The Economics of Indian Industry.

The Economic Times in its today’s edition has carried the excerpted version of a recent speech by the RBI Governor, Mr. Raghuram Rajan. He has said that in India we have many sick industries but no sick promoters. This sentence took me back to my own speech some 25 years ago when the IDBI Bank in Pune asked me to speak on the sickness of the small scale industry in and around Pune. I did a small personal survey of about six small scale industries in the Bhosari Industrial Estate in Pune which then were not doing well. They were mostly fabrication units or foundries started by engineering graduates with the assistance of Maharashtra Industrial Development Corporation and nationalised banks. Their profitability was eroding year after year and the owners blamed it on the irregular orders and delayed payments by their customers, who were the big industries in the Pune industrial belt. I noticed that while their company’s balance sheet was in the red, the individual owner’s personal lifestyle was improving. For instance many of them had, at best, a two wheeler to commute when they started their business. Within a couple of years, they bought a Maruti 800. Another couple of years saw their buying an air conditioned car and booking/ buying a flat in main town Pune. In seven to eight years’ time , most of them had taken a holiday tour to some foreign destination. All this while, their units were going down and down. I could only conclude that financial impropriety on their part was the reason and when I mentioned this in my speech, the audience, mostly bank staff and some small scale unit owners, were meaningfully silent.

In India, the PSU banks are the whipping boys of industry, both big and small. They get their project finance and working capital from the banks and as the RBI Governor says, without any rigorous contractual obligation. When the going is good, they forget to return the loan and interest but siphon away the profit for meeting personal gains like higher commission and perquisites. And when the going is tough, they bemoan the need to service the debt and ask for rehabilitation packages like capital restructuring and loan re-scheduling.  And we have had always a government ready to oblige them.