The compounded growth in net profits for India Inc, over the five years starting FY17, was 11.6%—with an outstanding 55% jump in FY21.Apart from acquisitions via the IBC or the usual M&A route, the private sector has been pretty much quiet on the investments front these last few years. In fact, save for a few stray voices, it has stayed silent. In December 2019, Tata Sons chairman N Chandrasekaran spoke up to say business in India needed supervision, it did not need suspicion. Chandrasekaran also made the point that it was important to have momentum in policy implementation and simpler rules.
Simplicity and speedy implementation apart, regulation needs to be equitable and reliable; else, there will be more basket-cases like Voda-Idea. The fact is, in seven years of the NDA rule, the needle on business sentiment hasn’t moved much. To be sure, some large business-houses are buying up new-age enterprises while others are taking greenfield bets. But, a host of mid-rung and smaller companies are down and out. One does not get the sense—except in IT and start-up sectors—that businessmen are excited even though they are in one of the world’s biggest and fastest-growing markets. To be sure, the pandemic has dampened the sentiment over the past year, but even before that, the mood was not exactly upbeat. Demonetisation hit the informal sector harder, but the formal sector hadn’t gone unscathed either. Corporate profits (sample of 1,995 companies excluding insurance) fell some 4% in FY18 and after a pick-up in FY19, fell as much as 17% in FY20. That was despite the big bonanza from the deep slash in corporation taxes in September 2019. Tax rates have been lowered significantly for smaller companies too and incentives given for new ventures. Despite this, the share of the manufacturing sector has remained stagnant while employment-generating sectors such as real estate and construction have languished, the big push for affordable housing notwithstanding. The compounded growth in net profits for India Inc, over the five years starting FY17, was 11.6%—with an outstanding 55% jump in FY21.
It is not just the pain of the pandemic, investments were in slow gear much before that. For all its success with digital empowerment, direct benefit transfers, financial inclusion, corporate insolvency legislation and reform in taxation and labour, the NDA government hasn’t been able to make it easier to do business in India. From being ranked 142nd in 2014, India may have climbed the 63rd position in 2019 as per the Ease of Doing Business rankings, but as anyone who has attempted to start a business knows, the ground realities are very different. As TeamLease Compliance told us, aspiring entrepreneurs must negotiate a total of 677 Acts, 25,537 compliances and 2,282 regulatory filings at the central level alone.
If the government wants industry to thrive, it must ease controls and eschew tax terrorism. Right now, one gets the feeling the government wants more powers. The draft rules for e-commerce are close to draconian and will strangle businesses. The job market is in a shambles; had it not been for the IT and e-commerce sectors—the latter being fed by chunky foreign investments—unemployment levels would have been worse. But the e-commerce space—with all its unicorns—can’t create livelihoods for an entire nation. Neither can one or two business houses. Smaller businessmen, with no clout, will invest only when they are confident there will be no policy flip-flops, when they believe they will be treated fairly and when they stop fearing being hounded by the taxman. Until then, it will be status-quo.
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