The Economic Times of May 16 carried a front-page story based on a poll of CEOs,
financial markets and the common man. The poll of CEOs provides some clues on
the investment climate in the country. The survey does not ask questions about
investments but nevertheless it provides useful insights on the same. What CEOs
say is important, because they take decisions to invest, or not to invest.
The survey polled 59 CEOs.
46 per cent of the polled CEOs said that the Modi government’s performance in
the past three years was excellent and 41 per cent said that it was average. No
one said that it was bad but a significant 14 per cent preferred to not respond.
This means that of the 59 CEOs polled, 27 said that Modi government’s
performance was excellent and 24 said that the performance was average while the
remaining 8 preferred to not respond. A small sample, but as we shall see, a
reasonably potent one.
The choice of responses sought is interesting - it is either excellent, or
average or bad. "Average" is not good and so, if a CEO wanted to say good, the
only choice was "excellent". Likewise, nobody would like to say "bad" and the
way out was to not respond. CEO polls usually call for politeness and here the
survey design seems to provide an enabling device.
The survey is a lot more potent when it identifies the successes and failures of
Modi Sarkar. Infrastructure investments is seen as the single biggest
achievement. Corruption comes next. Thirty per cent of the CEOs say that the
biggest achievement of Modi Sarkar is that it is corruption free. However, not
many (only 10 per cent) believe that the fight against black economy is the
biggest achievement. In fact, 37 per cent said that they weren’t sure that the
government’s drive against black economy was successful.
That the Modi Sarkar is free of corruption has been an enduring theme through
the entire tenure of this government. Why has this not showed up in greater
investments? If government corruption is not a hurdle, then investments should
have picked up since it was believed that corruption of the earlier government
had held up large investments.
Evidently, being corruption-free maybe a necessary condition but it is not a
sufficient condition for investments and growth.
The CEO survey bring this out nicely. 44 per cent of these CEOs said that the
single largest failure of the Modi government is on the jobs growth front. And,
another 29 per cent said that the biggest failure was in tackling NPAs.
The failure on jobs and on NPAs is in fact a reflection of the government’s
failure on investments and growth.
Most CEOs are not exactly gung-ho on demand. 47 per cent said demand growth was
average, another 9 per cent said it was weak. Only 41 per cent said that demand
for their goods and services was strong. Even while being polite and possibly
diplomatic to a popular survey, the CEOs have revealed their woes on growth
Their actions are a lot more stark. In the first half of 2016-17, net fixed
assets of listed companies shrank by 9 per cent. This is the first time in the
recorded history of interim financial results that companies saw their assets
base shrink. And, this happened before demonetisation. Very limited financial results
- of only 605 companies (out of a total of about 3,500) show that net fixed
assets grew by 9.5 per cent in the second half. The complete picture will become
clear only in a few more weeks. But, it may not be too wrong to say that 2016-17
will be the worst year in the history of corporate India when it comes to growth
in assets. Companies are simply not willing to wager their resources on an
uncertain future. Their polite responses to surveys notwithstanding.
Net fixed assets of listed companies had grown at 8.5 per cent per annum during
the past four years. A revival in the investment cycle would require assets to
grow by at least 15 per cent per annum. This is still a distant dream.
The ET survey of CEOs does not give much hope that this is likely to happen any
time soon independent of whether India Inc is impressed with Modi Sarkar or not.