The topic given to me this morning is ‘Courage in uncertainty’. Well, I think we should have courage in the most certain times. I will just spend a couple of minutes talking about what’s happening generally and I am sure you heard other speakers yesterday and you will hear more this morning and this afternoon.
All of you know, exactly, where the art way in terms of our economy, where is India’s position, what needs to be done and I am sure you all are brimming the ideas on how best to fix the situation at hand. When I say ‘fixing it’, I say this with the sense of reality that today we are growing at between 4-5%, perhaps .5% +/-. But generally speaking, the last 18months have been a slower growth than expected. Again, the key word is ‘expected’. If the US economy grows at 1%, the base is so large that it’s a phenomenal growth for them. The European economies are struggling to get positive growth. However, when India grows at 8-8.5%, it’s expected to grow at 8-8.5%. The potential for the economy is perhaps more than that. Where does the word potential come from? It’s the expectations from the people of this country and the global community because we have the talent force; we have the engines, the capacities to absorb that kind of growth, the consumptive capacity, the productive capacity. So, when India grows at 4-5%, everybody, all the rating agencies, the World Bank, all the pink press, the entire world says it’s not good enough. Sure, not good enough. But what needs to be done to fix this growth of the GDP and the forward momentum, is what we have to take into account. The first thing we have done as a government from the last 6months or so, is to reduce the current account deficit. And I think the finance minister has done a great job in pulling back the current account deficit to the target that he set for us, as 4.8%. Also, I think, we have done a little bit better than the 4.8% target that we set out for ourselves.
However, it’s not just about cutting expenses, it’s about incentivise small and medium enterprises, it’s about giving confidence to the large investors and I say this at many places. It’s okay for the Indian economy, for all of us, to have expectations from FDI and foreign investors but what you must first do is to give courage and confidence to our own investors, our own Indian corporate leaders. If the Indian industry is not plying back its profits and revenues into the economy, why must we expect others overseas to come and invest in our country? So, we need to fix that problem today, which is to infuse confidence, reduce the hurdles and the bottlenecks. And I think the cabinet committee on investment has done a fair amount of detailing in that regard, whereas, to clear the last mile hurdles that have always played a large obstacle that we read about and talk about
The fiscal and monitory steps taken to find the right value for the Rupee versus the Dollar, the kind of fascination with buying gold, all these things come in for only when there are other question marks raised. I know 3 years ago, no one talked about the appetite for gold, and no one read about the US exchange rate to the Dollar, to the Rupee. It’s because we are going at 8% and what must we do to get back to that growth trajectory? There are two to three things I think are main me and my ministry have been trying to do. One, I have mentioned to you, is that we have been able to create a new law for companies. Now, the last time we passed the law was in 1956, and since then, we have amended the law 25 times, but the need was felt to rewrite the company’s law so that the Indian corporate legislative environment and our regulations are in compliance with what’s happening around the world.
Sixty years is too long a time period for us to be complying with the laws made at that time. The world has changed, India has moved ahead, the world has moved forward and we need to make our laws and regulations compliant to what’s happening around the world because the world expects the Indian laws to be the 21st century’s laws, forward looking laws. And I think this particular piece of legislation is a very forward looking, reform oriented legislation. It took us a long time to get it through the parliament. And when I say long time, I mean long time. I mean it took us 9-10 years it took for this bill to float around in various standing committees, recommendations, etc
The lower house of parliament gave its consent in December last year and it still took us 8 to 9 months to get it to the Rajya Sabha and then it took everything we had to get the bill passed in the Rajya Sabha and I remember the pessimists amongst us were saying that this bill is never going to see the light of day. Many before me have been in this mist, stayed, and gone but the bill did not get through the parliament. I said to myself that if I have been given this job, I must try and push this bill and I have to thank all the political parties and I say this because the Indian parliament has more than 40 parties and you know how easy it is to disrupt any proceedings when they want to get disrupted. But it took some consensus building, it took some reaching out, it took some talking to the opposition leaders, to our own allies, our supporters, all the members of the parliament from various political parties and it is because that we were able to build that consensus and convince the political leaders of all parties that this bill is going to help Indian economy, it is going to help us go out to the world with the new face to say we have a new legislative landscape, where investments will be welcomed, company’s people’s life will be made easier.
