BY TAPONEEL MUKHERJEE
As the calendar year 2019 winds to a close, a lot more needs to be done in 2020 to keep pushing the wheels of the Indian economy, especially, with the objective of achieving high economic growth and unleashing the real economic potential of the country. The year 2019 presented both lessons on the good work that needs to be continued as well as areas warranting improvement as we head into the next year. The focus must be on improving the ease of doing and time required to do business.
The Essar Steel bankruptcy resolution provides a much-required shot in the arm for the bankruptcy resolution mechanism in India. While the Essar Steel case was complicated and time-consuming as it headed towards the resolution, the ability of the system to resolve a case involving a large quantum of capital shows that the Insolvency and Bankruptcy Code (IBC) is appropriate. Given the complexities involved in a bankruptcy resolution mechanism and given that it is still early days for the IBC resolution mechanism, the Essar Steel resolution sends a message to companies, investors and the related industries: that India is keen on fine-tuning and further improving the IBC resolution.
More importantly, that the IBC is a crucial component of the business environment in India since it provides an avenue for resolving bankruptcy issues that are a natural concomitant of business is now firmly recognised.
While the Essar Steel resolution provides a template for improvement in significant bankruptcy cases, more considerable attention must still be paid on contract design by lenders to reduce the time required for bankruptcy resolutions should the need arise. Essentially, given the requirements of the Indian economy, considerably more attention needs to be paid to security design, especially around debt-related structures that can cater to a whole assortment of businesses in the market. Primarily, lenders must view security design from the view of reducing the time required for bankruptcy resolutions and improving the recovery value in the case of a bankruptcy. Better contract design that protects the lenders’ interest better will substantially improve the balance sheets of lenders in the country.
2020 also happens to be a year for refocussing on better co-operation between central and state agencies for boosting investments and business in India. In this regard, the issues around unpaid discom dues reared their ugly head this year; the bigger lesson was that greater co-operation is required to ensure that investors in India get a smooth system within which to work. True, unpaid discom dues is a crucial area, but another area that needs urgent attention for business is the “availability of land”.
Regardless of which sector one considers for business and investment, ranging from manufacturing to datacentres to high-speed rail, land as a factor of production is both crucial and an absolute necessity. Land availability is at par with credit availability for rapidly improving the investment climate in India and increasing business capital formation.
Now that the focus from the government will turn towards repairing the balance sheets of both the lenders (read banks) and the corporates, the central and state agencies must work at tandem for ensuring the seamless availability of land for project execution. A twin focus on credit and land availability will be critical drivers of Indian economic growth and investments not just in 2020 but for several decades to come.
Beyond, the suggestions above as we head into 2020, the government must emerge as the great enabler and facilitator of business in addition to its role as a significant financier. Government spending is crucial,
but the realities of a fiscal target and the size of the Indian economy imply that the government’s roles as
the enabler and facilitator of business have a strong bearing on business development and growth.
Issues such as regulation of prices, availability of factors of production, and stability of policy will be the prime movers of Indian economic growth, investment momentum and a conducive business climate. 2020 should be the year where the Indian government further embraces its role as the great enabler of business to fast-track the India growth story.
(The views expressed in this article are personal and that of the author. The author heads Development Tracks, an infrastructure advisory firm. You can contact him at [email protected] tracks.com or @Taponeel on Twitter)