GROWTH AMIDST DISRUPTION - The Reforms Payback: Bharat Moves With India
GST will bring many more Indians into the tax net, the
insolvency law will shift the advantage to the creditor from the debtor, and
demonetisation has the power to reveal the money trail.
We just need to implement reforms in earnest, feel participants
at the ET CEO Roundtable
From the days of the Licence Raj India has come a long way, with
the recent reforms initiatives taking the country much ahead in formal ising
the economy and disruptive technologies changing the contours of business
activity. The participants at The Economic Times CEO Roundtable feel that the
immediate need is to consolidate on the reforms, ensuring speedy implementation
and reskilling the workforce for it to be ready for a rapidly changing work
climate. Edited excerpts from the discussion:
ET: Indian merchants and Indian businesses are ready to accept
the new India. What is the global perspective? What are you hearing from global
companies?
KALPANA MORPARIA:
I think India is one of the most attractive stories today and it
is not just with financial investors, portfolio investors or PE investors. I
doubt whether there is any board amongst the Fortune 500 that today is not talking
about an India business vision. In terms of what the country offers for
potential, I think it does not have a rival at all. China is there, but India
offers a distinctive, more attractive story today. But I do want to say
something about disruption and what we saw in the last one year. For those of
us who have been around for a very long time, 1991 was a seminal moment in our
lives when the Licence Raj was abolished. I would say that the changes that we
have seen in the last one year are actually far more dramatic to my mind,
because this is for the first time where India is attempting Bharat to move in
step with India.Whether it is our journey on financial inclusion or what it is
that we are doing with the GST, and I mean if you now have informal workers
come up to you and say, “I have my GST number, abhi mai bill raise karunga, toh
iske saath raise karunga“, it is a completely different story.
ET: Your views on how much India Inc has changed in the last one
year. You would see it from a different perspective.
N VENKATRAM:
Once again we proved that we are very resilient. Yes, in the
initial days of demonetisation there was concern. Yes, we still are very
concerned about how GST would roll out and all the forms and everything else
that would go with it, but everybody does realise that India is, in the long
term, a growth story. There are many, many more years of growth in India and
even though you say that you would have a bit of a slowdown now, for a very
brief period of time, it will correct over time regardless of whether you say
it is because of initially demonetisation, or GST.
ET: The latest data from demonetisation shows that most of the
money has come back into the system. Do you consider this to be a failure of
demonetisation?
UDAY KOTAK:
The question is even if a significant part of the money has come
back, it has given trails to the department for analysis to find out what is
the ultimate source of the money, and to find out how much of it has
effectively escaped the tax net. Therefore, we should not be looking at
demonetisation as a single act, but as a part of a broader philosophy -we need
to make sure that we formalise the Indian economy and move away from what was
traditionally the informal sector. DeMon in many ways has been the first step
in the economic field which has been a bold, brutal in some sense, step, but a
step towards a theme. And that theme is black money. We want a cleaner economy,
we want even the banking system to be cleansed, which is what the IBC is
talking about. So I would weave a thread and a theme rather than looking at
narrow numbers alone.
KALPANA MORPARIA:
I would actually completely second that because I think it is
very spurious to look at it as “oh if so much money had not come back that
would have been a one-time profit to the government“. It dramatically changed
habits. The rapidity with which digitisation took place in the banking segment
would not have happened despite all our efforts. See the sheer amount of data
that is now collected, in terms of people who stuffed money into their
accounts, which were inoperative for a long time. Now, with tools of data
mining and what big data can do with that, I think it gives an enormous
database.
BHAVISH AGGARWAL:
The government has tried to bring in change through Start-Up
India and other programmes. I think it is really commendable and I can see so
much more, a surge of, young entrepreneurs... When I go to college now, I feel
old. I see the kind of ideas, the kind of exciting opportunities people are
working on...and almost unanimously people really credit the central government
for having created this environment of encouragement for young entrepreneurs.