Hence, that consensus was made and we were able to push the bill through Rajya Sabha. Well then when the upper house gave its consent then some amongst us said that no one will sign this bill and it’s going to remain pending for months together. Well as luck would have it, the honourable president of India gave its consent to the bill and we have now notified some sections of the act.
Friends, the new company bill that has now become a law, the intent of that legislation is to really ensure that we have a competitive level plain field for all companies. As you know, there are about 800 thousand companies active in India and we have to make our legislation and our investment climate more accepting, more welcoming. Issues of E-Governance, video conferencing, electronic voting, all of them have now become a law because we felt that this is the technology and it must be incorporated in our legislations.
Good corporate governance cannot be mandated by law, it’s my understanding that it must be done by the corporate leadership. It cannot be done through the middle management or some government order. It has to be done by demonstrating right from the top and that responsibility lies collectively with the Indian corporate sector. This act talks a lot about self disclosures, self reporting, more transparency, giving rights to minority shareholders for the first time we talked about class action suites. We have also talked about how we are going to mitigate the timelines. In India, it is often said that you can open a company if you want to, but you cannot shut down a company for the love of money.. It will take you years to shut a company down because it has to go to high court and other legal issues. We have looked at the problem and we are trying to address it by transforming the company law board into a tribunal which is not just going to be a change in the name but we are also reducing the pendency in the high court by having the national company winding up petitions, all the shut closing down the companies of mergers and acquisitions, cross bottom merger acquisitions, etc. So, all those issues which used to take a long time in judicial process by getting high court permissions and NOC’s, so and so forth. All of that is reduced and the NCLT will then will be able to take quick action and can take quick decisions for winding up, for mergers and acquisitions. I think that’s a good positive step. The law today is or has been that two people are required to start a company and the mind goes out to people who work as proprietors individuals, weavers artists or shopkeepers any person who wants to do business of his own that person should have the legal sanctity of having an incorporation.
Thus, the 1% company is a new concept where millions of people hopefully in smaller towns or cities will be able to take advantage of being an incorporated identity, by getting credit facilities, market access, legal safety without having to do the kinds of compliances that are required for a normal company. Again, it is a very innovative, new idea and the jury is in how it shapes out. We have done this keeping in mind all those people who want to be a part of the formal economy, who want to be a part of the corporate sector without really having the resources or the muscle or the time or the capacity to do all the compliances that are require for a company.
Therefore, the 1% company will hopefully will be something that’s going to help all individuals who want to become a company without having a trouble of all the compliance we have mandated for other companies. This act also mandates certain class of companies to have at least one woman as the director on the board. Now, I have been criticised for that. People ask, why should you force people to choose between genders? But I am happy to accept all the criticism and still stand for the women kind and say that the women who work in the corporate sector need recognition. They don’t need help in charity. Also, the counter point is that you can have more than one woman, but one woman you must have. Call it symbolism, call it tokenism, however, we must have gender parity, gender sensitivity.
Independent directors, many questions were asked from me that why you are mandating individual directors on companies? Now, I think it’s good to have objective views on the board. We are limiting the responsibilities and the liability of the independent directors because we want good individuals with a lot of wisdom and experience to come and give their views on the board so that there is an objective, un-biased view on the board and this is only for certain class of companies. It is not going to be for all companies. SEBI has mandated 50% independent directors for some listed companies but we are examining, we are getting inputs from corporate sector, for everybody to see what sort of companies should have one third of the directors as independent directors.
