Shining light on the balance sheet of corporate India

When some trouble surfaces in the economy, there is a common narrative. The government and politics is shackling India's enterprise and entrepreneurship. If only the government could get out of the way, the energies of India's private sector would be unlocked. If only it were so simple.

Ananth has a nice post which provokes thinking in this direction. 

Consider this balance sheet of corporate India in recent years.

1. The IT sector has achieved remarkable success in establishing themselves as the world leader in outsourced services. But it has remained a services industry, and have not been able to move up the value chain into making products and into leading-edge areas like cloud computing, data analytics, and artificial intelligence. Where is the Indian major IT product or solution? Where is the Salesforce or Slack or Skype or Cognos? Or even world-leading products on niche markets, apart from core-banking solutions for Indian banks like Finacle or BaNCS?

2. While the Indian start-up sector is bubbling with enthusiasm and there are now 30 unicorns, none of them are in areas of deep technology like robotics or artificial intelligence or data analytics. Most of them are in the consumer facing me-too areas, copying ideas from developed markets. Where is the Indian internet company (even TikTok?)? Given fintech is the simplest, where is the Indian Lufax?

3. There is a hype that entrepreneurship and innovation will help address many of India's development problems. As I have blogged here, where are the expected telemedicine, e-learning, killer app in agriculture, low-cost diagnostics, and so on? There is not one start-up innovation from the country which has addressed any of the persistent development problems. Even in copying, where is the Indian equivalent of Alibaba's rural Taobao?

4. The Indian pharma companies have had a head start in generic drugs and Active Pharmaceutical Ingredients (APIs). In both, it is struggling to keep pace on the back of self-inflicted quality-related fraud and stave off the Chinese assault. The sector's global share and importance has steadily declined in the years and has become stigmatised globally for fraud and poor quality. 

5. The telecom sector, the contrast between BSNL and the private operators, has for long been held out as the totemic example of what private sector in India could have achieved if unleashed from the restrictive role of governments. But the sector's current problems, at the least qualifies that claim significantly. In perhaps one of the most competitive markets, the race to the bottom in terms of tariffs has devastated the balance sheets of telecom companies, 

6. Much the same applies to the Indian airlines sector which is entrapped in a bad equilibrium, which can no longer support a full-service domestic carrier. Again, competitive markets have led to aggressive ticket pricing and fleet expansions have resulted in cycles of boom and bust. Admittedly, boom and bust are a feature of the airline industry globally.

7. What about private banking in India. In the early days of the ongoing banking crisis, the contrast between the public and private sector banks made it appear that bad practices were the exclusive preserve of public sector banks. In due course, the skeletons have come tumbling out from the cupboards of the private banks. Major corporate governance failings and concealed NPAs have surfaced from most of the big private banks - ICICI, Axis Bank, Yes Bank, and RBL. 

8. Take the example of infrastructure sector. As we know now, the 2003-08 boom was built on the back of aggressive bidding and gold-plated project reports to raise debt. There were no stressed promoters but only stressed projects. The promoters had already made their returns and had no skin left when the projects started to stall. The banks are still reeling from these bad loans. 

9. What about sectors where a home-grown champion could have emerged - mobile phones, solar panels, consumer electronics? Isn't it just shocking that there are no major Indian brands among refrigerators, air conditioners, washing machines, televisions etc (except a stray Voltas, Videocon, and Godrej)? None among automobiles!

10. What about the sunrise sectors - renewables, medical devices, batteries, internet of things etc? There is not one Indian company of any growth promise anywhere on the horizon in any of these areas. What happened to Suzlon?

11. The worst set of failings have been with the financial markets. The Credit Suisse folks have written about the excessive concentration of debt among the big corporate groups. The culture of relationship banking, as we have seen above, was not the exclusive preserve of public sector banks. The IL&FS and DHFL scandals may be exceptional only in its excess and its elements in varying degrees representative of the larger malaise.

12. Finally, on corporate ethics and leadership in general, less said the better. See this, this, and this. There are exceptions of course, but we are talking about the norm.  

Yes, on each of the above, the supporters of the private sector will have an explanation. The government or RBI or regulators did not do this. Or they did this. And so on. But the canvas of failures is too broad, almost universal, over such a long time for a massive private sector in a continental sized economy to hide behind such excuses.

I am not holding any brief for government or civil society or anyone else. Just making the point that there are "many fountainheads of India's economic malaise". And the corporate sector is just as, or more, culpable. The other less discussed, but just as much contributing, culprit is the judiciary - the IBC, here and here, is only the latest high-profile exhibit.

These need to be acknowledged as we proceed with policies to address the malaise if we are to make sustainable progress.

Update 1 (28.11.2019)

Bloomberg has a nice article about the competitive race in India's mobile payments market. The big name Indian capitalists - Anand Mahindra, Kumar Mangalam Birla, and Dilip Sanghvi - have all chickened out after acquiring Payment Bank licenses. Only Reliance is left to fight the battle with global giants like Google Pay, Phone Pe (Walmart), and PayTm (Alibaba and Softbank). 

But on the positive side, there is T-Series, which owns rights to as much as 70% of Bollywood music released in the past three decades, and with 117 million subscribers is the world's largest You Tube Channel. It appears reasonably well-positioned to take on the likes of Netflix. This is interesting

T-Series’ presence on YouTube and other streaming platforms is maintained by just 10 full-time employees, each responsible for uploading videos and songs in one language or genre.