If big business is miffed with Mr Modi, then it only suits him electorally

The  current media narrative is that India Inc is unhappy with the Narendra Modi government. Many industry leaders are believed to be privately complaining that Mr Modi’s performance so far has been well below their expectations. Hence it is being concluded that India Inc’s big moneybags may neither dole out funds to the Bharatiya Janata Party (BJP) in the forthcoming general elections nor vote for Mr Modi. 

How valid is this inference? There is no doubt that Mr Modi has guided his policy away from one that India Inc expected to be openly and substantively pro-business. Largely responsible for this shift was the early political setback he faced from his failure to push through amendments in the land acquisition law. He was not willing to suffer the political backlash of having eased the restrictions on land acquisition by industry. No attempt has been made by him since then to change that law. To be associated with a move that benefits big business was perceived as an avoidable political risk.

Not surprisingly, therefore, the government has been wary of privatisation. The proposal for privatising Air India is all but dead as far as this government is concerned. It is unlikely to be completed in the next 10 months. Nobody now hears of the privatisation of IDBI Bank, an idea mooted more than two years ago. Barring the introduction of fixed-term jobs in all sectors of the economy, no labour reform has been initiated by this government for fear of alienating the trade unions and workers. Once again, a major demand from India Inc has remained unmet.

India Inc was also upset by demonetisation, a highly disruptive move that annulled 86 per cent of the currency in circulation in one stroke, though nobody openly spoke against it. At the same time, the decision made him popular with the poor and sections of the middle class. He was seen as a leader who can take bold decisions even if it meant hurting the rich or supposedly those who have black money.

Two major reforms of the Modi government — the launch of the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC) — have at least in the early days of their introduction caused some pain and disruption, although they will hugely benefit the economy in the long run. But, for big business, formalisation of the economy has also meant reduced scope for tax evasion. The IBC may soon lead to defaulting promoters exiting from their businesses. The drive towards digitisation and automation has reduced jobs, but the government apart from presenting numbers on new jobs has done precious little to create new opportunities for quality jobs. Mr Modi’s reluctance to engage with industry leaders the way his predecessors would do has also miffed India Inc representatives. 

Whatever may be the reasons for this distancing between big business and the Modi government, many sympathisers of the BJP now fear that its electoral fallout will be adverse. However, before jumping to any conclusion, two caveats must be kept in mind.

One, there may be an apparent distancing between the Modi government and big business, but the ground reality is a little different. It is important to note that behind the optics of Mr Modi shunning India Inc, there are a series of business-friendly steps that the Modi government has taken to benefit a large number of enterprises that may not qualify as big business.

In the Modi government’s first Budget, a promise was made to reduce the corporation tax rate from 30 per cent to 25 per cent. By the time, Finance Minister Arun Jaitley presented his fourth Budget in February 2018, he had brought down the tax rate to 25 per cent for all, except about 7,000 companies whose annual turnover was over Rs 2.5 billion. In other words, out of the 700,000 companies that file tax returns, almost 99 per cent of them are now enjoying a tax rate of 25 per cent, compared to 30 per cent a few years ago.

Similarly, promoters were barred from making a bid for their companies put up for sale under the IBC. But the government has made an exception for promoters of companies with an annual turnover of less than Rs 2.5 billion. Such promoters can bid for their enterprises under the IBC provided they are not wilful defaulters. More exemptions could be granted to them if required in the public interest.

It seems that the Modi government may not like to cosy up to big business, but it has not shied away from offering concessions to a large number of medium and small enterprises. Yes, the Modi government has also been accused of favouring a couple of big business houses, but such associations have been kept under wraps. More importantly, it has by and large stayed away from offering big concessions to big business.

And, therefore, the second caveat that must not be ignored is that the Modi government’s neglect of big business (and not small and medium-scale businesses) may actually benefit him and his party politically. To be seen against big business continues to yield electoral dividends in India. In the last four years, Mr Modi has assiduously built an image for himself that projects him as one who is not beholden to big business. He has consciously associated himself with only those decisions of the government that bring him closer to the poor, the farmers and the underprivileged. Schemes like Jan Dhan Yojana, Fasal Bima Yojana and Ujjwala are all aimed at helping the poor, farmers and the underprivileged. If he is also projected as a leader who is opposed to big business, it only furthers that pro-poor image for him. That should help him win votes. Quite contrary to the assessment so far, a miffed India Inc is actually a boon for Mr Modi, electorally.