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Business Commentary/Mahesh Nair

Wanted: Leaders

Last fortnight, when 59-year-old Ratan Naval Tata, chairman of the $ 9.5 billion (Rs 359.36 billion) Tata industrial conglomerate, unveiled the model of the soon- to-be-released Tata small car, there was a gasp of disbelief.

The surprise was not that Tata could manufacture a car. It was that he could make one that was so good -- technically, stylistically, feature-wise -- and sell it so cheap a price. Considering that Tata products such as its trucks and buses, multipurpose vehicles, and sports utility vehicles are hardly state-of-the-art models, the small car is a clear example of a paradigm shift within the House of Tatas.

Why did Ratan Tata do it? If you consider the contribution of business to the Tata group's kitty, two of them -- automobiles (27.75 per cent ) and iron & steel (24.88 per cent) -- account for more than half of the group's total turnover. In both these businesses, increasing competition is gradually pushing Ratan Tata against the wall.

In the case of iron and steel, more efficient, cost-effective and modern plants than the group's units are being set up in the country by other industrialists. A mini-steel plant can even be wholly imported these days!

The heavy vehicles segment, Tata's milk cow, is also driving into competitive terrain. Volvo and Daewoo are getting to launch their products, technologically much superior to what Tata has as of now.

So what do you do when you know that your market share is going to shrink? When you face an impending crisis?

There are two ways out:

One is to whine and blame the conditions for it -- the government policies, tariff rates, market forces, unfair business practices, etc;

The other way is to turn the crisis into an opportunity. As Manmohan Singh, India's former finance minister credited for ushering economic reforms, says, " When you are in a crisis what do you have to lose? You cannot be in a worse position than you are in. So why not take a radical step and change the mindset in which we approach the problem and tackle it."

To turn crisis into opportunity you need to be a leader. And that is, sadly, what India lacks, especially in its polity. "The common complaint is that India is such a huge country with so many different elements and interests that the only way forward is through consensus. But that is a load of rubbish. It's only leadership that can take crucial decisions. In a consensus you will be forever sacrificing what is good in the long term for what is good in the short term for a group of people," remarks Lord Meghnad Desai, professor at the London School of Economics.

Unfortunately, with coalition politics now increasingly becoming a part of government functioning it will be all the more difficult for leadership to pave the way for economic reforms. Take, for instance, the 13-party United Front government's two major economic decisions.

In the case of India's highly protected and subsidised oil sector (whose deficit cost to the exchequer had risen to almost Rs 180 billion), it arrived at a consensus to do away with the administered price mechanism and put in a schedule for market forces to determine the prices of petrol, diesel and liquefied petroleum gas. While it was still a long way from reforming the sector (kerosene continues to be a holy cow and is highly cross-subsidised; aviation fuel is much cheaper abroad than here as a result of which domestic air tickets keep soaring), the United Front government did proceed on the right track of dismantling the APM regime. You could give it 55 marks out of 100.

But what did consensus do on the Pay Commission Report? The Commission had recommended that sops of about Rs 130 billion be given to government employees to bring their pay on parity with the private sector. The coalition government, setting an example for future Oliver Twists, approved an additional Rs 50 billion! Instead of bargaining hard, it decided to please everybody and be in the good books of a potential vote bank.

Who suffers?

We do. The next government will. Because to raise these resources the government will have to tax someone somewhere.

Let's see what leadership can do in a crisis. Orissa Chief Minister J B Patnaik realised that if nothing was done, Orissa would be one of the most economically backward states in the country. He realised that Orissa, incidentally, had the potential of becoming India's biggest power generating state, thanks to its resources and location.

The only drawback -- and this is a common complaint of every Indian state government -- was its huge loss making state electricity board. He roped in international consultants Price Waterhouse and decided to turn the crisis into an opportunity. He privatised generation, transmission and distribution of power within the state. He is also using the additional funds to cater to the training an rehabilitation of the employees of the state electricity board.

Today, the Orissa experiment is widely hailed as being the model for other states to follow. Orissa, incidentally, is amongst the top three states in India to attract foreign direct investment.

Says Dr Surjit Bhalla, international money markets expert and a member of the government's Capital Account Convertibility Committee, "A crisis is good. In fact, we have progressed economically only when we have had a crisis, like in 1991." According to Dr Bhalla, a crisis is the best time for a leadership to put in action a radical plan. "Look at the pathetic finances of the state governments. Why can't they float state bonds to fund their deficit? Why can't the SEBs be privatised like in Orissa?"

There are other opportunities waiting to be made use of. For instance, pension funds. The government does not allow private pension funds. Neither does it invest the huge corpus of pension funds lying with it in the infrastructure sector where it is ideally suited for long-term finance. By the most conservative estimate, the pension funds lying "unused" in India is more than $ 1 billion. What is it that prevents us from converting this into an "opportunity" to tackle the "crisis" in the infrastructure financing?

To do this you need to be a leader. And by a leader I don't mean somebody who has a large political base. A leader is one who is able to spot the crisis and turn it around. Ratan Tata did it. Manmohan Singh did it. J B Patnaik did it.

Have you ever heard of a consensus committee doing it?

Mahesh Nair

EARLIER FEATURES:
Interview with Lord Meghnad Desai
The Auto Show