Friends, I would like to point out that, the bill that passed in the parliament is a very large document, it has many facets to it, very technical, and bulky piece of legislation and it has a lot of rule making that has to be done by the ministry. But I’m going to re-assure all of you that while the government and the ministry notifies the sections and while they make the rules, it is not going to be done purely as a bureaucratic exercise with some officers and ministers deciding what the rules will be, what the benchmarks will be, how the execution would be taken out because the detail and the rule making is a very important exercise that we have to do. Nevertheless, I have constituted a committee within the ministry that is the Rule Making Committee which has members from all the chamber of commerce i.e. FICCI, CII or NGOs, audit communities, all of those people. I think, 17 of them are members of the rule making committee and we have only 1 or 2 government officers in that committee. So, that committee will draft the rules as we have asked them to do and then we put up those rules on the internet and on our website and we have a 4-6 week period where everyone can look at it and give views and I can assure you that I will try and inculcate and incorporate as many of those use as possible so that we can make this legislative as palatable and as friendly as possible. There is no point of making laws that are going to make people more cumbersome to comply with, which makes life more difficult for companies to deal with, ideas to have the law that is going to be successful only if you all are becoming part of it. If you all are becoming stakeholders in the law making process then I think you have much more compliance and much more acceptability of the legislation.
The rule making committee has already put some parts of the law on the internet. Please look at it and share your views. I have been informed we have a very inquisitive audience in the cyber space community. We have had more than 80K clicks already. It’s going to be an exclusive exercise, right from the beginning, and I think that’s how we must do law making in this country where there is proper discussion and debate and openness about what we are going to do, no legislation affects anyone equally. It will affect some people less positively, less negatively; maybe some people will not get affected at all. But it’s important for us to listen to all and try and see what can be made possible within the elbowroom we have in the rule making.
It is also surprising how this whole act has been taken over by the CSR. Now, CSR is only a part of the bill but the corporate social responsibility aspect of the bill has become so important and I am glad we are reading and talking about it so much.
Sometimes I get criticised for pushing the way it was made. Again, this concept is not one year old. It has been floating around for a long time. It has been talked in the industry, in the standing committee. Someone asked me where did this 2% come from? Why not 1%? And I told them that it was debated for years with the industries, all the corporate leaders for government companies as 5%, private companies as 2%, which are the companies that are qualified to do CSR? All that was discussed empty number of times for years and the consensus was evolved as 2% of net profit for certain class of companies. Now, what those companies are is clearly illustrated in the act.
My tent is to get full compliance to this and CSR is really a wonderful opportunity. It is not about sponsorships, not about getting eye balls and running commercial benefits out of it.
Ideas invest that money in which you are operating. It’s a tremendous platform for people to India and generate a goodwill that is needed today in some parts of the country where there is a perceived deficit. Whether it’s there or not, I don’t know. But the perception is that there is a trust deficit between large corporate, big companies and the communities in which you are operating. Some of it may be true, some of It maybe just here say, but we must use all the tools that are disposable to reduce that trust deficit and by spending this money in any way that you want. The rules for CSR are now on the internet; please have a look at them.
Expand the scope and I have lefty it to the wisdom of the boards to decide what work they should do. Someone decided we should have a negative list that the govt should say don’t do xyz’ and everything else is CSR. I said why I as govt or as minister decide what is good and what is bad. All we are saying is that please spending money you feel appropriate that helps the community. Spend the money, explain what you are doing and disclose how you are doing it.
Now, there is no certificate, no inspector to visit your company and look in your books, there is no NOC required from the government. It’s your money, you decide how and where to spend it. It’s not a tax. It doesn’t come to the government. It’s your hard earned money of the company. You spend it the way you feel appropriate. But please disclose how you are doing it. We have RTI, it’s applicable to me so it must be applicable to you. You must decide what CSR activity is, have the committee, and go to the board. Let the board decide.
I was in Mumbai couple of days ago. Somebody asked me a question, if I had to donate money to a church, gurudwara or temple for the company, why can’t that be CSR? I said, if you can convince your board
If the board approves it, so be it! I won’t stand in the way. My view is that, no board in the country is going to approve CSR activities which don’t look like CSR activities. So, we are keeping it completely open mind for what all sorts of activities should be allowed in CSR and keeping it completely open, restricting the work what you people want to do because different companies have different focus areas, SO WHY SHOULD GOVERNMENT DECIDE WHAT YOU SHOULD DO. But yes, things like political and religious donations, things that are instinctively not looking like CSR, perhaps the boards of various companies will have the same view as I have. So, the discussion is with the boards. What they decide is what you can do.
