Are we getting trapped by our own spin doctoring? The television footage from Davos showed Indian leaders talking of the steady onward march of the Indian economy, with healthy investment and household consumption growth. Meanwhile back home, corporate bankers were privately foreseeing tough times ahead, because the 'mood' (spin word for confidence?) of Indian large corporates was not upbeat. Reasons given were the usual suspects of political and policy uncertainty, bad governance and corruption, food inflation, high interest rates etc. But FII analysts are beginning to ask some very hard questions indeed. One set of questions is around why Indian companies are choosing to invest overseas rather than in India; did they not believe in the India story? The politically correct - and truthful - answer is that India Inc. must have a global footprint too, and if this is a time offering an opportunity to do so, then why not? But the other truthful answers are that Indian companies have turned sort of PE investors, acquiring well-run company overseas and leaving them largely alone to run themselves, except for sending a CFO from home, and having board control. So the game is about building businesses in a far less painful manner than they could at home. The discussion in many boardrooms hasn't been about how these acquisitions will help companies compete better in the domestic market, and what new alchemy it could create inside the mother business. So India Inc. like many potential global FDI investors is doing its pain-gain portfolio analysis and opting for other markets. The reasons also whispered but never spoken is that now the pain of doing business in India is severe. Uncertainty of everything (too many lethal moving parts with no apparent control mechanism), small and big demands for bribes (we don't seem to use that word any more, we call it poor governance) ranging from cabinet ministers to local excise and I-T officers, and most of all, very unlevel playing fields as we are learning from the telecom situation.
The issue is not the faith in the India story, but whether this is the right time to invest, or should one wait for better times. Also privately there is an often stated view that we are back to the old days, and who you can influence is more important than what the merits of your case are. "But corruption always has happened, what's the big deal now", we euphemistically rationalise to ourselves. The big deal is that things had improved steadily after liberalisation; those who bribed got special favours, but those who did not, could still grow and prosper. Nowadays however, you are either 'with' the system or moving backwards. No one is using the word crony capitalism, because it offends our self image of a great and glorious democracy. But as stories unravel, it seems clear that this is what it is. Using the phrase maybe we will work towards addressing the problem.
Another FII investor question is whether Indian corporate reluctance to invest in India stems from the fact that easy demand available for easy mopping up is now exhausted, and future domestic growth needs real hard work - new business models, the dawn of real competition, money is not cheap, rising costs, and too many mini Indias to deal with, bringing margin erosion. In short, is a step jump in effort needed to drive future profitable growth? The answer is 'maybe'. But if we don't change the language of metrics of business success to include more than mere financial metrics, the understanding of what defines building great and strong Indian businesses will not emerge, and we will not walk our talk on exploiting the India growth story that we advocate to outsiders.
This also applies to the language of GDP growth, which today has a one word vocabulary called 8.5%. When a business meets all its targets despite being obviously in a mess, one cannot help wondering if targets have been set truly reflecting the external opportunity. Indian consumption growth has many engines, and all have got a bit stronger in the last decade. But consider this analogy. After continuous, though modest, working out, all muscle groups of the body get a bit stronger. Hence, even when ill, this body does walk faster than it could earlier. But this is by no means what we euphemistically call 'momentum' or 'take off' point. It is still a sick body that has the potential to walk even faster since it is better developed. A more honest vocabulary around GDP growth would help us all sit up and think again.
Needed: A More Honest Vocabulary!
Finally, Corporate India clucking over the government's corruption is hypocritical - another word we must learn to use - since it did take two to tango in telecom and elsewhere. The corporate world also cannot criticize the PM for practising 'coalition dharma', given that the same is vigorously practised in boardrooms, between various shareholder representatives. Only, the words used are different. There is the positive word 'pragmatism' which enables negotiated, lowest common denominator settlements; there is the lofty but negative 'principle', viewed as being obstructionist; and the words value, values and valuation are used interchangeably. Hence, 'principle' is 'idealistic' (stupid), not 'pragmatic', and destroys 'value' (valuation?) for shareholders, which is seen to be the main dharma of the coalition that is the board.