How much longer will we be in denial that the world is changing—Covid-19 has only brought this into sharp relief—and that we need to change as well?
Businesses need to survive and reinvent themselves so they can create a growth plan for the future.
This was the theme of a panel discussion organised by Ficci Flo in July 2020.
The panellists included
- Ananth Narayan, associate professor at SP Jain Institute of Management and Research. A veteran in the financial sector, he has worked in key banks, including Standard Chartered, Deutsche Bank and Citibank.
- Rajiv Ahuja, executive director at RBL bank.
- Sucheta Shah, promoter and director of Atlas Integrated Finance Ltd. She is the chairperson of the Maharashtra state Ficci MSME sector.
The discussion was moderated by Indrajit Gupta, director and co-founder, Founding Fuel
Edited excerpts from the discussion:
Indrajit: There are two key leadership tasks to deal with the pandemic. One is, grappling with the operational aspects of the crisis. The second is to prepare for the post Covid-19 world. Because every crisis invariably throws up new opportunities for you to pull ahead of the pack, to reimagine market spaces. How should you set agenda and not be reactive? So that when the crisis abates, your business is stronger.
Ananth: Some amount of help from the government will be required. The reality is, every economy, whether it’s the US, Japan, Europe or Australia, we are seeing the need for people to come in and help businesses and livelihoods. Through organisations like Ficci we have to make a cogent case, so that a government which is willing to help can respond in a manner which is useful to everybody.
One big opportunity is actually in the rural economy, which is turning out to be an actual bright spot in the overall landscape. [It’s] a combination of the rural employment guarantee scheme, good procurement by Food Corporation of India, good monsoons and prospects of a good [harvest].
So, very broadly put, survive—lobby to the government in a cogent manner, because all of us will require help. There are opportunities coming up in the economy as well. And more medium term, there are some cultural changes which are required in the way we do business.
Rajiv: The first focus should be conserving cash, getting your operations down to where you think you can afford the next 12 months of a fairly low transaction economy.
The other element is communication. These are times when all your stakeholders—you yourself, your employees, your customers—are all in a similar uncertain, anxious frame of mind.
Sucheta: I would like to put it into the three main sectors of our economy, manufacturing, service and agriculture.
The industrial [sector] is struggling to survive. They are facing three major problems—the three Ls of labour, liquidity, and logistic support. There are a lot of government special packages... but the manufacturing companies will have to work on cost cutting innovations and technology.
The service sector is in the revive mode. They adapted to the new normal, to the change, the technology and can now service people anywhere in the world. However, you cannot generalise. Tourism and hospitality are still in the survival mode.
Agriculture is thriving because food is a necessity. The special packages from the government, the direct benefits to farmers is helping. The rural economy is seeing the green shoots.
Indrajit: What is the liquidity challenge?
Sucheta: [MSMEs] try to go for these [government] packages. But things just get stuck in between. When they get stuck, they really don't know where to approach. If there is transparency… you are not aware of what is the reason that it is not going ahead, why you're not getting the funding.
Rajiv: Let's face it, there will be limitations. But I think the wheels have started moving albeit slowly, but they are gathering pace.
The other thing which is happening is that many intermediaries—NBFCs, especially focused on the impact area—microfinance, MSME—have got a lot of funding.... I know many MSME-focused companies which have started their operations all over again. That’s an attractive area where we're seeing liquidity and equity come back.
Indrajit: What are two or three things that entrepreneurs need to do so that they understand what banks are specifically looking for now?
Rajiv: What we [bankers] need really is an assessment on what’s the new business plan.
We need to understand how, let's say if you were to able to get an additional 20% funding, what does it do for your business in six months, 12 months? That kind of conversation that helps us make quicker assessments.
Indrajit: MSME funding is a big-ticket item clearly and Ananth, I know you spoke very passionately about some of the changes that the MSMEs have to do....
Ananth: Basically, the problem that MSMEs have is they don't have money coming in terms of earnings. It's not just a funding issue. Giving them liquidity at this point of time is not the only solution.
All of us need to work with the government to find ways in which money can contribute to the bottom line of the company.
The other issue is 60% of banking is public sector banking. The whole of the banking sector is going to grapple with [huge] non-performing assets.
So, imagine a banker giving out loans at this point in time and especially the public sector banks. [They will be] worried about CAG, CBI coming after them… What needs to be done is give comfort to the bankers, which is the point about the longer-term governance [in MSMEs] and making things a lot more formalised.
[If companies] give a cogent plan of how this will impact your bottom line, how are you seeing things pan out over the next six months, and if the numbers stack up, if you have a good auditor, if all your transactions are electronic, you are on GST… If all of that is there and you have good governance, the comfort for the banker to be able to lend will increase dramatically.
Rajiv: My recipe for revival is predicated a lot on getting more formalisation and [resolving] information asymmetries.
Indrajit: Collateral-based funding has been the predominant mode, but there was an opportunity that Aadhaar and GST would have provided for people to borrow on the basis of cash flows. What went wrong?
Rajiv: At the enterprise level GST data still very early days. We need to have permission from the borrower to access that data. And we need continuous access to the data because life changes almost daily.
I know that now there is a move by most banks, under the aegis of IBA (Indian Banks' Association) that, whenever the lending is above a certain limit, we will have access to the GST data and that should be part of the agreement with the borrower… I think the GST itself is settling down, but I think that can become a very, very important part of what we used to call flow-based lending….
The starting position is that most enterprises need to adopt a large amount of transparency and governance. And therefore, it also behoves that the rules of business for them become easier
Indrajit: Talk about the few things that entrepreneurs need to think about if they have to move to the next level of formalization.
Ananth: For a business reset, you also need to look at how your business will be beyond Covid-19.
Indrajit: What should the digital transformation agenda be?
Ananth: We will soon go to a place where there will be no place to hide. All of your transactions will eventually be [digital]. And they will be trackable… The way you buy, sell and interact with people—that's going to be a big, big transformation. The earlier sales channel that you had—feet on the street, people going out to get business—might not be as relevant even beyond Covid-19. Be ready for [it].
As a banker I opposed digitisation tooth and nail, because I saw jobs being threatened… all that is nonsense. It will not mean loss of jobs. It means enhancement of jobs—the quality of jobs will go up. Embrace it wholeheartedly.
Rajiv: When more and more payments data comes into the system, you start forming a certain credit view, a certain flow view. That's exactly what happened in China in the last 15-20 years. Then that helps you reach your customers, reach your employees.
Indrajit: Business leaders tend not to share bad news with their people. How should you lead in stressful times like these?
Rajiv: Many industry people who have experience and expertise have stepped up to talk to startups, on a platform like this [Ficci Flo]. The idea is you share those concerns, you understand those concerns… If you put 5 or 10 of them from different backgrounds in the same conference room, you'll figure out that actually a lot of the answers lie within them.
Ananth: Every leader has to start with the conviction that there is still a lot of positivity left. It might be in the medium term, but it's there.
Take help from people, from institutions. Don't say 'There are no answers' or that 'I know all the answers'.
Sucheta: At Ficci, someone on the networking platform for business. His inventory was stuck with the government e-marketplace, GeM, platform. It was technical problem, and he connected with me, and I [could cnnect to the right person in the state government] and he got his inventory [released]. So if you network, if you talk, [it's a huge help].