Yesterday evening, I was at the Royal Academy of Engineers to attend an event arranged by UK India Business Council, around an Indian Business delegation from Federation of Indian Chambers of Commerce and Industries (FICCI). Chaired by Rt Honourable Patricia Hewitt, the former Secretary of State for Health and current UKIBC Chair, this was an interesting conversation between British Asian businesses and the representatives of Indian businesses.
The theme of the evening was focused on what the election victory of Narendra Modi led BJP means to business, and everyone was quite upbeat. The conversations focused on decisiveness, on things happening, and the fact that this is the first one party government in India after 25 years (Rajiv Gandhi's government, which had a massive majority, lasted till 1989). Rather than actual policy changes, the message given out was that the things that were stalled will now happen.
In audience were Srichand and Gopichand Hinduja, who confirmed that they have seen immediate impact on project clearances after the new government has come to power. This was about infrastructure projects that were awaiting clearance for three years and have now been cleared within a few days. There were other such points made about transparency, including quick environmental clearance, web-based project workflow and the government's intent to make India business friendly.
Naina Lal Kidwai of HSBC, who was in the panel, spoke about new initiatives of RBI in proposing new banking licenses, including creating special purpose banks, which will be exempt from the priority sector lending requirements (requirements of lending to agriculture and rural industries, which all banks in India have to, and which often becomes non-performing).
Another point made by Ms Kidwai was interesting to note. She spoke about the states taking the lead in legislative innovation - the talking point was Rajasthan proposing radical reform of the labour laws, which is a big issue for Indian businesses - with a benign centre facilitating the same. This was a observation worth noting, and one factor about Indian policy-making which often gets obscured. It was also interesting in a way because she made an important mistake: she said Mr Modi is the first Indian Prime Minister to have served previously as a Chief Minister of a State. It was an astounding oversight from a person of Ms Kidwai's intellect and erudition, because Morarji Desai, Charan Singh, V P Singh and H D Deve Gowda were all Chief Ministers of their respective states before they became Prime Minister. Indeed, one could argue that Mr Modi had a significant stint, which none of the others have had, but there are only a few State Chief Ministers in Indian History who have enjoyed an unbroken stint like Mr Modi (but there are others, including his party colleague, Shivraj Singh Chauhan, and indeed the Bengali Talisman, Jyoti Basu).
Regardless of this, Ms Kidwai's observation was important, because one remains unsure whether Mr Modi's victory will mean the Union government in Delhi trying to claw back more powers than it already has. In fact, one of India's problems is that the government is too distant from its people, and its States, which often is very powerful (a point was made that while one talks about business friendliness of the Indian government, it is the state governments that make all the decisions) but has limited resources to do anything. If Ms Kidwai is right, and India moves to a more devolved financial structure and decision making, that would be great: But, at the same time, this is at odds with the strong central government Mr Modi is promising to deliver.
One could also sense from the conversation that the Indian businesses are yet to overcome their protectionist mindset. Despite being urged by Dominic Jeremy, the new Head of UK Trade and Investment (UKTI), about Britain's interests in doing business with India, it was clear that Indian businesses are far more open to investment liberalisation than trade liberalisation. In fact, the FICCI President, Sidharth Birla, said as much - that many FTAs are hurting Indian businesses, particularly those with ASEAN countries, and they would be reviewed soon. There is a clear rationale for protecting domestic industry, and China (and Japan before it) has demonstrated how to do this: However, India may find it exceedingly difficult to attract investment that it needs and yet keep the trade protections going.
There was an interesting aside made by the former Chief Election Commissioner of India, S Y Qureshi, who was in attendance. Addressing the questions about corruption, that invariably came up, he made the point about reforms about political funding. One could argue that without stringent campaign funding norms, no democracy is safe, as its institutions can be bought, and despite all the celebrations about Indian democracy (there is much to celebrate, no doubt), the facts that the spending norms are never followed and the campaigns cost more than US presidential elections this time around paint a chilling picture.
In summary, the mood was unfailingly upbeat. The most interesting question of the evening was posed by Najmal Hasan of University of Greenwich Business School: His question to the FICCI representatives were what do they think wouldn't happen, despite all the optimism. Mr Birla spoke about the expansion of the tax base, and the FICCI Secretary General, Dr Didar Singh, added many other things, including infrastructure and multi-brand retail. The new government has a burden of expectation, and if things don't change rapidly, the euphoria may be over as soon as it started. This question induced a well-earned pause in the rhetoric, and perhaps, such reflection serves everyone well.
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