Let Us Look At The Economy In The Medium Or Long Term & Not Just The Near Future: U. K. Sinha
Sinha also discusses at length the challenges thrown up by the Covid-19 pandemic, the plight of the MSMEs and the leadership traits the times demand.
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Upendra Kumar Sinha is a former chairman of the Securities and Exchange Board of India (Sebi), who headed a committee set up by the Reserve Bank of India to study micro, small and medium enterprises (MSMEs) in 2019. Since then Sinha has authored a book titled Going Public. In a conversation with BW Businessworld, he suggests that government largesse to uplift the economy come with a sunset clause.
In his dialogue involving BW Businessworld Chairman and Editor-in-Chief Annurag Batra and Abhinav Trivedi of BW Businessworld, he also discusses at length the challenges thrown up by the Covid-19 pandemic, the plight of the MSMEs and the leadership traits the times demand.
Let us see how the efforts of the government and all the citizens of the country take shape to ensure that there are fewer job losses, that people don't starve, that people don't suffer from hunger, people don't go back to the poverty level or from it to below the poverty level and things like that. So, the important point is that in recorded history, this is perhaps for the first time that such a large, uniform impact has taken place from a pandemic or from an event, to affect the whole globe. And in that situation, India has to take certain decisions. The world has to take certain decisions.
If you look at what we need to do, you need to look at some of the numbers. India has so far rightly concentrated on tackling the spread of the disease and then, taken some difficult measures, which for any large democratic country, was very difficult. And we should commend the government for taking these measures with the full support of the people of this country. The second thing is social protection. The people should get food. Most of these areas we have worked on. One area where the government has shown its renewed interest and more focus is the problem of migrants.
There is no central monitoring of the internet economy. The Centre for Monitoring Indian Economy (CMIE) came up with a forecast that 14 crore Indian workers in the informal sector had either lost their jobs or are in the process of losing it. This is really a vast number, especially when you look at the composition of the Indian economy, because the economy, which is the formal economy, has comparatively fewer jobs. So now is the time for the government and the Reserve Bank of India to jointly work on how to provide support to and revive businesses.
So there has to be some new scheme for the MSMEs in the report with which I was associated last year. We have given some suggestions. One suggestion, for example is to allow invoice- based financing or cash flow - based financing, which I think can be done through technology. And I'm aware that there are a number of technology providers, who have done almost everything to kickstart this operation, but this will happen.
We have to realise that in the last ten years, the percentage of funding the MSMES got from banks has come down. And the NBFCs (non-banking financial companies) have emerged as significant financers of the MSMEs. Many of them are providing comfort to the MSMEs by simplifying the process of financing. And I must tell you also that last year when I was associated with the RBI’s committee on MSMEs, all the representatives of the MSME sector, irrespective of the branch or segment of industry they came from, highlighted that the NBFCs actively support them. So, we have to ensure that the NBFCs start some sort of a line of relief or support to help the MSMEs.
I think the time has come to create that fund immediately. If such fund exists and is run on public-private grants, then it can provide the nucleus for more funds to come. And once that happens, a lot of MSMEs can be supported. Another point is that there are some extreme cases and we feel that the government should also take some sort of equity interest in some of the critical MSMEs. And lastly, there is a need for some sort of credit enhancement or some sort of credit guarantee. I believe that the government is seriously considering it. And I do hope that it is provided. So, if you take up a series of Rs 4-5 million and you give an assurance to the industry that they are welcome to come forward and start operations, we are confident that the MSMEs will be back on their feet once the pandemic is under control.
So, with whatever operational support is provided, the MSMEs will again start growing and it is very important to take those measures because of the impact the MSMEs have on the country.
So, as a policy decision, the RBI did some targeted liquidity management, and said that this money should go even to the bonds that are below the AAA rating. But there are two operational issues here. Imagine yourself to be a banker, and especially if you are a public sector bank, if you can lend to a AAA company, why would you lend to anything below that? So, there is also a fear of action and that fear has been there for quite some time.
So as I speak to you there is a marked differential. If you who are the State Bank of India or the Bank of Baroda, then the rate at which you are getting bulk deposits from depositors, is much lower than the rate at which the RBI utility package has been given to you. So there is an operational issue. That if I can get a bulk deposit at 3% why should I take something at 4.4% for the same purpose.
That's why we have a very peculiar situation that, Instead of lending to the NBFC industry, or the industry the bankers are parking the same money back into the RBI. I'm sure the Reserve Bank and the government are aware of this problem. I'm very hopeful that this situation will be sorted out. Once that happens money and liquidity will flow to the larger sectors.
So, my feeling is that instead of comparing with past performance, we start comparing relative present performance and see which companies and banks in the world or in India and which MSMEs are doing better. So basically, the market and its analysts will just start analysing what is more efficient and more productive. Once they make this analysis, they will start investing their money. So the companies have to be more productive. They have to be more efficient.
And let us also not forget that the secondary market, even in government bonds, is not very active. We are talking of the corporate bond market, but even the government bond market, the secondary market is not very active. There is a little bit of activity compared to the past on account of foreign portfolio investors being brought in here. Another thing that I would recommend is participation of pension funds in India and the participation of the insurance companies in India in this segment has also got to further improve.
You should know that there is a sunset (clause) in this. People should know, the industrialists and the business people of the country should know, that there is a sunset. So have a number, have sunset and ensure that the support is given in a targeted manner.
The important thing is that you should work in a team. You should be proactive. You should try to get expertise from the sector you are in. There should be confidence that you are on top of things and that the whole organisation should be behind you.
They will have to adjust and adapt and those who adapt fast and those who remain productive, will definitely survive. This is one important message that I would like to give, that people have to be adaptive. People have to be productive. And people have to know more than what is required. For example, there is news from Wuhan in China that once the changes were introduced, and people were allowed to travel and go to work, the demand for buying cars has gone up in China. This is counter-intuitive, but there is a reason behind it. The reason is that people don’t want to use mass transport, so they are buying cars.
So, we don't know about all the changes in the behaviour of the people and the industry that will take place after the Covid-19 pandemic. I would say that economists, journalists, business people, should start thinking of these trends. We should start imagining India in 2021. And then decide what measures are required.
But I'll add one word of caution here. We have to be very sensitive. We cannot talk of a solution where a vast majority of people lose their job. We have to keep our huge manpower productively employed. And that's a very difficult task. So, for example, in this context, I will say that there may indeed, be re-training of the people and re-skilling. This is going to be a massive challenge.
One of the important things is that people should have experience in working at the ground level. And the same thing happens in the Indian bureaucracy. So, whether you should be a specialist or a generalist is not the right question. The right question is whether people being selected in different ministries or in senior positions in government in various ministries are being selected in a fair manner. Are there any restrictions to bringing the right people in there? If there are restrictions, then those should be removed. But when I say this, I mean that if something has been reserved for a type of people, then that restriction should be removed. So, the best should be selected in a fair manner.
So the important thing for us to remember is that options should not be closed, but the right talent should be picked. And if you like, there are people who are monopolising their positions by virtue of a particular service that they have joined. Then you have a point, and I argued that they should be removed. But you cannot have a rule that everyone in a leadership position has to be from a particular background.
And I also must say that a large democratic country like India? people in this country ? have behaved very positively and supported government measures. There have been isolated instances of confrontations, but most people have supported this. So, I see the book flip and I'm an optimistic person.
This is a crisis, but this is a crisis for all of humanity. Our people are well educated. People have very good technology. They are well connected with what is happening outside India. After all, we have been the technology providers for almost the whole world, but we have to get our act together.
My only advice would be that since this is something of national importance and impacts the national consciousness, the people of India should resolve their small differences right now and work together so that people in India are safe and are able to bounce back economically.