The recent reduction in the corporate tax rate has improved the mood of India Inc, but panelists at the ET CEO Roundtable on Tackling the slowdown: What government and companies can do felt more was needed as they called on the government to speed up decisionmaking, address regulatory overreach and resolve the credit flow gridlock to spur investments and attract companies moving out of China.

Will the big-bang tax cuts announced last week actually help in reviving capex and will this slowdown actually transfor into some kind of higher growth?Nitin Gadkari: Today, economy is the most important subject for the government. But everywhere in the world, there are problems in the economy because of the business cycle, sometimes because of demand and supply and sometimes because of the global economy, as it is related to exports and imports. Currently our government is very friendly to investment and we want to encourage more investment, more foreign investment in the country. But after GST, we still need to support industry more. As far as my sector is concerned, in infrastructure, we need more cooperation from financial institutions. Because the loan is sanctioned but disbursement is not there. When the first instalment of investment is there, the second is delayed non-banking finance institutions are not in a good position. One of the reasons why we are facing a (difficult) situation in the automobile sector. A majority of road projects are sanctioned by NBFCs, not by banks. When I took charge as minister, there were several stalled projects; the amount involved was Rs 3,85,000 crore. But we resolved 95% of the problems. And today, we have decided that without 80% of land acquisition, without forest and environment clearance, we will not give an appointment date. So now, the projects are ready, viability is good, traffic density is good but we are not getting good responses. Cyril Shroff, Nandan Nilekani, Kalpana Morparia, Nitin Gadkari

We have three models PPP, BOT and hybrid annuity. But now we have just taken a decision and we are going for tender for BOT also; regarding monetisation, we are getting a good response from foreign investors. One of our bundles was oversubscribed and currently, the bank is ready to finance NHAI. I prepared one model and I have been asking them for 30 years but they say no, we will give up to 20 years. Considering the land acquisition cost and other costs, we will return their money on the basis of the toll within 12 to 15 years. So, on a project-to-project basis, State Bank sanctioned that we will give finance of Rs 50,000 crore and when you need more, we are ready. Then, another bank chairman also approached me and they are also ready. So, they are ready to finance NHAI. But for financing for contractors, there is a problem. Even the people who take BOT models, renowned companies with good reputations, even they find it difficult to reach financial closure. So, in this situation, what we need is more aggressive, positive cooperation from financial institutions. At present, on the basis of IRR, I am not demanding that they should finance non-viable projects.

Why do you think banks are not lending, as a lot of the banks are actually owned by you, the government, and you, of course, can push them to lend?Gadkari: Youve asked the a correct question to the wrong person.

The tax cuts have happened, the markets have risen. What is the message that you want to send? Gadkari: Everywhere, either it is business, politics or even in any career you take it, kabhi acche din nahi hota hai. There are challenges. There are problems and there are some people who convert problems into opportunities and there are some people who convert opportunities into problem. We need to improve the morale of financial institutions. Banking is a business. If, suppose, someone defaults, then we should not make him responsible for that. It is a business and in business 100% of the businesses will not succeed, that wont be the case. There is a risk. And after considering this risk, banks are still making good profits. So, if there is a problem, we have to support them. And for that reason, this is the time for government to see how we can improve morale, particularly of people who are related to banks. Investigations are going on. But you have to find out whether the mistakes are bona fide or mala fide. If the mistakes are mala fide, 100% we have to take action. But because of the business cycle, because of the global economy, because of demand and supply, if the account is NPA, we should not make him (banks) responsible for that.

What do you think the government can do to lift the morale of bankers and make them feel that they will not be targeted?Gadkari: The finance ministry has taken some decisions, we should give them time to rectify bona fide mistakes. But if the mistakes are mala fide, with bad intensions, we need to take stern action against them. Between the lines, we have to find a way out.

But there is some genuine fear among a lot of industrialists that the investigative agencies are probably going a little too far.Gadkari: Actually, your all questions are very appropriate but I am not the finance minister of the country.

Sunil Mittal, founder and chairman of Bharti Enterprises Tax cuts, it is generally believed, will lift investment and capex. What do you think will be the implications, the reasonable expectation that one can have from this move?Sunil Mittal: I think, clearly we are coming into this panel on the back of major announcements last week, tax cuts which have been very well celebrated. What you have to really see is that nations become richer, wealthier through a combination of state enablement and industry execution. There are times when one lags behind and there are periods of time when both could be limited by their own ambitions and there are great opportunities when both are aligned, and we have seen those spurts and ebbs and flows in the last 15-20 years. I think the minister rightly pointed out that challenges will always be there. Today, India is not just facing its own consumption challenges. There are global headwinds, whether you look at Europe, whether you look at other countries, there is a general sense of economic slowdown and India, therefore, cannot be completely decoupled from that.

Within India, my own view is in the last three to four years, execution has been weak, there has been a general sense of low spending; many projects have been hanging in between. The minister rightly pointed out that morale in the lending institutions has been low for a variety of reasons, some of them we already know and that needs to kickstart. So, I think the government has picked up that the enablement will be the first cause of action to be done for the execution to start. And from their point of view, the announcement by the finance minister of deep cuts. In fact, the industry was taken by a great deal of surprise on the pleasant side.

There are a few other things that need to be done, in my view. India is passing through a great deal of reset, whether it is the GST, whether it is going into digital mode of payment and currency, and at the same time, the economy has slowed down. So obviously, the issues are much bigger. Therefore, I would request the government to become the big enabler in the next 12, 18, 24 months and save some of the treasures of the country, national assets of the country. When Jet Airways goes out of business, it is not just one company going out of business, it is a vital national aviation infrastructure that has disappeared overnight. Seven or eight telecom companies have completely gone out of business. I think the government, as it is resetting the economy through new ways of business, needs to bring out a mechanism in which IBC, for example, which has been put into play, needs to be accelerated.

Wherever promoters, owners, shareholders cannot support their companies which are national treasures, they should be quickly replaced with somebody else, so that the national treasures can carry on contributing to the national economic momentum. So right now, I think the job of the government is to enable as much as they can, whether you call it ease of doing business, or opening the taps of the banks.

The minister spoke about logistic support, lowering of power cost, lowering of cost of capital, all these things are necessary. I think India remains a huge market without a doubt with great promise. It is a continent of consumers. Entrepreneurs in India there are so many entrepreneurs who one can see are doing extremely well are absolutely raring to go.Nandan Nilekani Non-Executive Chairman, Infosys

The tax cuts have come at a time of big resets. Is it enough to lift us out of the slowdown?Nandan Nilekani: I think certainly it will have a very positive impact in getting companies to invest, but I really think that the strategic thing is to revive credit to the economy, especially to small businesses.

Today, only 8% of Indian small businesses get credit from the banking system and because of a combination of factors, including the public sector banks having high NPAs, the NBFCs having an asset liability mismatch, the whole thing is gridlocked. We are very lucky because I think if we are going to start a new cycle of credit we should do it very differently because of three developments: the first is, we now have entirely digital transactions possible for credit. We can dramatically expand the cycle of giving credit.

Second, over the last five years, we have dramatically seen that new business databases are available. GST has 11 million businesses with invoice details, the income-tax system has all income tax payments, the MCA has got all your corporate details, banks have bank statements, so suddenly we have this massive amount of data. So tomorrows credit will be data-based, it would not be randomly decided.

The third thing is what you do with fraud over invoicing, under invoicing, round tripping, shell companies There are about 10 or 12 ways that fraud is happening and that is all those can be caught in near real time with AI. The combination of digital credit using the new databases and AI for fraud will create a whole new architecture for credit where we can increase credit without creating tomorrows NPAs. And, because the credit decisions are traceable, all these worries of bank managers will go away because all will be based on facts. You have to rethink our whole approach to credit in the new world.Kalpana Morparia CEO, South & South East Asia, JP Morgan

A lot of talk about slowdown in credit to industry, especially to MSMEs. Given all that is happening in the financial services sector, how sound is our Indian financial system?Kalpana Morparia: So, in terms of capital levels, other than some state-owned banks, I think the private sector banks are extremely well capitalised. They still have just about 25% market share. They have the capital, they have the liquidity and they certainly have the managerial capabilities...I completely support the point made by Nandan, that in this new digital world, you will actually see a paradigm shift in terms of the way banks function.

Do you think we are over with the NBFC crisis? Morparia: We all love to talk about the NBFC crisis as being the single ill that has slowed down the economy. Let us just look at some facts. NBFCs today contribute 20% to the overall credit book in India, 16% is actually held by AAA-rated companies like RFC, REC, PFC, HDFC, LIC Housing. So, they are really talking about a 4% that could be under some ALM mismatch, could face some liquidity issues, one or two might eventually face solvency issues. But I just believe that given the architecture that we have, particularly amongst State Bank of India, a few other state-owned banks and certainly the private banks, I do not believe that this is really the villain in the piece that it has been made out to be.

The minister talked about inviting foreign direct investment (FDI) and we just had this big tax change last week. How are foreign companies reaction to that?David Sproul: Having a competitive tax rate is foundational in terms of encouraging business investment both FDI and local business investments. It also sends a signal that the government has listened to the feedback from business in terms of one of those changes. FDIs (foreign direct investors) are looking for very competitive tax rates, but they also want to see the government continuing to support investors, those who are creating jobs etc. And therefore, to me the tax cuts send a very, very strong signal. And certainly the initial feedback we have had has been very positive from business in terms of encouraging investment into the market which is already very attractive for them.

Do you think the shift that everybody is talking about factories moving out of China or moving to Southeast Asia is possible?Sproul: A lot will depend on other policies put in place to attract that sort of investment. Much of the narrative has been about factories moving from China to Vietnam or rather to Southeast Asia. There is no reason at all that it should not be in India, provided there is a confidence and a certainty that beyond competitive taxes and the right infrastructure, there is certainty that policies are going to be maintained. India has many advantages in terms of FDI with not just its local market but also a very highly qualified workforce and very obvious skills in technology.Uday Shankar, Chairman, Star & Disney India

Given all of that, what is really happening to consumer demand?Uday Shankar: A lot of positive changes are already taking place. The speed at which India is transitioning to a digital behaviour whether it is in transactions payments, whether it is in content consumption, whether it is in other forms of digital behaviour, is truly happening at a breath-taking pace. So, while there are a lot of issues that need to be fixed, we should not downplay the achievements. There are lots of infrastructural issues, in physical and technological infrastructure, that need to be changed. Things change fast for the better when multiple agencies and institutions of the society work in tandem. Working in isolation sometimes tends to lead to a situation where you are also working at cross purposes.

An important point raised is that the consumption slowdown that we have seen is more due to a shift in consumer preferences Shankar: I would be wary of making some hasty conclusions in that regard. Just because for a few quarters or a year or two automobile offtake has gone down, we should not talk about a large social preferential shift. It is related to larger issues. When people want to buy a car or people want to upgrade to a better car it is because they are feeling good that tomorrow is better. If they are concerned that there are issues and their behaviour becomes more cautious and watchful, a lot of those decisions get pushed down to tomorrow.

Mittal: There will be fundamental shifts in consumption patterns going forward. We perhaps have not seen very much as yet, more is to come in the coming years and decades. The millennials consume in a very different way. I think industries will need to start to think about how world is going to move, whether it is food delivery or ride-hailing cabs or shared services, the whole process is going into a direction where industries will need to review their own needs. But it does not mean that the consumption of one kind of product will completely disappear. It will shift to different categories. I personally believe the way India is going, given the leaderships focus on digitisation, mean India may actually leapfrog into areas which perhaps you would have never envisaged before. So I would say to all my industry peers and friends, prepare for shifts, plan for those shifts, invest in those shifts.

So, is this consumption slowdown temporary?Mittal: A country of this size, 1.3 billion people, is a continent of consumers. Young people are coming into the mainstream where people are wanting more and more products, more and more services. We see it all the time. When telecom used to have 800 MB consumption a month, it is a 13 gigabyte a month. Its a 14 or 15 times jump within just three years and this may well settle for 25 gigabytes, which will be highest in the world. This is a country of mass consumption. Your price points have to be right, your product has to be right.

How much are we capturing this shift towards digital consumption in national data sets?Nilekani: There are different aspects. One, of course, is the telecom revolution, which has shown 400 million smart phones, the data consumption, so that is one story. The second is the rise of ecommerce. If you put all of them together, it may be $15-20 billion of ecommerce going up to $100 billion. Third is digital payments. Today, UPI does 900 million transactions a month from zero, so that is just in three years as well. Then, the whole thing which is happening with data empowerment with the RBI, the account aggregators framework which allows businesses to get their own data and give it for lending. Each of these is taking off at a speed that is exceptional.

