The trust deficit between govt and India Inc also needs to be bridged

Hindustan Unilever Chairman and Managing Director Sanjiv Mehta made a pertinent point at the company’s annual general meeting last week. It was important, he said, that the trust deficit that existed with business was removed. While it was incumbent on the part of business to practise the highest standards of ethics and governance, it needed to be recognised that private enterprises were the engines of growth and all impediments to their growth should be removed, he told shareholders.

The head of India’s largest consumer company certainly isn’t alone in voicing the “trust deficit” between the government and India Inc. Just a few days earlier, Vikram Kirloskar, the new president of the Confederation of Indian Industry, said the trust and respect between the government and industry had hit an all-time low, which caused a lot of over-regulation and perhaps a loss of economic momentum. Others have said that the rule-based approach of the regulators and the government towards India Inc has gone to the extreme, to a level where there is a lack of mutual trust.

India Inc, of course, should share the blame for this. Most old-age companies, which cut their teeth in an exception-based regime in the past, are understandably rattled by a rules-based regime such as the goods and services tax. Also, promoters, who used to think they had a divine right to control their companies, are suddenly finding their companies slipping out of their hands, courtesy the Insolvency and Bankruptcy Code. So a growing number of promoters are either diluting their stakes in their companies or are simply cashing out. 

But has the government done enough to bridge the trust deficit that India Inc is talking about? The answer to that question should be in the negative. There is considerable merit in the argument that investigative agencies have been given a free rein without commensurate accountability. Many high-profile cases have vilified the entire business community, though their closure is still pending.  
 

A case in point is the one involving former ICICI Bank MD Chanda Kochhar and her husband. Nothing has been heard after the Central Bureau of Investigation filed a charge sheet against them in January this year. No one is expecting the CBI to give daily media briefings on the case, but five months should be enough for the agency to show some progress. Such questions arise because of the royal mess that the CBI created on its own by naming several top bankers without any specific charge, prompting then finance minister Arun Jaitley to say whether “a journey to nowhere (or everywhere) was being undertaken”.  

At least five recent decisions show why the government-industry trust deficit is widening. Take the GST Council’s decision to go aggressive on anti-profiteering. The two-year extension to the National Anti-Profiteering Authority is a bad idea as it reflects deficient trust in the power of competition in the Indian marketplace and in the ability of the Competition Commission of India to handle any deviant market conduct. Though profiteering has not been clearly defined, stiffer penalties have been proposed for “violations”. This is nothing but evidence of a control raj mindset.

Second, the over-aggressive tone taken by the ministry of corporate affairs on the auditing fraternity defies logic. The guilty should be punished after the evidence provided is proved in a court of law, but is it fair to see criminality in every audit lapse or rating error? For example, in its charge sheet, the ministry said the fraud committed by the auditors at IFIN was nothing short of “organised crime”, actively aided and abetted by the statutory auditors. Such observations are unfair before a proper investigation.   

Third, consider the bizarre move to ask e-commerce companies to disclose who is funding the discounts as part of the pricing details of a product. This is to make sure that the sellers, and not the e-commerce portals, give the discounts. Companies could even need to get yearly audits of discounts done mandatorily by independent auditors to ensure there has been no predatory pricing. But detailed guidelines already exist around discounting, and the focus should be on their effective implementation, instead of erecting fresh barriers. In any case, is it the government’s job to get into such micro-management?

Fourth example is the fiasco over an accelerated deadline for two-wheelers with engine capacity of up to 150cc, predominantly used by the middle class. The timing is not right as the two-wheeler makers are already struggling with the adoption of BS VI technology that requires massive investments. The diktat comes even as there is no clarity over the supply chain and the charging infrastructure to support mass adoption of such vehicles.

And, the fifth is the Cabinet decision earlier last week to dilute the powers of the Airports Economic Regulatory Authority (AERA), with regard to setting user charges for passengers as well as airlines. Once the amendment is passed by Parliament, it is the civil aviation ministry which will have the power to bid out private airport projects on the basis of pre-determined tariff, and in such cases the airport regulator will have no power to set or revise user charges. AERA can set tariff only for the 13 bigger airports. At least, the timing of the decision could have been better, as a private operator is set to enter the airports business by emerging the highest bidder for five of the six non-metro airports being privatised. 

Unfortunately, these moves don’t inspire much confidence in the government’s seriousness in bridging the trust deficit with industry.