India must stick to deadlines to regain growth
Over the last two years, as a country, India has missed one deadline after another--be it for reforms or passing pending bills in parliament or holding 2G auctions.
On Aug. 27, the Supreme Court once again extended the government's deadline to complete the auction of 2G mobile phone spectrum. The new deadline is now Jan. 11, 2013. The telecom companies which licenses were cancelled in February this year can now offer services until Jan. 18, 2013.
This is the second extension granted by the court. The initial court judgment had given the government time until Jun. 2, 2012 to auction the airwaves, which was later extended to Aug. 31, 2012. The operators which had their licenses revoked were allowed to operate until Sep. 7, 2012.
To be honest, everyone knew the deadline would get extended. Many a wise women/men will tell you what you expect actually comes true. So it's probably high time the citizens of India start expecting some action from its legislators.
For India is turning out to be a rather unfortunate case of missed opportunities.
Last week, I was speaking to a chartered accountant who told me how his audit firm's growth is down from 30 percent per annum in 2010-2011 to 15 percent in 2011-2012. The reason--his clients are not growing. So when his clients do not grow, they do not come to him for additional services. And in such times, he also can't think of raising his fees. So naturally, his revenues didn't grow at the pace they were growing.
This accountant pointed out four key reasons why his clients were not growing: devaluation of the rupee; inflation; high interest rates; and regulatory uncertainties. Many businesses don't know whether pending tax regulations like the Goods and Service Tax (which will bring about uniform taxation across all states of India) and Direct Tax Code (a new Income Tax Act) will actually come into effect soon.
The GST was expected to be implemented in 2010. That didn't happen, and most companies don't expect it to come soon. But what if it does? In fact, the finance minister yesterday mentioned that he hopes it will be cleared by Mar. 31, 2013. They have no idea how their businesses will be affected. So why expand the business to other states now. Why not wait for more clarity?
This is just one of the umpteen examples of how policy paralysis has impacted the Indian growth story. Once a shining star, today a lot of pessimistic talk is going on around India.
But underneath all that pessimism is a lot of hope.
Yesterday, I was reading a feature on Telenor in a business daily on how the company's Asia head, Sigve Brekke, is still very keen on India despite all the problems it has had with its partner Unitech--its joint venture with Uninor, in which Telenor has 67.25 percent stake--and due to the 2G scam.
Telenor has sunk in about US$2.9 billion (INR 160 billion) in the Indian market. The feature carried a picture of Brekke rather upbeat--beating the drum with his India team. For Telenor, India remains a key market. In its current portfolio of 11 countries, there is no market with as many subscribers as it has in India (its troubles with its partner--Unitech--and the Supreme Court judgment in February revoking its license notwithstanding).
The possibility of incremental revenues coming out of India is what will keep Telenor and many other multinationals keen on India and not lose hope in its policymakers.
But on its part, the Indian Parliament will need to stick to one thing--the deadline.
Because this is what will clean up the image, bring about growth, encourage more foreign investment and reduce the problems posed by inflation, currency devaluation and high interest rates.
And its better the country does it now...before some rating agency gives it the "junk" status.