V G Siddhartha’s suicide has laid bare the reality that corporate India is in a liquidity crisis. The govt must step in
Even before Narendra Modi won by a handsome margin in the May general elections, this newspaper kept on highlighting that whoever comes to power post that would have to focus on the economy. But the problem with our economy is not that it is in the doldrums, indeed the stagnation of the doldrums would be welcome right now. It is increasingly evident that we are on a rapid downward spiral, on a collision course to the ground. The suicide of V G Siddhartha is tragic and a reminder that even the well-heeled and well-connected can find themselves in financial trouble. And if the farmers’ suicides are real, so would be the suicides by driven corporate leaders, hemmed in by a fund squeeze. The fact is that the coffee entrepreneur was trying really hard to raise capital over the past few weeks and after the contagion in India’s non-banking sector, particularly in housing finance, India’s banks are reluctant. Already wary about lending money, they have stopped the flow completely. Even if industries find themselves afloat, working capital requirements are extremely difficult to come by and tax authorities are pursuing dues, both legitimate and illegitimate, with a vengeance and would rather force companies to shut down, rendering people unemployed than compromise. Today Café Coffee Day may be in the news but there are at least 100 stressed companies which can go under simply in the absence of refinancing conduits. Creditors remain wary after the collapse last year of non-bank lender Infrastructure Leasing & Financial Services Ltd. compounded bad loan problems. In response, the Reserve Bank of India cut interest rates this year. Lenders started demanding shares as collateral which they hadn’t insisted upon before, and new loans carried interest rates as high as 14 per cent, even when that collateral was provided. And it appears that the powers that be, enjoying immense political capital and not needing the ‘support’ of industry, have little or no idea of what to do. There is a trust deficit between the government and industry that is not helping and recent growth indices continue to be dismal. Whether those on Raisina Hill like it or not, this is a crisis and India’s perception is taking a battering, and indirectly, so is that of India’s political and economic leadership.
It is time, therefore, for the Prime Minister to personally intervene in this crisis. Sure, a lot of the troubles can be traced back to the profligate lending by banks during the UPA era. The brazen attitude of the tax authorities followed former Finance Minister Pranab Mukherjee’s disastrous retrospective tax proposal which made India a tax pariah. So Modi has to come out with a proper short-term vision for the economy, not flowery aims like trying to make India a five-trillion dollar economy in five years time, because the problem is happening right now. And whether the Prime Minister and his Cabinet believe that this is just temporary, the concept of ‘sentiment’ is a weird thing. People will read about bad news in the economy and resultant suicides, put off their own investment and purchase decisions and start a vicious cycle. While nobody is arguing that India is about to head into a recession just yet, we should not and must not discount that possibility right now. And minus growth, indeed minus substantial growth, jobs will be hard to come by. Oil prices and reduced export markets pose another challenge. To paraphrase a Bharatiya Janata Party (BJP) leader, who spoke while shooting down FDI in multi-brand retail, we do not want to make India a nation of sales boys and sales girls. But right now, we are making a nation of delivery boys and taxi drivers.
