Not content with carrying out the so-called big bang reforms, it appears that the Narendra Modi government is aiming at nothing less than transforming the state of Indian business.
In the political sphere, the BJP has made no secret of the political transformation it was seeking – make India Congress mukt. The transformation the Narendra Modi-led government wants to see in the economic and business sphere has not been articulated. However, it can be discerned from its actions and its major initiatives impacting the business.
Introduction Of GST
The first major transformation being wrought in the business sphere is the welding of 29 states and 7 union territories into one national market through the implementation of a nationwide Goods and Service tax (GST). GST was by no means an idea dreamed up by the Modi government.
The previous UPA regime had been talking of it for years, but it had unable to summon the necessary political will or garner support from it from the states to actually implement it. Even though GST would hit hard the small businesses and the trading class, which formed the core support group of the BJP, Modi was quick to see its transformational role.
He displayed exemplary political courage in adopting the idea wholeheartedly and put the entire weight of the government and the deft skills and persuasive powers of Arun Jaitley to implement it in a time-bound manner.
Whatever be the flaws in design and shortcomings and glitches in the implementation of this terribly complex system, few can deny GST will transform the business landscape in India by bringing in thousands of informal and small businesses into the tax net.
These small businesses, which have remained stunted all these years, will now be encouraged to modernize, adopt digitalization and grow through use of of Mudra loans. The small and medium enterprises will be the new engines of growth of the economy.
The government wants to increase micro, small and medium enterprises (MSMEs) contribution to India’s GDP to over 50 percent from the current 29 percent and this will be crucial to realize the target of a $5 trillion economy.
The second major transformation is the introduction of the Insolvency and Bankruptcy Code (IBC), which consolidates the existing framework by creating a single law for insolvency and bankruptcy.
The IBC makes it a real possibility for owners of a defaulting firm to lose control of his or her enterprise once a creditor invokes bankruptcy proceedings.
“The threat of promoters losing control of the company or protracted legal proceedings is forcing many corporate defaulters to pay off their debt even before insolvency can be started,” according to the economic survey.
Till March 31, 2019, the corporate insolvency resolution process yielded a resolution of 94 cases, which has resulted in the settlement of claims of financial creditors totaling Rs 1.73 trillion. These cases include six out of 12 large accounts where insolvency resolution was initiated by banks, according to the directions of the RBI in 2017.
The IBC has also paved the way for operational creditors, mostly SMEs and small vendors to use the IBC as a recovery tool.
Ending crony capitalism
At present, there is widespread public skepticism and suspicion of business and businessmen. India, according to Arvind Subramaniam, the former chief economic advisor, has moved from “crony socialism to stigmatized capitalism.”
It is this stigma that has prevented any real privatization and forced the government to sell its stake in public sector corporations to other cash-rich public sectors.
The sale of Hindustan Petroleum to ONGC and REC to Power Finance Corporation are two recent examples. So the third transformation the Modi government is seeking is ending this stigma against legitimate businesses. For without a flourishing private sector, there cannot be high growth nor privatization.
To remove the stigma, the Modi government has been very careful to maintain an arm’s length from business houses and not dole out favours to select businessmen, nor arm-twist the public sector banks to lend to highly indebted fat cats – all the hallmarks of the venal UPA regime.
It has gone so far as to let Jet Airways, once the market leader in civil aviation, to implode rather than bail it out with tax payer’s money.
Applying the rule of law to all businesses
The Modi government, in its first term, has made a brave attempt made at the strict and non-discriminatory application of the existing laws to all businesses.
The various agencies of the government have battled courts and myriad other hurdles to try to nab fugitive businessmen and confiscate their assets wherever possible.
Hardly a day goes by without reports of the Enforcement Directorate seizing the assets of some corporate for money laundering or defrauding the public or the banks.
Real estate companies, media companies, jewellery companies, ponzi companies, politicians etc., none have been spared.
The uniform application of laws on all who do business will create a much-needed level playing field for all businesses –big or small –and thereby release the entrepreneurial spirit in India.