Vallabh Bhansali, Chairman, Enam Group, gives full marks to Modi administration for intent and effort but says the ground level experience of doing business needs to improve. Bhansali was talking to ET Now.
How would you review the four years of the Modi administration?
I am extremely happy with it. Given the potential of the country, we need a very decisive and nationalistic government. Mr Modi has provided a very purposeful, well directed government. Results take time, so that is a different issue but I rated 10 on 10 in intent and effort.
But despite the intent and effort, there is scope for improvement for even the best of the players, administrators and CEOs. Is there any scope for improvement left?
Definitely. Intent and effort is one thing. May be there are priorities that could be looked at differently — from a businessman’s point of view and investor’s point of view. Ease of doing business is one thing where there is a lot of room for improvement. At his level, with policy, strategy, vision etc. he has done extremely well but when it comes to enforcing some of the government policies from a businessman’s point of view, he has shown a lot of intent. The ground level experience of doing business needs to improve. The businessmen or the foreign investor still has lots of battles to fight and that must change.
That is of course the intent but do you think the government got the timing right with regard to execution of some path-breaking reforms like demonetisation, GST, and IBC because that is where the contention lies that they could have timed it better?
I do not agree with any of your points. This country has been short charged for so long that you had to move on. While it does look like that Mr Modi is coming back in 2019, but you never know! So, he was a man in hurry. Demonetisation was an experimental thing. The whole world did not how it worked out but he made that effort to break the back of black money economy in the country. That was the only time he had between various state elections and central election.
Also, the GST had to be rolled out by a certain time for it to work. GST was the first truly federal law where lot of points of view, needs etc. were taken into account and therefore it became a multi-layer, multi-party effort which had to be rolled out in a phased manner. Yet when the history of GST is written, it would come out as one of the most extraordinary implementations of GST. The revenue from GST has already started to go up, the complaints have started to come down.
We had a structural problem in the economy and people were just not used to paying tax and keeping accounts. Those are the ones who are still making a lot of noise but the rest of the din has gone down within the last 9-10 months. This is extremely satisfactory.
Within 15 months, GST has become a regular feature in our life and culture. I do not think GST has had anything except positive effect on our economy.
Coming to IBC, it was something which has been in the making for 20 years. No government showed the kind of resolve that this government did and the first resolution has already happened and three, four, more will happen soon.
In any reform where we have vested interest so deeply entrenched and processes that had evolved over a period of time, the modalities take time to work out. This has been a rather short fuse and within a few months, we have had the first resolution, We will soon have a few more and the amendments also have started taking place.
IBC is a reform which is even bigger than GST. I have no problem with the timing at all.
Sceptics would argue that the government also got lucky as during its tenure, oil prices were subdued and the currency was stable. Would you agree?
Yes, if I do not like something I look at all the adverse things. I would say that if you inherited the government that they did, what bigger misfortune would you have? We had such deep potholes and trenches from which we had to recover the economy. I would say the country paid a high price for the previous few years. Having said that, in a five-year period, your luck evens out you will have some good terms and you will have some bad terms.
So, we had bad monsoons and that bad luck also came to this government. Fortunately, the oil price was right. But oil price also was managed and the reserves used wisely. On the whole, not many people look at the aggregate balance sheet. I tried to look at last four years performance compared to the past, and I think, we have never had a situation where more resources were created, fiscal deficit was controlled, more expenditure and more assets were created with that amount of money.
We have seen greater efficiency in revenue generation, on expense side, subsidy side, on asset creation, and all this while having massive reforms. On the whole, the economy has worked in a very productive manner. The growth rate has been slow but that was a factor of the world growth, factor of the legacies and so on.
On the whole, every government deserves luck and I do not think this government has been particularly lucky because 2018-2019 is proving to be a cruncher year.
This government had inherited part of a strong bull market and LTCG left investors confused about the long-term investment calls. Do you think it is a case of one-step forward and two-step back and could that really puncture the investor friendly climate?
In the very first year when the world markets were not really buoyant, we have had some overlap and some good or bad purely local factors. Yes LTCG has been a controversial move and the government, after all, may not be able to mobilise the kind of estimate they have in the budget. I do agree with the reservations on LTCG.
But look at the FDI inflows, the divestments and the broadening of the mutual fund market. We have never had expansion of the mutual fund market like this before. The last time was in the early 90s and then for a brief period in the first few years of last decade where we saw a fair equity participation.
It is after a long time that we are seeing this broad-based equity participation after allowing pension funds, provident funds, etc, to come to markets. The government has done a lot to broad base and strengthen the market except for the LTCG. I do not know how beneficial this will prove to be to our fiscal situation.
The state of banks is getting messier by the day. Every time we think this is the worst news, something else comes up. Sometimes it is a scam, at other times, a new accounting policy. For the banking system it clearly means that the light at the end of the tunnel is really far-far behind?
The whole bank nationalisation was one of the most unfortunate things to happen to our country. It served no purpose except for creating weaknesses. Maybe in the first 20 years, we were able to take banking into remote and rural areas , but that did not really result in creating a banking habit.
It is only in the last few years that we have created this Jan Dhan kind of moment and lot of microfinance institutions, small banks and private banks have done lot more in terms of those objectives. If you create banks without any provision for top quality bankers, you have a major problem.
In the very first year, this government tried to bring lateral hiring to the banks to bring in bright bankers. It did not succeed much and that was no fault of theirs because the morass is too deep. What you are seeing now is really the result of a very bad move that the country went through of nationalising banks because you do not attract the best talent and the banking is one sector where talent matters tremendously. It is not a cement factory that anybody can run. This aggressive change and aggressive clean-up of the banks can only help. We will need consolidation. It is a huge problem created over the last 30-40 years and it will take time to solve.
The government has one more year to go. What do you hope the markets and the economy would do from now till next May, given that it is the last year for the government to prove itself to even have a chance of being re-elected?
We see two trends in the economy. You are seeing a cyclical upturn. You are seeing very strong demand almost across these sectors and formalisation of the economy through the effect of demonetisation that led to digitalisation and GST.
All those factors have kicked in but they are being challenged by the high oil price, rupee exchange rate, interest rates and so on. Normally, early in an uptrend, your ability to bear all the shocks and high interest rates is generally high. We may do alright. If oil reverses don’t get exhausted, we should still be okay because you are going to see a fair bit along with demand growth, production growth and therefore inflation may not run up if we have a good monsoon. But if we have oil price rise and a falling rupee coming together, then the inflation issue comes into play big time. I would keep my fingers crossed. Otherwise, in an election year. purely from an investment point of view, people will be cautious.