So, it reduces costs because digital is less friction. Second, it improves access because anybody with a phone can buy it and third, it reduces the sachet size because you can now do small, so a combination of cost reduction, spread and sachet leads to dramatic explosion. We just want to make it happen in multiple sectors.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas

You cannot talk about economic revival without having a proper bankruptcy process. What has been the experience of IBC in changing mindsets and in helping Indian industry regenerate and grow?Cyril Shroff: Certainly, the IBC has been a dramatic market changing development. It has changed credit culture significantly. The mindset of entrepreneurs and businesses in terms of their borrowing behaviour and evaluation has significantly changed. But if you put on the banker side for a second, and just picking up on what the minister said on why bankers are still not exuberant, the fact is that they still have not seen some big cases closed.

There are so many of them and they are Rs 40,000-50,000-crore recovery cases. So, until some of these big elephants land, I think the uncertainty will still remain and the question will remain. It has to be viewed in the context of a general conversation on corporate governance and the IBC has been a part of that conversation as well. When you are in the IBC situation, there is also almost a parallel conversation that takes place on what led to that insolvency, and that inevitably leads to a governance conversation on what failed. Very often, in nine out of 10 cases, you will probably see something which is murky in the behaviour that led up to this as well. I think India is not only in a reset stage but it is moving from a relationship-based culture to a rule-based culture and we are somewhere in the middle of that process.

IBC is one facet of it but it is to be seen in connection with everything that is happening including corporate governance, changing the rules, and some of the stuff that you mentioned as well in terms of greater enforcement. It is all happening together and that is why I think to some extent, corporate India is like a rabbit in the headlights at the moment.

IBC said that you got to do everything in 270-280-odd days. Now it has got extended to over 300 days. Why so much delay? Why is it that we do not have closure?Shroff: It is a combination of factors. Partly, the judiciary is to blame as well. I think we have still not come to exact terms on what is the role of natural justice and so on, the full impact of the rule of law system and how it should be viewed in the context of an economic legislation like the IBC. Which is why on any major case, the 270-day deadline has almost been absorbed and breached, and even 330 I think is going to be challenged. I do not see much hope over there. That is one of the main reasons why the bankers are bewildered as to when is this is going to end.

Mr Gadkari, on the issue of judiciary, one of the countrys most prominent lawyers Harish Salve said recently that the Supreme Court is to blame for the slowdown because of 2G, because of coal block cancellations. What do you think?Gadkari: We respect the Supreme Court but only in my department, I am facing a loss of more than `5,000 crore due to the courts. I am paying compensation to contractors. Now, in every case, everyone has the fundamental right to appeal, but time is the problem. I understand everyone has an important role, I respect the judiciary, I respect the system, but the problem is not taking decisions. Today, I have found a file that the finance ministry has already given my ministry permission to raise Rs 75,000 crore from the market. My ministry again sent it to the finance (ministry) that we are going to raise Rs Cyril Shroff, Nandan Nilekani, Kalpana Morparia, Nitin Gadkari 25000 crores, please give us permission. So I asked why are you giving this file to the finance ministry when it has already given permission? This over cautious and conservative attitude is a problem.

Is that because of the fear of the judiciary?Gadkari: I do not have any fear about the judiciary, I respect it. If anything wrong is found from our side, they have the right to take decisions but there has to be a time clause. Please dont waste time. Time is very important, whether it is judiciary or it is with the highest officer, whether with the system or with the politician. Whatever decision you want to take, you take it, but in a timely manner. This is more important than capital, resource and technology. I do not want to insult anybody, I respect judiciary.

Bankers are saying they do not want to fund infrastructure, they want to focus only on retail lending. Are they afraid?Morparia: I do not believe banks are afraid of funding infrastructure. I think the honourable minister made a great point that if a banker has made an error of judgement, and it is an honest error of judgement, if we hound him, the poor guys are going to live on his pension and now you are telling him you are going to be behind bars, obviously that is going to impair his ability to write big ticket cheques. So if we create an environment where we say everyone is presumed to be innocent until we actually have evidence of criminal act by them, I think that will go a long way in terms of bringing confidence.

The government has amended the Prevention of Corruption Act in order to set minds at ease, but has it worked?Morparia: Actually, if you see a loan of this size, there is no single individual who can take a decision, there are multiple committees within the bank, there is a separate risk department that assess the risk, there is a huge committee, there are board committees which also comprise independent directors that are looking at it. As Sunil said, we are going through a reset, we are wanting to grow but we have to significantly restructure a lot of our laws, processes etc so it is going to take time.

