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The Rediff Business Interview/ Gurcharan Das

'Swadeshi ideology betrays an inferiority complex'

Gurcharan Das, former chairman of Procter & Gamble, author, columnist and management consultant, was in Madras recently to participate in the annual celebrations of the Indian Review of Books. A product of Harvard University and a votary of liberalisation, he is currently a member of the government's Foreign Investment Promotion Council. In this interview to Shobha Warrier, Das shares his ''realistic view'' of India's economy even as he makes a mincemeat of the pro-swadeshi arguments.

In your address at the Review function, you portrayed a very rosy and optimistic picture of India in the next 25 to 50 years. Do you see China and India emerging as very significant centres of economic growth and development?

Absolutely. But China will do it fast and I expect China to be a major economic force by 2015. India is 20 years behind China. So, the south and west of India will achieve that status by 2025 and the eastern part of Uttar Pradesh, Bihar, Bengal, Orissa, the North-East will reach that level by 2050.

China is a Communist country and it has gone far ahead of India, a democracy. Is there no relation between democracy and economic development? Can democracy drive economic growth?

Democracy actually does not help drive economic growth. Certainly when it comes to reforms, it is much easier if you move much faster, if you have unitary command and if you have a reformer at the top like Deng Xiaoping was in China.

So, democracy has that disadvantage in making changes. But in the long run, democracy is more secure and more certain way of moving. And so what happens is that you have tremendous amount of debates and it takes much longer time to get a consensus. But once that consensus is achieved, it is shared by all the people. So there is a lot more sense of shared future in a democracy. Therefore, the whole process is secure and there is little risk of it going back.

How do you compare the economic growth of China and India?

China has been growing at double the rate of India. Even this year, which is a bad year for China, it will grow at 7 per cent and India will grow at 5 per cent. So, by and large, once we get out of this recession, we will become a 7 per cent growth economy and we could even go up to 8 per cent once the power reforms and telecom reforms are done and we begin to reform agriculture, education, etc.

China has been growing at 10 per cent for a decade. Therefore, it has a much bigger economy than ours is. Contrary to what many people think, Indian economy is still relatively small. If you take it on absolute dollar basis, our economy is 16th in the world, about the size of Belgium, just a little ahead. If you look at the purchase parity basis, our economy is the sixth largest in the world.

China is one of the biggest trading partners of the US. Indian exports and Chinese exports were equal in 1974; they were both $ 13 billion. Today India's exports are roughly around $ 30 billion while China's exports are over $ 150 billion. The numbers speak for themselves.

Our market is said to be big, still...

Potentially our market is big and it will grow big. Any sensible person will realise that in the 21st century, India and China will be the biggest economies in the world. Because our market is big, the process of global capitalism backed by technology will ensure that India will rise and the people will be far better off. By 2020, I think the middle class of India will be around 50 per cent.

You described 1991 as India's second independence and we grew pretty fast for sometime. But after that, there is a slowdown. What went wrong?

The main difficulty in our foreign investment is that the major investments that were going to come were to be in infrastructure, power, telecom, roads, ports, etc. We have not been able to reform ourselves to the point of being able to receive the investment. In other words, we have to create institutions, which will bring in the foreign investment.

Our state electricity boards are bankrupt. You expect foreign companies to put up power plants here. But why will they put up power plants when the customer is bankrupt? We should have worked out an arrangement, which will ensure that the new power plants get paid for the power they generate.

It is not that we do not have answers to our problems. It is not a question of what we have to do. It is a question of how we do it. It is a question of nuts and bolts. As they say god is in the details.

Our focus in the last five years should have been on the details. We were stuck. The bureaucrats were very obstructive. They were throwing the old rules at the foreign investors and the investors felt, how could we do business in India unless you change certain rules?

Who is responsible? Is it because we do not have a stable government at the Centre that this is happening?

No. I think it is a question of sitting down and doing the hard work of sorting out the issues. For example, coming back to power. If we had said, okay the state electricity boards are bankrupt. So, how is a supplier going to sell to a bankrupt customer? The first thing you have to do is to privatise our distribution of power. Once it is privatised, the bills are collected properly and electricity is not stolen by people because a private customer will not allow stealing of electricity.

The state electricity boards would definitely have become healthier by the privatisation of distribution. Once the distribution is secure, the power provider will be happy to provide with power. But not every government wants to privatise the power sector and stop subsidies. They are scared of losing their vote banks.

That's what they think. But I personally think that's not true. I think a farmer would rather pay for secure power than have free power that he does not receive or he receives between midnight and three in the morning.

Today a lot of rural areas get power only in the night. So, they can water their field only in the middle of the night. Even a farmer is not happy about this. Basically the Indian voter is a decent voter and if you explain to the voter that there is no such thing as a free lunch, that you have to pay for what you get, a decent person understands that.

The politicians themselves do not have the confidence that they can go to the voter and tell them honestly that you pay for what you get. If you say that, I think people will understand.

Why are the politicians not willing to do that?

I think it is just the mindset; they have got into populist politics or competitive politics where somebody promises two rupees for a kilo of rice. Now the voter will understand that when the rice costs five rupees a kilo, you cannot give it for two rupees a kilo. It is a slow process of educating the voter. It is possible to do it. Even the uneducated understand the basic decency on life that you don't get anything free. These are things we learn from our mother as children. Even in unequal societies, people will understand.

So, it was wrong on the part of the earlier governments to start populist measures like subsidies in the name of socialism.

Yes, I think the bad habits got started because of the model of economic development of mixed economy or the Nehruvian socialism which basically in the name of the poor tried to take actions which involved subsidies.

These subsidies distorted our economy and for sometime these distortions would continue, these inefficiencies would continue and these bad habits would continue. The people who will win in the future will be those who would be able to play the new paradigm and approach the voter with more transparency.

A person like Chandrababu Naidu?

Well, he certainly is a good example. Most people know only about his IT areas. They do not know that in villages, he has gone and created shiksha samitis (literacy units) and water management associations. He has created them at the mandal (basic village unit) level so that the villagers themselves can administer rather than the government. This way you take out bureaucratic corruption. Similarly in education, he is creating the parent associations so that the parents become more accountable.

Digvijay Singh has done the same thing in Madhya Pradesh where he has opened 20,000 schools in the last two years in the villages. People from the government go to a village and ask the villagers whether they want a school in their village. And if the villagers say yes, they find out how many parents want a school. If there are 25 parents who want a school, they are encouraged to form a grama shiksha samiti.

The government then tells them, "Look, we are not going to give you a school, you are going to give yourself a school.'' Then the classroom. Somebody has a verandah, somebody has a godown and they offer one room for a school. The teachers are from the village itself. Anybody who has passed eighth standard can stand as a candidate and then the parents select the teacher. The selected person is taken to the district headquarters to train him or her. After the training they send him or her back with school materials.

These materials are created by a non-government organisation called Ekalavya, which is all about joyful learning, about learning that is relevant to a villager. The government pays Rs 500 to the teacher and if the parent wanted to pay more, they could do so. His cheque is not sent directly to the teacher but to the panchayat so that the teacher is accountable to the village.

The swadeshi lobby is said to be against liberalisation. Recently the Swadeshi Jagran Manch held a demonstration outside Parliament against opening up the insurance sector. Can swadeshi and liberalisation co-exist?

Frankly, if you interpret swadeshi as one thing to make a strong nation, there are much more domestic reforms that need to be done. The BJP leaders themselves said they would first do domestic reforms but they have not yet done domestic reforms.

There are octrois that have to be removed, there is an uneven sales tax between states and you need to change it to VAT (value added tax) system and so on. All these would help create a common market first of all.

We got rid of license raj but we have not got rid of inspector raj. A lot of inspector raj is from the Centre, that is the customs officials, the excise officials, and others. And they harass our entrepreneurs.

The argument of the swadeshi group is that the MNCs will eat away small Indian businessmen. Do you agree?

No, I think it is nonsense. The fact is that the total foreign investment is less than two per cent of total investment. So, what are they talking about? In China, it is 13 per cent of the total investment. So, China should be worried. But they are not worried, so why should we worry?

People such as S Gurumurthy of the Manch say the MNCs would start dictating terms to the governments after sometime. If the investment of a company in Kerala was several times more than the income of the state government, they would have a say in the policies of the government, won't they?

I think it is all nonsense. Swadeshi ideology is an ideology which betrays inferiority complex. I feel the swadeshi people should have more confidence in their own business people to succeed.

I will give you an example of the Palanpuri Jains and what a success they have made in the world market. They are so successful that 60 per cent of the world marketshare of diamonds is with Indians now. There are many other examples of Indians succeeding. If you have no confidence in your own people, you will talk swadeshi.

You take little Singapore, little, little Singapore. It has far more foreign investment than the whole of India does. Who has taken over Singapore? In fact Singapore regularly lectures America on how to behave! But Singapore counts in the world market. Its reserves are over $ 60 billion. And the whole of India has only less than $ 30 billion reserves. Singapore has been created over foreign investment. So what are these people worried about?

'The unstable govts in the last 5,6 years have done more for the economy than all 50 years of stable govts in the past'

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