The differences are evident when Suresh Tendulkar, chairman of the PM’s Economic Advisory Council, states, "At the meeting with the PM, they (industry) were talking about profits getting squeezed, which is different from the crisis of confidence in the US and Europe." Tendulkar’s priorities are clear: restoring confidence because "if the financial institutions fail, then the real economy would certainly go into recession and possibly worse". Indeed, since October, the RBI and government have taken steps to ensure that the liquidity and credit crunch is eased within the system.
But it’s not just the labour-intensive small and medium enterprises, textile and handicraft firms—hit by slowing exports and high credit rates—that are seeking bailouts. A host of other sectors, from aviation, banking and non-banking financial firms to steel, cement and real estate are in the queue. "Industry in India wants to have it good all the time. It’s important that the government ensures that credit flow does not freeze up but there is little justification for any bailout," argues S. Narayan, former finance secretary.
FICCI secretary-general Amit Mitra himself emphasises that "industry is absolutely and unflinchingly not looking to the government for any bailout". Technically, he’s correct. But it’s all a question of nomenclature and degree: basically, industry is seeking sops galore, including cheap credit. But after four years of bumper profits, not everyone feels that India Inc should get these sops at the first sign of trouble. "Indian companies can, and should have, managed enough savings to tide them through difficult periods such as this," says Jagdish Khattar, former CEO of Maruti Suzuki and head of new venture Carnation.
It’s also a function of politics: almost all sectors have presented long wishlists to the government, a practice normally seen ahead of the budget session. This time round, the Union budget will happen only after the new government comes to power. That’s why industry is putting pressure ahead of the elections—at a time when concerns about layoffs and an economic slowdown could have an adverse political impact. As Prime Minister Manmohan Singh stressed recently, "Whatever Indian industry needs by way of government support to maintain employment and profitability, it is the duty of the government to help."
A clear example is airlines. After months of not heeding the layoffs in small and medium enterprises, the political hullabaloo over Jet Airways sacking 1,900 staff members saw the government act swiftly to get the orders reversed. To stall other loss-making airlines following Jet, the government gave in to the airlines’ demand for greater leeway in paying their outstanding fuel bills, and also abolished customs duty on ATF to bring down prices, which account for 40-50 per cent of operational costs.
Among bailout packages under consideration are cuts in customs duty, imposition of higher import duty to protect domestic industry, easier credit norms, and incentives for exports. Mitra comes to the defence here: "We have urged that vulnerable sectors be given special care as they are facing a credit squeeze along with high costs of borrowing at a time of global economic slowdown."
The irony is while the government believes it has eased liquidity and credit supply, the buzz from banking circles isn’t upbeat. "This bailout is a complete subsidisation of the practices of mutual funds and private sector banks," says K.C. Chakrabarty, CMD, Punjab National Bank. "The government cannot allow systemic risks to develop in the market," he adds.
The same argument can be used against bailout for sectors like automobiles, aviation and real estate where faulty business models and unrealistic expectations have resulted in the current crisis. A generous industry bailout package at this juncture may add to the fiscal burden of the government, already facing huge petroleum and fertiliser subsidy bills and a drop in indirect tax collections.
CPI national secretary D. Raja stresses the point. "When the government did not show as much enthusiasm to bail out the common man from problems like high inflation, how is it justified in giving industry a bailout package?" This view has takers across the spectrum: barring the IT sector, which is likely to be hit by the US slowdown, S. Gurumurthy of Swadeshi Jagaran Manch feels "the corporate sector shouldn’t be given any handouts as the liquidity squeeze is not the same in India as in the US".
So, what’s the road ahead? The government would do well to take a leaf from China’s plan to give infrastructure projects a big boost. As National Institute of Public Finance and Planning (NIPFP) director M. Govind Rao puts it, "India does not need bailouts. All you need is fiscal stimulus provided you don’t do it by inducting money supply. The economy has to be kept afloat through greater push to infrastructure projects."
As for industry, Rajiv Karwal of Milagrow Business and Knowledge Solutions gets in the last word: "Let there be competition. The better managed companies will survive." After a four-year-long party, clearly India Inc has to learn to cope with lean times.
By Lola Nayar with Arti Sharma & Pragya Singh
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