Deflated Inc.

  • Atul Sobti
  • India
  • Dec 19, 2014

From high inflation and moderate growth to deflation and slow growth, all within 6 months, is indeed an economic feat! However, no one is yet taking any credit or debit. Meanwhile, oil and commodity prices have almost crashed. Ab ki baar luck, sarkaar? However, 2015 could be a different story. Maybe that is why the RBI Governor has not felt it time to reduce interest rates – believing, rightly, that the inflation malady has not run its full course, and an ‘interesting’ treatment is not what will revive patient India – especially the supposedly ‘industrial’ folk. It was all supposed to be only about sentiment. Industry has supposedly been most willing to invest for years now (they mostly haven’t for the last 5), but said that the coalition and leadership sentiment was weak. Now, with a decisive mandate and a strong leader in place, who, or what, is the issue? Could it be that Indian Industry has lost its mojo? Could years of bade achhe din till a few years ago have made them risk-resistant now? Not willing to invest much, not willing to take a long-term view? Waiting only to make killings in real estate or allocations? What’s the point of building fat balance sheets and not using those huge achhe din profits for investing in future projects? Where will the big employment for Bharat come from? Will it only be in the ‘easy’ path of e space? Virtual projects and virtual valuations, with minimal financial commitment, seem to be the new ‘investment’ flavour. Where’s the benefit of demographic dividend and its immense potential? Could it actually be that today Indian industry itself is in no hurry to Make in India? Unless they are offered big sops, like MAT-free SEZs and 10-year excise/tax reliefs? Maybe it’s not inflation that has been deflated, but Indian entrepreneurship. 

In fact we’re moving backwards. Defaulting businessmen are being let off the hook, by either their loans being written off or them being given ‘extensions’ for loan repayments. Real Estate should have been allowed to crash; property prices today would look unreal even to a dodo. But now even developers have become too big to fail! These very same people have made a killing just years earlier. The sad part is that while there’s no dearth of funds even for big infrastructure projects, there is no one putting up his hand. It now seems that though the sentiment is right, everything else is wrong! Now we also want the GST to be initiated, land acquisition bill to be rolled back, tax issues resolved and big bang reforms to start, before we decide on whether India is a Make story. So much for our much-touted global ‘industrialists’! Modiji, first get Indian businessmen to Make in India…then perhaps the foreigners will come. Charity begins at home. And, Get Real, India Inc.

Maybe the RBI Governor should call industry’s bluff before he is termed the villain. Let him announce a full 1% (or even 2%) cut in interest rates, and give a 6-month window to industry on this. Let him similarly allow the rupee to depreciate, to benefit exporters. 

The Land Acquisition Bill is a good indicator of the mentality of Indian industrialists. Land cost is a small fraction of the cost of any worthwhile project (barring real estate development), and yet industry was forever aggressively pushing the State or farmers to sell ‘cheap’, and that too in and around big cities. This led to farmer agitations, leading to the Bill, and its pro-farmer terms. And now industry is unable to buy land even at a higher price…and is using that as an excuse to not invest. Penny wise, pound foolish.


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