Modi gives himself a long rope

The government will draw up a blueprint to create opportunities for Indian companies to mitigate the impact of the ongoing global economic turmoil triggered by the slide in Chinese stock market, devaluation of its currency and moderation in its economic growth.

While a blueprint containing specific policy responses to pump-prime the economy is in the offing, prime minister Narendra Modi has asked Indian companies to have a greater appetite for risks and make fresh capital investments.

The government’s firefighting plan is expected to dovetail a slew of measures suggested by top industry leaders, bankers and economists at a meeting chaired by Modi at his Race Course residence on Tuesday.

The prime focus would be to boost investments, especially in infrastructure, revive domestic demand, ease the environment further for doing business and bring down transaction costs while attempting to better utilise existing capacities across sectors.

As part of this plan, public investments and capital expenses by state-run companies would be front-ended and private companies required to follow suit.

Already, public spending has increased in the first quarter this fiscal, limiting the government’s flexibility, while private investments are yet to kickstart.

Briefing newsmen after the nearly two-hour long brainstorming session, finance minister Arun Jaitley said, “No timeframe has been set for the measures to be rolled out”.

Modi pushed for more private investments, while industry leaders seem to have made out a case for a cut in interest rates, faster reforms, policy action and ease of doing business.

Reliance Industries chairman Mukesh Ambani, Tata group’s Cyrus P Mistry, Aditya Birla group’s Kumar Mangalam Birla, Bharti Airtel’s Sunil Bharti Mittal and ITC chairman YC Deveshwar were among the 40-member strong industry leaders who deliberated with Modi.

As part of its economic revival plan the government would consider ways and means to de-stress steel and textile sectors and expand tourism opportunities, to make the best out of the aftermath of the global economic turmoil.

It would also consider some defensive measures to curb dumping, investments in agriculture and processed foods industry.

Industry captains requested the government to roll out the bankruptcy code early to provide an exit route for companies. The code is in the final stage of drafting.

The government will also consider several industry suggestions such as creation of a special purpose vehicle (SPV) to manage no performing loans and assets of banks and using Mahatma Gandhi national rural employment guarantee scheme to take up skills development for industry.

Apart from Modi, finance minister Jaitley, chief economic adviser Arvind Subramanian, RBI Governor Raghuram Rajan, top economists and bankers participated in the deliberations.

A presentation made by Subramanian said that cheap oil and strong economic fundamentals would make “India relatively attractive” for investments. However, Subramanian conceded that the economic turmoil would have an impact on equity and currency markets in the near future.

Low commodity prices leading to cheaper steel and cement would also translate to lower infrastructure costs creating an opportunity for Indian and foreign companies, Subramanian said.

While industry captains welcomed consultations with the prime minister, his suggestion for enhanced risk appetite and commitment to make investments got a varied reaction.

“The prime minister said this was an opportunity for us to take advantage and invest…cost of capital is too high, but I don’t know how many people can go ahead to take risk and invest… many of us raised the issue of interest rates,” said hotelier and Federation of Indian Chambers of Commerce and Industry (Ficci) president Jyotsna Suri.

Referring to appetite for risk-taking, Yes Bank managing director and chief executive Rana Kapoor pointed to capital requirement of banks to meet economic growth and the need to bifurcate bad assets of the banking system.

Confederation of Indian Industry (CII) president Sudip Mazumder said, “China was discussed. On how it should be tackled and whether it’s an opportunity for us. But the prime minister did say that somebody’s pain should not be our gain.

“So we should look at it as an opportunity and we should move forward on that.”

State-run gas utility GAIL India chairman BC Tripathi, Bharat Heavy Electricals (BHEL) chairman B Prasad Rao, ICICI Bank chief executive Chanda Kochhar and State Bank of India (SBI) chairperson Arundhati Bhattacharya, chief economist at Aditya Birla group Ajit Ranade, JP Morgan chief economist Jahangir Aziz and Brookings Institute’s Subir Gokarn also participated in the discussions.

The SBI chairperson said, “In our interaction, we have suggested to the government to revive stalled projects and make investment climate more conducive and business friendly. We understand that the government is keen on improving conditions for doing business and making efforts in that direction.”

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