India Inc puts the ball in government's court

Amidst all the battering that it has received in the recent past, the markets have managed to notch up some healthy gains today, despite the Q2 GDP growth coming in at a dismal 6.9 per cent, its slowest pace recorded in the past 9 quarters.

In fact the latest announcement of food inflation cooling off at 8 per cent for the week ended Nov 19th has brought about added cheer to the markets and one may now nurture fresh hopes that RBI might finally take a pause in its monetary policy stance.

But having said all this, the overall picture for India does not looking very promising and it would be very immature of investors to think that the good times are just round the corner. In a rare case scenario, it has come to light that Corporate India seems to have taken a new liking to challenge the govt. and question its authority.

Not so far into the distant past, did Corporate India hail and applaud the govt. for some of its gaming changing policy reforms that it introduced in order to position India as a fast growing emerging market on the global map. A few prominent ones were the iconic New Exploration Licensing Policy (NELP) in the Oil & Gas space and a row of key reforms introduced in the telecom space to open it up for more investments in order to fuel economic growth.

Back to the present, looking at current state of affairs in these two sectors and the companies’ functioning herein, we get a fair idea that the intended policy reforms have not really gone according to plan. Blame it on corruption, poor corporate governance or any other external factors, the fact remains that the companies in these sectors are currently going through some really turbulent and tough times.

In fact it’s the private sector players who are suffering the most as they have not only had to adhere to strict and stringent set of regulations and guidelines, but have also invested huge sums capital into getting these required licenses and approvals from govt. authorities. When the govt. suddenly plans to either do away with its policies or introduce various other stringent regulatory measures the corporate are merely left wondering and are finally expected to just suck it up and fall in line.    

While telecom giants like Airtel, Vodafone, Idea, RCom and Tata tele-services are having to face the heat as a result of the 2G scam and some bizarre moves by the govt. to roll back certain policy reforms or impose new restrictions in order to curtail any unruly incident of corruption, India’s blue eyed boy RIL has fallen prey to its own inabilities of not keeping up with its self guided production targets and is now facing punitive action by the govt. and threatened with dire consequences.

Once considered as rich investment bets, now these heavy weights have become mere value pickers for retirement planners.

But it seems like these companies have now decided that they will not go down without putting up a last stand and fight for their existence. As per media reports, it has emerged that in a recently held meeting with the prime minister and telecom minister, top telecom honchos have clearly shown their dissent and threatened to surrender their 3G spectrum licenses and demand compensation for the same if the DoT does not retract on its allegations of terming the prevailing roaming agreements between the companies as illegal and violation of norms.

In case of RIL, according to a press release on the BSE, the company has initiated arbitration proceeding against the govt. to resolve the cost recovery issue and clear its name from all the controversies. The company claims that all investments in the KG D6 basin were made by the company and its partners and that the Production Sharing Contract (PSC) contains no such clause or provision which entitles to govt, to restrict the recovery of any costs incurred by the company.

In conclusion, it seems that the govt. has now come into a position where it is compelled to answer to these corporate companies and address the situation in swift manner. With this the surprising move by the govt. to allow FDI in retail has also led to an uproar in the parliament where not only the opposition parties but also its own allies have questioned the govt. rationale behind showing such haste in handling the issue. All this has led to an air of nervousness among the FDI’s and the FII’s, who are our prime investors and this will prove very detrimental to our already struggling growth story. One has to now wait and watch what measures the govt. will adopt to resolve these issues and bring back confidence among the people.