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The Rediff Business Interview/ Gurcharan Das

'I won't say that we need a strong government for economic growth'

Part I

Gurumurthy also talked about materialistic culture taking over Indian culture which is spiritual. You said liberalisation is baniyanisation of India as people are no longer guilty about making money. Are baniyanisation and material pursuits one and the same?

I'll say again, we should have confidence. Has our culture not survived the Moghuls, the British? Don't you think it will survive Coca-Cola? I have a lot more confidence in the survival of Indian culture than they do. The important thing for us is to take benefits, take advantage of the global economy rather than looking at ourselves constantly as victims.

What are they talking about? They talk about potato chips versus computer chips. The trouble is you cannot choose from potato chips and computer chips. The global investment community is a linked one. You try to discourage Coca-Cola, you will see that your hi-tech industries also will get affected. Because India will get a bad name as a place to do business.

Remember the way we were treated when we threw out IBM and Coca-Cola at one time. So, you cannot start differentiating. It is not easy to differentiate too. But then how do you do it? They say that we don't want consumer products but what is a consumer product? Is the PC a consumer product? Is that a hi-tech product or not? What about a telephone? Is the telephone a consumer product or not? Where do you draw the line? So what happens then is, you give the power to the bureaucrat to make the decision and again you start the licence raj through that process. We will make our people corrupt again.

Let me ask you. What have we done in the last 50 years following swadeshi?

Where did it get us? We ended up on a dead-end street and there was no exit!

You talked about Adam's Theory of Convergence. You said, as the West was eight times richer than the rest of the world, when trade and investment take place between the rich and the not-so-rich, the poor would come up to the level of the rich. Will it not happen the other way, the rich coming down to the level of the not-so-rich?

I think to some extent that also can happen. Because the wage rates in the West are dropping. The jobs are getting transferred. The employers say that a worker in China is getting less wages. So, the American worker gets affected. A lot of American companies are laying off their workers. The workers tell them, okay, you were paying us $ 20 an hour till now but we are willing to work for $ 10 an hour. Some are even working for $ 5 an hour so that they can preserve their jobs.

So, yes, America and the Western countries have a lot more to worry about as far as the global economy is concerned. There has been a downward movement in the wages in the West. There's no question about it. Therefore, when a worker in India rises, the American worker may struggle. Eventually in a free market, it equalises.

Does that mean after a certain period, if all the countries are inter-linked by business, there will be some uniformity in their wages, lifestyle, etc?

Yes, there will be some degree of uniformity. I will not say that we will reach American salaries. But our people will rise a lot.

There is a view that Nigeria should have been a big economic power if the Theory of Convergence were true as they got a lot of foreign investment and there was trade between Nigeria and Western countries. Why did Nigeria remain poor?

Yes, Nigeria opened up. The problem was that people took their money abroad, and that was of course a very harmful phenomenon. So, we have to have institutions. I am not saying that the state has to disappear. The state cannot disappear. State has to liberalise its policies and gradually trust its citizens and open up. Do you hold the state -- the military regime -- and the widespread corruption responsible for the country's poverty even though it is liberalised?

Well, if Nigerians had responded by taking advantage of the investments to create wealth within Nigeria, they would not have remained poor.

You need a state to oversee all that.

You need a state but you also need entrepreneurs. You need institutions too. My feeling is that a lot of investments in Nigeria were never made. Money was just taken out of Nigeria. Mafia and crooks were operating there. No nation will progress that way.

You said as far as economic growth is concerned, we have reached a plateau. Why do you say so?

Currently we are in a recession. The fact is that capitalism is not a smooth ride. You don't grow year after year after year. What happens is there are business cycles. The psychology of entrepreneurs is such that they are like a herd. After all they are passionate human beings. And they don't behave rationally all the time. So, what happened in India partly was, between '93 and '96, we had tremendous investments. So you had excess capacity created. The demand did not pick up so there came a situation where supply was greater than demand. The recession was partly caused by that factor. This is what is called a business cycle.

What else are the reasons behind this recession? They say that 1999 is going to be the toughest. Do you also feel that way? How can we recover?

I am not sure whether I have the answer. I know that we will recover. I don't know when we will recover. I also know that we are currently in very serious trouble. Yes, some sectors are not doing too badly. Infotech and pharmaceuticals.

Yes. Wherever India has a competitive advantage, we are doing well in those sectors. The demand for consumer products continues. Even for some white goods, the demand has picked up. Colour television market is strong. So, you have sectoral problems. But by and large, it is pretty bad. I have no answer to your question as to when it will recover.

How can we recover?

The recovery will come partly with confidence. The trouble is the economy is doing better than the confidence. The confidence is much worse. So, the businessmen have to gain confidence and start investing. Once they start investing, it will improve.

Do we need a strong government for economic growth?

I am not a 'statist'. I won't say that we need a strong government for economic growth. In the last 50 years, we thought we were practicing socialism, but it was only 'statism'. 'Statism' is overbearing bureaucracy, which obstructs the process of growth. Of course you need the State.

Does that mean stability and strength of a government are immaterial?

Yes, stability gives confidence. And confidence will revive investment. Investment will revive jobs and growth. I believe in a small government. You need a government because you need law and order, you need judiciary, you also need an umpire. You need a State for giving primary education. You need a State for health. You need for defence. That's all. Those are very important functions.

Certainly stability will help us. These unstable governments in the last 5-6 years have done more for the economy than all 50 years of stable governments in the past. Stability per se is not necessary. It gives confidence to people because their minds are set. All these governments are trying to reform. The BJP government is trying very hard. The Internet policy, the whole IT policy -- it's a revolution. They are trying to sort out the problems of the power sector and the telecom sector.

You said we would not go back from liberalisation. But in Russia, it has failed. People cannot withdraw their own money from the bank. There's no bread for them, no clothes and now the people say that the Communist regime was better. Will the present recession force people to go back to Nehruvian socialism?

I don't think that's going to come back in India. In Russia, they did not have institutions. They did not have the entrepreneurial class that was totally destroyed. So, they didn't have business that could respond. And they dismantled the State completely. So, you created a linkage with the global economy without any institution. In India, we have institutions.

In your speech at the Review function, you narrated the story of Raju, a teenaged tea-stall worker who, inspired by a television show on Bill Gates of Microsoft, nurses dreams of studying computer science and starting his own firm in his village. Will this recession shatter the dreams of youngsters like Raju?

No. Certainly the process is slow. When you are growing at 7 per cent, you are creating 10 million jobs. When you are growing at 5 per cent, you are creating only three million jobs. So, you are losing three million jobs a year. Certainly the livelihood of three million people get affected every year. There is disappointment and disillusionment. But what I have said is about the forces that have been let loose. These forces will change the attitude of Rajus. And that attitude will not easily go.

Is that the reason why you painted a very optimistic picture of India?

I think it is not optimistic. It is realistic.

Photographs by Sanjay Ghosh

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