That is one, but our business definitely deals with both state and centre. So
at the state level, especially at the municipality level, there are still
execution challenges, but I think the overall mindset definitely is a big
positive.
ET: One of the side effects or one of the major effects of
disruption that we are talking about, whether it is local competition or
technological change, is the impact on jobs. And we still do not have a clear
picture of where we are going with jobs because the data that we have is
insufficient, inadequate, incomplete and it doesn't really gives you the right
picture. But I would like to ask this panel and especially the three-four
people out here who are directly dealing with this. Rajiv Pratap Rudy, the Union
Minister, recently gave an interview and he took the example of Ola and said
that look, these guys employed some 300-400 thousand drivers. Now what do you
call these guys? Do you call them employed, unemployed, self-employed? Where do
they fit in, what category do they fit in? So, given the nature of this all,
the economy has changed so dramatically. Bhavish, if I could ask you about the
job prospects, are you really seeing them improve in a section of society that
you apprehend, because they are the ones who matter?
BHAVISH AGGARWAL:
There is so much more employment being created that might not be
captured through our official statistics. Just look at our platform, we have
now about 700,000 drivers who work with us directly, and indirectly, the number
of mechanics who serve them, the number of small eateries around the roadside
that serve them are just a multiple of those. I do not think these are counted
officially. And if I look at our industry alone, in the next five years, the
kind of growth that we see in terms of more and more drivers coming in, it will
be a multifold of this. So I think there should be some way for us to formalise
how this impact can be measured.
VIJAY S SHARMA:
And one of the understatements is that only job creation will
create. Direct job creation will create new jobs, while the formalisation, the
digitisation of the business means there will be more transparency. More
transparency will mean there will be more accountability of what you are paying
and what is the wages and what kind of people have you kept and the structure
of that in the support system. I believe that digital, transparent companies
will give more jobs than the kind of many other jobs that exist but are not
acknowledged.
BHAVISH AGGARWAL:
Adding on this point the government has... we have partnered
with the government on the skilling initiative, which I believe can be a very
impactful initiative for promoting these kind of jobs which are not formally
counted in the economy.
ET: Are enough jobs being created Vijay?
VIJAY S SHARMA:
100%. I mean the very fact that even the smartphone allows
people to become productive citizens. For instance, the company which we have
invested in, that gives jobs to people who are still in colleges, let us say a
translation job, let us say catalogue checking, and so on and so forth. These
are informal jobs not very high paying... But Rs 2,000 a month or Rs 3,000 a
month is being made by someone who was not productive otherwise.
ET: How are we doing on skilling -training people for the
current needs of the job market?
N VENKATRAM:
Well, if I just move back a little, I do not look at it as jobs,
I look at it as work because I truly think that a few years from now, a lot of
people would not really have jobs, they will just have work to do. And if you
look at it in that way, one would say `this is not a place I am going to join
and retire from at the age of 60, but this is what I am good at doing today and
this is what I want to do today and tomorrow'... It is actually a social contract
of a different kind. At the simple individual level it is his own social
contract with himself in a sense to say that `I need to ensure that I keep
myself literate or trained or skilled to do the next piece of work that comes
to me'.
ET:You are talking more about entrepreneurship and
self-employment?
N VENKATRAM:
No, I am even talking about the fact that if you look at the
work of the future, the workforce of the future is also going to be partly a
floating workforce. It is not going to be a workforce that is employed with a
job as we know it today. So what is really going to happen is that you will
have a lot of people who say that for this particular set of tasks I am going
to outsource it. And the way in which you would outsource, it would vary,
either you would go to an agency which provides you the people, the
aggregators, or it could be solo players or freelancers like you had in the old
days when you had SAP implementations etc. But you will have a larger floating
workforce rather than those who are tied to a job as we know it today. So, in
that context, the social contract is one where the individual will have to
learn all the time. The companies would also need to be ready to learn for the
future because people may not be going do repetitive tasks for the rest of
their lives or doing the same task forever. And the third is that, I think at a
certain level the government would also have to see how they regulate it. And
that is where I would really hope that things like service tax and the like
become a little easier, because it becomes very difficult in such a scenario if
you do get taxed in various ways.
