I was idly watching ships gliding into Bombay harbour from my balcony on a recent Sunday evening when my phone started to ring insistently. I felt too tranquil to pick it up, waiting for it to go into the answering machine. It did. After a few minutes, the phone resumed ringing again and once more I let it go to the answering machine.
When it rang the third time, I reluctantly went to pick up the phone ready to curse whoever the person was calling us as a wrong number.
"I need to speak to you urgently," said a vaguely familiar voice.
"What wrong, Vikram?" I asked. "What's so urgent on a Sunday evening that you should call me after so many years of not being in touch?"
"The bank is auctioning my flat this week, I need money to pay them off immediately and you are the only one I could think of."
Over the next few minutes, he recounted his story. I hadn't met Vikram since the early nineties. When I had last heard from him, he was running a small manufacturing unit in a small town outside Bombay, making plastic parts for a nationally famous luggage manufacturer.
As the luggage manufacturer prospered so did Vikram. Not bad for an engineering graduate from a Tier-3 college, he used to boast. Vikram's bar was always well-stocked, he took his wife and daughter occasionally to Singapore and Phuket for shopping and holiday trips. Vikram worked long hours.
And then the economy got reformed. Instead of multiple suppliers of plastic raw material who Vikram could deftly play against each other and get cheap prices, his suppliers merged or were bought over by the dominant one who now dictated his and demanded cash on deliveries.
His main customer whom he had served so faithfully all these years suddenly found a Chinese vendor whose landed prices in Bombay were so low that Vikram's profit margins became wafer- thin. He was forced to extend more credit to his customers hoping to keep the business. Strapped for cash, Vikram pledged his factory real estate and his residential flat to a nationalised bank for desperately needed funds for working capital.
The spiral was slow but certain and finally the day dawned when the bank manager could no longer be "persuaded" to wait. His case was declared sick and sent to the Debt Recovery Tribunal, which after a few hearings issued an order to recover the bank's dues by auctioning off his assets.
The only catch was that, by now, the amount he owed the bank was far in excess of the value of the assets he had pledged.
It was mid morning the next day when I went to visit Vikram to see all this for myself. I found him with a glass of vodka at the kitchen table in his tiny flat, watching his wife cutting vegetables for lunch. He was only in his early fifties but looked like he was in his seventies.
"Why aren't you at work?" I asked.
"The bank has put a padlock on my unit door some months ago. They don't let me operate till I pay back the dues."
Later that morning I went around with him to the other units in that industrial estate. Many of them bore that seal of entrepreneurial death, "This unit is pledged to. . . [bank name]," which allows a bank a risk-free recourse to the entrepreneur's assets in case anything goes wrong.
When we meet at conferences on entrepreneurship and venture capital, it's not units and entrepreneurs like Vikram whom we have in mind. We think of software or biotech companies started by bright young men with glittering degrees from the IITs and IIMs.
Yet, entrepreneurs like Vikram, running low-tech businesses, employing a dozen or so workers, constitute the vast majority of Indian businesses.
What financial institutions and laws govern their fate?
While it is hard to argue that such units should be "protected" either through differential excise duties, or indirect or direct tax breaks, we need to study how other countries deal with issues of this kind.
In the United States, where we normally assume the free market to behave in the most heartless manner, several states statutorily bar lien on the primary residence of entrepreneurs.
Fortunately, this story may have a happy ending. In the months that it has taken the courts to finish its hearings and get down to auction, property prices in Vikram's area have risen so sharply that what was once a factory asset worth well below the amount due to the bank, now almost covered the dues.
Vikram may, with luck, and if the property prices keep rising, may pay back his dues and still have his apartment, at least for himself.
Now, a year or so from that first phone call I am back again on my apartment balcony watching ships glide into Bombay harbour, trying to figure out what the moral of these events in Vikram's life is.
Is it that successful economies, like the US one, view business failure as a natural consequence of enterprise and set up institutional processes which encourage people to take risks by protecting them from the consequences of policy change? Is it that prejudice against businessmen, unless they are large or successful or graduate from elite institutions, runs so deep in our veins, as Indians, that these prejudices are subtly reflected in our institutional processes?
Or is that so long as the economy grows at a rapid pace, things will take care of themselves, as they may in Vikram's case?
Ajit Balakrishnan is the founder and chief executive officer, rediff.com.
Comments welcome at ajitb.rediffiland.com
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