India's SMEs still to be convinced by business-friendly PM

NEW DELHI - While Narendra Modi may be the toast of India's titans of industry, bosses of the army of small and medium-sized businesses (SMEs) are beginning to grow impatient for change a year into his premiership.

With the economy now outpacing even China, Modi has won big-name plaudits for transforming the climate with a series of reforms and pledges that have burnished his business-friendly credentials.

In a paean to Modi for the latest edition of Time magazine, US President Barack Obama hailed the prime minister for pursuing "an ambitious vision... to unleash India's true economic potential".

His domestic cheerleaders include some of the biggest names in Indian business such as the industrialist Gautam Adani who rarely left Modi's side during the premier's recent trip to France and Germany.

Since Modi's election victory last May, big business has been delighted by his pledges to slash bureaucracy, streamline the tax regime and make it easier for companies to acquire agricultural land.

But the reception of SMEs has been significantly more circumspect, with many complaining that Modi is far more interested in pushing the cause of big business rather than encouraging entrepreneurs.

Ankit Sethi, the founder and managing director of the VibeTech India outsourcing firm, said Modi was concentrating too much of his efforts on "benefiting giant corporations".

"Small to mid-size companies haven't been able to gain much from this government except for a positive image for India which might be very beneficial for a few people," said Sethi.

Growth speeds up

Modi has made changing the rules on buying land a major part of his plans to kickstart industrial projects and accelerate economic growth, which the International Monetary Fund predicts will rise to 7.5 per cent this year.

But Sethi said Modi's prioritising of the land bill, which is fiercely opposed by farmers, is symptomatic of his desire to please big business while doing little to help SMEs.

"Think about it from my point of view, how much land could I possibly want to acquire?" he told AFP in his cramped office in the Delhi business suburb of Noida.

"This land acquisition bill and the fact that he's given a lot of these bigger businesses free reins with environmental clearances. Who do you think it benefits? Big corporations. Who do you think can afford this land? It doesn't help small to medium size companies anyway."

"His promises have been on a large level for the big guys, but on the micro level, when you come down to actually dealing with these situations for small players like me, it has had zero impact."

Such comments echo a common refrain from Modi's decade as chief minister of Gujarat, the thriving coastal state that he governed before winning last year's general election.

Major companies flocked to Gujarat to take advantage of various tax breaks, cheap power and relaxed rules on land acquisition, including over environmental hurdles.

Tycoons such as Adani and Mukesh Ambani -- India's second wealthiest man -- were among those drawn to Gujarat and were early champions of Modi's quest to become prime minister.

Business empires like Ambani's Reliance Industries and the sprawling Tata group still dominate vast sectors of the Indian economy.

While most SMEs are seeing their business grow faster than the economy as a whole, they only account for around eight per cent of Gross Domestic Product, according to a recent survey.

'Scrap the old rules'

Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small and Medium Enterprises, said the pace of economic growth had improved the mood among SMEs but acknowledged a degree of impatience for reforms, especially over vows to scythe through the jungle of bureaucracy.

"The progress is encouraging but expectations are higher," said Bhardwaj.

"Ease of doing business is crucial. Old rules must be scrapped."

Dinesh Singhal, who runs an electronic transformers business called Kanohar Electricals, says doing away with administrative hassles is key to Indian business being able to compete against Chinese competitors.

"There is openness from the central government, he's ready to listen but policies have not taken place for the moment," he said.

One eagerly awaited reform is the introduction of a goods and service tax (GST) which is aimed at unifying the myriad levies imposed by the federal and state governments.

After overcoming resistance from state governments, Finance Minister Arun Jaitley is hoping to steer the bill through parliament in the current session, arguing it will increase GDP by up to two per cent.

"If GST comes in, it will be a major boon," said Sethi. "It will make life very easy because right now a lot of businesses have to deal with sales tax, service tax, VAT (value added tax)... GST will be a blessing."

Samiron Ghoshal, an analyst for Ernst & Young, agreed GST would make a big difference but said SMEs have to temper their expectations.

"Once we see actual institutional changes like the GST, land bill and such, it'll trickle down to every sector of the economy," he said.

"But yes, it'll take years for it to happen. It won't happen overnight. In all honesty, this whole faster-than-China growth is probably mostly because China has slowed down, making India look quite good."