ET:Bhavish, are you seeing the kind of change among the
workforce that you are employing or probably...
BHAVISH AGGARWAL:
Completely. I think it is already happening and I do not think
we or the public in general is aware of the extent of the happenings. For
example, we have a fairly large business of two-wheeler taxi drivers,
especially in some cities. They drive on our platform, sometimes they do food
delivery on other platforms, sometimes they do e-commerce logistics delivery,
sometimes they become agents for insurance, they are already floating. Again,
technology helps create these opportunities for these people because on a phone
they can access all these different apps for companies and become supply agents
for those different companies.And I think it is only accelerating.
ET: How is the insolvency and bankruptcy code working?
CYRIL SHROFF:
I think it is a great start because you have a relatively well
conceived legislation.You have a regulatory establishment that is acting with
speed and, most importantly ,a judiciary that is largely staying hands off. So
I think it is a great start. Why I would still hold back in terms of thinking
about how this is going to be successful is we need to first see some actual
results and resolutions happen. I think in the next six months you are going to
see several of them. So if the letter of the law has to be believed if things
are not resolved in nine months, you do not have an option, it has to go into
liquidation.
ET: But how is the progress on that, how is the progress on
resolution?
CYRIL SHROFF:
I think there is a lot of work going on, there is a lot of man
hours being spent on that sort of stuff. But going back to the deeper
philosophical issue, I think it is a very significant thing because it has
fundamentally changed the power equation between debtor and creditor and, in a
way, moves the power to the creditor.Otherwise, there was almost a belief that
it is the birthright of an entrepreneur to keep control of the company, it was
God given and therefore sort of beyond the laws... that has changed. I think
this has changed in a kind of fundamental way and the system is largely
supporting it, and I think even the public opinion is in sync... so that
matters. We have seen... I cannot name them but we have seen cases where even
with the first notice of sending it to the NCLT, people would come and settle.
They have come to our office and say we want an appointment right now and we
want to settle... cases which were taking years to settle were settled across
the table.
UDAY KOTAK:
Absolutely. I mean you see the balance of power move, and the
key issue is that the incentives have also been well structured, because as
long as the courts do not interfere in the process, the incentive for the
bankers is to ensure that resolution happens in the 270-day period because
otherwise it is liquidation. Therefore, the bankers also will be far more
ready. The other good news is that since it is technically a court process,
bankers will also be much more comfortable to take haircuts. Otherwise it would
have been subject to all inquiries and everything else. So you have a
well-balanced incentive structure. So we have to watch out for the next 250 to
270 days. But, fundamentally, there is an alignment of incentives to resolve.
Historically, if you defaulted, it became an NPA with banks
providing for gradually. But before it became an NPA you could have three-four
options, SDRs, S4As, etc. So many S'es that you get lost in what was meant to
be a much simpler structure. I think the SEBI move on forcing disclosure on
default is a very powerful move.
On the other hand, the banking system will have to recognise
problems and provide much faster. How well are we prepared to capitalise the
banking system, to meet the new requirements of provisioning and accounting?
ET: Now we are on the capital issue, where do you think this
capital is going to come from?
UDAY KOTAK:
As far as public markets and capital markets are concerned, they
are pretty comfortable giving capital. So if it is private sector or even
public sector banks, capital is available. I think in the case of public sector
you are coming to a position where up to 49% the government can dilute. The
government, thereafter, has to take a call on whether it puts in more money or
it lets dilution happen... or you bring about mergers.
ET: Ms Morparia, do you think the public markets are the best
way for the banks to raise capital?
