undoubtedly a good move. At the same time, one should flag certain inherent problems in the system and should not be over optimistic. Raising of recapitalization bond will itself have its own challenge. Idea of asking cash rich public-sector undertakings to contribute to bonds has also not been well received in certain quarters.

Servicing the bond by way of annual interest payment will put the burden on the ailing banking institutions apart from redemption of bond at maturity may not be easy if the performance of banks does not improve. Share capital induction would have lightened the burden of the sick financial institutions, but that option is not available due to fiscal discipline which the government must follow.

Basel III norms must be met for the Indian PSU banks to have global respectability. Rating agencies will continue to view such non-compliant banks adversely. Option of convertible debenture could have been considered as this would have given a breathing space.

In case of default debentures will become shares. The so-called monumental step envisages also raising resource by the government from the market to meet the recapitalization cost. Will it not compromise the avowed oft repeated objective of fiscal responsibility and sound management of budget? Off-balance sheet mechanisms are tempting but will not impress international rating agencies.

The most disappointing atmosphere is that nobody at professional level has the courage to say that there is no quick fix. Frankly speaking the bank officials at the cutting-edge level will not take decision to lend no matter what is the revival package and what is the liquidity situation as long as there are no assurances against future adverse conclusions from investigating agencies on their decisions. Everybody is wise after the event.

There is a saying “once beaten twice shy”. Even if everything is congenial, there should be viable and creditworthy projects. There is also no guarantee that projects after sound technical, financial, managerial and economic appraisal would remain viable in an atmosphere of uncertain political and social environment which bedevil our nation.

At the same time, it is pathetic that in every congregation of businessmen, industrialists, corporate honchos, senior civil servants and top political leaders there are eulogies on big ticket reforms and cacophony that the country is poised for rapid progress and the whole world is waiting to come. Self delusion will take us nowhere.

Real problem is that the machinery of the public institution whether government or PSUs is unequal to the task and human resource that support the machine are demotivated and there is no animal spirit and risk-taking appetite among the business community.

Although stock market is bubbling either through domestic investment and foreign portfolio investment, manufacturing industry is somnolent which the cause of joblessness is. This shows that every investor is looking for, quick, safe and good return but it is not able to put its money on long term manufacturing industry which would create jobs.

That India is a good financial market is well recognized notwithstanding the Indian stocks are highly priced. Hence Foreign Portfolio Investment registration has expanded for participation in bonds and equity market. The rising middle class in India also attract foreign companies to sell their goods. Interests shown by Nestle, Metro and Unilever during the recent congregation of global food processing industry are understandable.

How to resurrect the business sentiment is a million dollar or billion dollars or even trillion-dollar question? The Indian bureaucracy, a huge apparatus bequeathed by the imperial British, is stubbornly slow and not totally free from graft. Political neutrality of civil service is very often questioned.
Upper echelon of civil service directly exposed to political forces and hawkish media attention work under tremendous tension and have lost the ability to take difficult decision without fear and favour. Business community particularly in the MSME sector always needs hand-holding from the bureaucracy which is absent due to increasing facelessness and anonymity due to fear of allegations of showing favour. Any business-friendly decision is questioned and viewed with suspicion.

A good and stable law and order situation is pre-requisite and fundamental to investment climate. Sustainable development is dependent upon harmonious society, cooperation among all segments of civil society, respect for diversity, and conscious effort for building consensus.

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