When you say everybody is responsible for the slowdown, what do you think individuals and companies can do to give the government a helping hand?Aga: I think everybody is responsible is the correct thing, but that is such a general statement, it does not say much. I think there has to be better trust and understanding between corporates and the government, and you cannot be suspicious of each one. It is not a good thing in the long run ever and I think if we use the talents and the suggestions of corporates and realise the power that the government has to do things, make things happen and they listen to each other, many things can happen. But unfortunately, there have been a few corporations which have not been fair, not followed governance but we cant paint every corporate with the same brush We must have rules and as Kalpana also said, not even allowing genuine mistakes to be made, then there will be fear and that is not a good way to grow the business.

Is the trust between governments and corporates better now, or is it worse?Mittal: I said it right in the beginning, it has got to be in tandem. Industry and government have to work together, we have a great opportunity in front of us. This is a once in a lifetime opportunity when China is in serious difficulty with world powers. We have never seen an opportunity like this in the last several decades. The world is slowing down. India is becoming attractive. Manufacturing at 15% tax rate becomes really attractive. People have gone to Vietnam and Cambodia in the past, not coming to India, all that can change now. India is welcoming FDI.

India is encouraging startup enterprises, the ingredients are there in place. All we need are a few more bold moves from the government in ease of doing business, taking this fear away as has been mentioned by the minister here, and the people will come and invest. There is so much opportunity out there and finally, I will again say there are national treasures which may get hurt in this reset. Government needs to come in very quickly to save them. I have 300 million customers. They consume content. Take the case of Zee, a very large cohort of 30 crore. I see it from my side, who owns it is a different matter but that is a national treasure, a media treasure.

Uday is here, he will know that, same for Jet Airways, same for many other companies. There are fantastic companies in infrastructure for example, which may just collapse if something is not done quickly. Government needs to move quickly to save these national treasures.

Do you think there is trust between the governments and corporates?Nilekani: I think the issue is, governments do not trust corporates because some corporates have not played by the rules, and bureaucrats do not take decisions because they are worried about the CVC, CAG and all the stuff. So, you have a credit gridlock and you have a decision gridlock, and I think unless you unlock both these things, you will continue to be in the same state.

But is that happening? How much progress do you think we have make?Nilekani: I think a lot more has to be done.

What are your views on ease of doing business?Shankar: Look, I think it is a little more nuanced, there are areas where the ease of doing business has improved a great deal, but there are agencies and there are organs where it needs to get a lot better. I think one big elephant in the room is the regulatory system. The entire regulatory universe needs to do all the right things, make sure that there is a level playing field and everybody plays by the rules. But those rules finally must have an end goal which is to offer better value for society and to make sure that business grows. I think the whole regulatory universe is something whose time has come for the government to revisit it fundamentally.

Shroff: I think the broad strokes of policy are in sort of decent shape but it is the last mile where there are a lot of problems. Let me give you just one example on infusing foreign capital in a listed company. We have this rule that the floor price has to be based on six months average. Now I personally know that there are several very large transactions which have been held up because that six months average price is unrealistic in such a volatile market. So, cant we look at that and make it a little bit more real? So the last mile, I think, is as important as the journey that preceded it, and there is a lot that has to be cleaned up.

What are your views on ease of doing business? How much has it really improved?Sproul: It has really improved. I have often looked at this just through the lens of the competitive index. When you look at the competitive index you can see how global economies compare and of course, India is sort of 42-43.

The really important thing is India has to work out where it wants to be competitive. You cant compare with the number one Singapore. I mean, Singapore has a population of less than 1% of India, which is not comparable. We have to look behind and say, where are the areas where India wants to be competitive. I think there are two things that come through: one of them is that there is a greater burden of regulatory, legal process to doing business in India than in some other economies. I think that is a very important point for businesses and government together to work through. And I think international businesses see that as a barrier which is very visible. Some of the other things are far more about just the sheer scale and socio-economic factors in India which are both an advantage and disadvantage. But I think the real question is focusing on where India wants to be competitive. One looks at those data sets, which give a lot of information but I do agree that one of the barriers is definitely the whole regulatory legal environment that creates perhaps unnecessary barriers.

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ET CEO Roundtable: Build a wealthier nation with state help, industry execution - Economic Times