KALPANA MORPARIA:
Certainly. As far as listed private sector banks are concerned,
there is no dearth of capital chasing it. Even the stateowned banks, at a
price, as Uday says there is no dearth. The government will eventually have to
decide whether they are going to hold on to that 51%, are they going to
encourage and consolidate banks and really deal with the whole nationalisation
issue... It is a competitive financial services sector that has got India where
it is.
ET: The government can say that we are not going to hold more
than 51%, let us sell, and let them find their own feet. Is that going to
happen?
UDAY KOTAK:
You are going to be asking the tough questions and the question
you have to ask is how many people in India today have any concerns about any
public sector bank irrespective of their NPAs as long as the government is
owning more than 51%. How will the public think if the government ownership is
below 50% without adequate governance mechanisms in place?
ET: Now that we have had GST, demonetisation and insolvency law,
what are the next two or three big things that you think the government should
do?
N VENKATRAM:
Data has to become ubiquitous, because eventually, unless you
get rural broadband at affordable prices, unless whatever we want to do reaches
rural India, we will not eventually succeed in the timeframe in which we wish
to succeed.
ET: Cyril, your views?
CYRIL SHROFF:
The one big thing is dispute resolution and the judicial system.
I think any major economy that is sort of going through such transformational
change, and particularly when you are sitting in a financial centre like
Mumbai, substratum is the rule of law and there is no point in having a rule of
law without a judicial system. So I would advise the prime minister to spend a
lot of money on our judicial system.
ET: What do you want the government to do?
KALPANA MORPARIA:
I think in the immediate future this whole move on affordable
housing. You know we talked earlier about jobs, etc. This housing for all
vision is going to have an enormous stimulating effect on the economy: jobs,
you name it, the construction industry is one of the largest employers. And the
challenge is not so much in rural India because land is not a challenge there,
really the challenge is in urban India. And I think we can come up with some
really innovative ways by which you pre-approve land parcels for construction
so that there is a huge incentive for the developers to really rotate their
money faster and come up with low-cost housing. I think it will have a dramatic
impact.
ET: There is a lot of work that is being done on lowcost housing
now and do you think there is scope for more? Mr Kotak, your wish list?
UDAY KOTAK:
I would divide this into two parts, one between now and 2019,
and second beyond 2019. Between now and 2019, I think a lot of reforms are
already underway, I would want to see significant focus on consolidation of
that reform.Getting Indian businesses once again to start feeling significantly
more confident and start investing again, and getting some of the animal
spirits back to the fore in the next 12-24 months.
Beyond 2019, I think is the time for India to really go for a
big bang, including broader calls on things like state-owned banking and
everything else. But I would put that in phase two.Phase one, consolidate, and
bring confidence dramatically back, to make the private sector invest. Because,
I think, jobs in India come significantly from business and entrepreneurship
and that is absolutely needed. And on a lighter note, I mean for all of us
friends, if there is one lesson I am learning around this dais, it is that if
you want to do disruption you better wear brown shoes. VIJAY S SHARMA: And if you
want to mingle in the crowd of people who influence this country's economy, you
better wear jackets.
KALPANA MORPARIA: Why not saaris?
ET: Let us hear your wish list Vijay?
VIJAY S SHARMA:
Yes. I am in jeans, you are not in jeans, so there is a generation
gap here also.Between skill India through digital India and many other India
that we are talking about the initiatives have been started and I think the
sincerity to complete them will define how well and ahead are we when we look
at our score charts. So I would not say that we need one more big bang ABCD for
whatever sectors. I would say that if we can resolve to complete those journeys
it would be far better. And while we are completing the journey, get some few
babas behind the bars sooner.
BHAVISH AGGARWAL:
See, if I marry two themes of the changing nature of work and
the deeper penetration of disruptive technologies like AI etc, I think we as a
country, both public and private sector, and the government needs to
institutionalise more and more skilling infrastructure.We need to build more
formal infrastructure for skilling because given the disruption that is already
happening and that will happen, if we do not train our people well and fast
enough, and enough of those people, we will be sitting on a wasted asset.
Sep 01 2017 : The Economic Times (Mumbai)
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