Business analysis is no government’s business
PremiumThe Centre’s efforts to ease business and tighten rules must not take it into fields of activity beyond its role and ken. Specific bankruptcy risks are for enterprise stakeholders to track
The role of government in general should be kept to providing a policy frame that lets private enterprise thrive on its own. Fields of business do require rules, but regulation should be minimal, and while the state must collate key financial data on private firms, as India’s ministry of corporate affairs does, it must let markets and businesses look after their own affairs. Curiously, though, a new proposal under the ministry’s consideration seems to overlook the limits of that role. In a slew of research projects getting a look-in, including one on asking unlisted companies for climate reports and another on integrating its MCA21 database with those of other regulators, what stands out is the idea of making bankruptcy forecasts based on data filed with it by businesses. Tools of data analysis may allow patterns to be spotted for such risks to be assessed, no doubt, but no such exercise should get a go-ahead without clarity and discussion on what end it is expected to serve.
As with a call for information on sustainability and the easing of business regulation and reporting—data filing duplication must end—that an integrated database would enable, the Centre’s ability to crunch numbers and acquire a solvency monitor could well have a public purpose. If an anonymized trove of meta-data is used as an aggregate indicator of businesses on the verge of going bust, it could act as a policy input. Less general motives are also plausible. Since watching out for workers, small investors, suppliers, etc, is a legitimate aspect of the state’s oversight remit, the government has an interest in forestalling bankruptcies. As an owner of banks that lend to businesses and have often needed fiscal back-up, it also has a big financial stake in debtors staying worthy of credit. But still, on specifics, it should exercise restraint. Unless a bankruptcy occurs, for which defined processes are in place, any take on its likelihood is essentially an opinion. For specific cases, forming such opinions on the basis of business analysis is the job of lenders, investors and other direct stakeholders, guided along by credit rating agencies. It is they who must keep watch, guard their interests and mount rescues in good time. They may have done a poor job of it, as our recent record shows, but that does not justify government intrusion. Even if the proposal is academic rather than actionable, it could generate sensitive data under a government stamp. Any publication—or leak—of likely failures that are identifiable could unsettle such firms, possibly even tip them over, should perceptions of their weakness impact operations. The ministry’s tools could also be challenged, conceivably, given that tracking such risks is not a competence it can claim superiority on, which would expose it to needless controversy.
To be sure, the government sits atop loads of data that could be mined in beneficial ways. It has also put together a plan to open up chunks of it for public access. Within privacy limits and with adequate safeguards, this is welcome. Indeed, independent business analysis can be aided by this initiative. The processing of data by the government itself, however, must go strictly by clarity on objectives, and that too, after wide consultation and due deliberation. Any monitor created for a reading of the private sector’s pulse should only be for big-picture trends. It would need to be rigorously tested and must have no scope for arbitrary calls on companies. Instead of venturing into a tricky domain, the Centre should stick to its wiring.