Second thing I was asked was if I do skill building in the area and I spent five years investing money and on the 6th year that activity starts generating profits. Will that still remain CSR? Well, a very good question to which I didn’t have an immediate answer! I said, if you invest in a school or college and that venture starts returning; profits itself, as long as you put that revenue back into the same activity, I suspect that’s fine. But if you tell your board that I ‘m spending Rs.5 and I want to 30% return in the investment and make Rs.8 out of it, I wouldn’t still call it CSR. That’s business development, that’s not CSR! Again, that’s my view, and I leave it to the wisdoms of the boards to decide.
So, we have kept it very open and I don’t think it’s going to restrict anyone. But yes, I urge the companies that are qualified. This is not for small companies or companies that are struggling to make profits, companies that are new to business environment. Entities that have been here, drenched entities, large companies of thousand crores turn over etc for them to invest 2% in the development of the area that they are operating is I think is now approved by the parliament, it has got the consent of the people of India and now it has become a law. Let’s try and see how best we can contribute in making this a reality and my own estimates are that if there is full compliance to the CSR legislation, the investment in the social sector could be anywhere between 18-25 thousand crore rupees every year. That’s the kind of money you will go into all the kinds of activities I just illustrated before you
We as government are here to facilitate activities NGOs trusts or foundations, whatever you choose to use as a tool to reach out. Some companies don’t have the resources to do large projects and pooling of resources
So we are open to all sorts of suggestions that are coming our way in terms of drafting theses CSR rules and as I said the Rule Making Committee itself has got tremendous representation from the industry chambers so you’ll have no short of ideas from the corporate sectors.
Few other things we had a committee. Damodaran’s committee that has given us a report on how to improve India’s ranking called the ‘Ease of doing business’ the world bank itself has asked the question that ranking that they should have a ranking or not. Nevertheless, it’s important to get a feed back and the committee has given us a report 2 weeks ago. We examined the report and merely few things he has asked us to do. One is that, we have a lot of regulators in our country; we must evaluate what impact those regulators are having, although it’s good to have them. We must study and find out how much positivity we are deriving out of it.mr. Damodaran has also talked about focusing on the SME sector and something he’s mentioned I also agree we have to stop or at least in future we must not have this retrospective taxation.
And the world and the investors know what is the ecosystem they are putting there money into. India still remains a bankable safe destination of investments. We have a stable political environment, we have good judicial process, and we have sanctity of law. Given the
My mind still remains in one of those situations where people want to invest money. We have a young people who have a consumption capacity. We have all the tools required which make a fundamental too strong.
We need to keep on that track. Next 6-12 months is going to be good hard work, dedicated and focused on how to get growth back into our economy. And that will only happen by manufacturing a boost. If we give small and medium scale enterprises all the help and support and hand handling is required, create a good regulation. The company’s act is I think going to facilitate that moving forward and I am certain of the opinion that we have to be positive, we have to create opportunities and growth that doesn’t generate jobs is not what India can afford. We need 15 million new jobs a year for our young people. So, when we have numbers coming out, the economy going forward, we need to have not a jobless growth but a growth that creates jobs for millions of people. So many doctors lawyers engineers that we produce
Friends, in the end, as a government we have to be open flexible to be able to inspire confidence and we can do that when we move hand in hand. The Indian corporate sector and all the corporate leaders. So the company law is now getting notified in sequence. And I am personally taking interest in making sure it is.
If you want to change something, add or subtract, because this law is for the benefit of our corporate sector so that we as a nation can grow and achieve our fullest potential at least economically so that we can create a better India, not just for us, but for our future generations!
The above article is an excerpt from the speech delivered by Mr Sachin Pilot, Minister of State(I/C) for Corporate Affairs at AIMA’s National Management Convention which was held in September 2013.
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It’s all about courage in uncertainty