India At 75: Approach To Legislation Cannot Be 'Sab Chor Hai', Says Cyril Shroff
India@75: Shroff shares his views on what will take to achieve the goals of a $5 trillion economy and Amrit Kaal.
Gross domestic product growth, foreign direct investment inflows, inflation, employment data, foreign portfolio investment outflows and trade deficit. As India completes 75 years of independence, there’s another significant marker to assess the country's progress on—the legal framework and policy approach to facilitating growth and attracting investments.
Cyril Shroff, managing partner at Cyril Amarchand Mangaldas, spoke with BQ Prime on how India has fared on this aspect and what should be the law-makers' focus going forward.
Approach To Policy-Making
Pointing to the evolution of policy-making in India, Shroff said we have moved from the Nehruvian socialism to a market-based economy, from a relationship-based to a rule-based system, and from a rule-taker to a rule-maker.
It's like moving a super-tanker—you move it degree by degree, you can’t just turn it on its axis.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
According to him, among the second generation of reforms, the insolvency law is among the most prominent ones.
It turned the past concepts on its head and brought in perhaps raw capitalism, where you could have corporations or businesses fail and the market forces took over, as opposed to just somehow trying to keep them alive.
It recognised the reality that promoters, or whatever name you want to call them, have no divine right to sort of govern and consequently, you created a market for corporate control. You had the Takeover Code and hostile offer, etc., in the equity markets, but the first birth of corporate control market was really created via IBC.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
The second broad trend, Shroff said, is that we have become much more responsive to feedback.
"All governments have an ego about policy or regulation that they bring in. But you also see examples where, if there is strong enough feedback, even legislation is rolled back."
Without being political, both the farm law as well as the personal data protection bill—their rollback is proof that if the market has kind of rejected a certain concept, that it is better to withdraw and take a fresh perspective, rather than just get stuck on ego and continue with it, he said.
The third aspect of policy-making evolution is still in its early days, but there are green shoots of it, he said. India is becoming a rule-maker rather than a rule-taker, even in terms of global issues like cryptocurrency, for example, Shroff said.
I think we are getting confidence in our stride of being able to actually lead a conversation globally, rather than you know—America mein kya ho raha hai, and then quickly copy it. We are getting that confidence to set the design based on our market and without worrying too much about what will the world think of it.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
India Inc.'s Promoters: Times They Are A-Changin'?
Shroff articulated that corporate India is seeing a shift—old-world promoters got a reality check in IBC and the new-age entrepreneurs are realising they gave up too much, too early.
"The first problem of the old-economy promoter was a sense of entitlement and also it was an arbitrage on our legal system that 'I can drag this on forever, I can always find some way of continuing this in courts for 15-20-30 years and never be out of management'," he said.
The ability to play the system and play the institutions was very high. That has come down kind of dramatically. The earlier notion that this is a loan, I don't have to repay it, repayment is optional—that no longer exists today. You can lose control and you will lose control of your business if you don't honour these contracts.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
The problem of the new-age entrepreneur is a different one. It firstly starts with a very defective and skewed capital table, he said. When they were setting up, they have given away so much without realising what they were doing.
"This can link back to the fact that there is no real venture debt finance that is available. Second, they have to emotionally accept that they are a minority stakeholder and then, there are many other stakeholders with larger financial interests. Most of them haven't accepted that. That is the problem."
Goal Of $5 Trillion Economy And Amrit Kaal
To begin with, Shroff said, it's note-worthy that when you look around the major economies, there is no leadership that is talking about 25 years. "Show me one nation that is talking of trying to predict themselves 25 years into the future."
He caveated this saying that 25 years is a long period of time, and a lot will change in between. But the fact that we are dreaming as a nation with a larger ambition and a place in the global marketplace, "I think it's kind of amazing and it is very inspiring for the younger generation today", he said.
To achieve both these goals, it comes down to a few basics.
First, creating an environment where it's essentially a meritocracy, where private entrepreneurship will thrive, but will also be balanced by more public interest elements because we don't want concentration in the hands of a few.
Second, the rule of law is probably the most important, he said.
I'm not saying this just because of my profession. It is the most important piece of infrastructure that a country can have and by rule of law, I don't mean as confined only to better dispute resolution system but better legislation, clearer legislation, well thought out in terms of economic consequences. I don't see this 25-year journey happening without a very robust rule of law.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
Second, in terms of policy and legislation or whatever form of legal instrument, it has to be more trust-based, he said. There will be black sheep, there will be bad apples.
Today, our policy-making is increasing the cost of compliance and reducing the cost or not doing much to the cost of non-compliance. You should turn it on its head, Shroff said.
There is an implicit distrust in a lot of legislation that is almost like sab chor hain. You cannot take the country from now till 2047 on the assumption of sab chor hain. You have to have a higher level of trust in your citizens.Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas
Shroff also shared his views on the flawed approach to privacy law saying instead of data protection, we're now attempting a digital business law.
"We are moving away from simplicity of purpose into trying to boil the ocean here."
On the theme of climate change, he said that while it's one of the top three conversations in boardrooms today, India Inc. is far from being ESG-ready.
Watch the full conversation here: