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The Rediff Business Special: Shalabh Kumar

Dear Mr Sinha

In your second innings as the country's economic czar begins, you will find any number of people willing and able to advise you. I hope you listen to them. But more than that, I hope you listen to your own conscience because you carry the hopes and aspirations of a billion people on your shoulders. And while it is heartening to see that economic policy remains an important and high priority area in your national agenda, some concerns remain.

Ideologies don't count, results do. In talking to economists, you will find that quite a few of them are wedded to the ideologies they propagate. The model itself becomes more important than the practice. This is especially true of the recent converts to the ideology of market capitalism.

While this economic model has many plus points, its acceptance as a panacea for all economic evils is stupid. Blindly following any ideology is likely to take us back to the last 50 years where adherence to a half-baked ideology -- 'Nehruvian Socialism' -- took precedence over the results that it delivered. Blind acceptance of either the liberalisation process or swadeshi is likely to put us in the same straitjacket.

Each has elements that are today relevant to India. The smart man will pick what works best for the economy and cock a snook at the proponents of either ideology. It is necessary to adopt what works for us without giving any kind of label to the model. It is also necessary to recognise that what works today will not necessarily work in the future, making it all the more necessary not to lock the economy into any inflexible economic model.

India built by Indians

The core principle of this economic policy is very sound. India will definitely not be built by the Americans, the British or the Japanese. It stands to reason that these people will be more interested in building their own countries, the USA, UK or Japan. We also have the example of the tiger economies as well as Germany and Japan which have been built by the genius of their own people, with foreign aid only being the initial catalyst.

There are, however, a number of caveats which underlie this principle. The first is to accept that we cannot hide ourselves from the global economy. In fact, we do not need to because the global economy offers us an opportunity to build India by legitimately reclaiming a larger role in the global economy. To be able to do that, we need to build confidence in our ability to deal with the outside world, in our ability to tackle foreign business in free and fair competition. The last thing that we need to do is to build a phobia around foreign business, a fear which transcends the reality of their strengths and prowess.

A fellow columnist Rajeev Srinivasan puts it very eloquently in a recent article. He speaks of a people which is "….entirely self-confident and deals with foreigners with neither deference nor alarm: not for us the craven worship of the uttering of some Commissar or Ayatollah or Pope; nor the fear of competing with an IBM or a General Motors or a Rupert Murdoch."

Second, to build India by Indians, you will need to unleash the creative and entrepreneurial genius of the vast majority of the Indian people. India will not be built by protecting select members of the Bombay Club -- it will be built by a movement which will envelop a great number of Indian people. The Independence movement acquired teeth when Gandhi took it to the people. The information revolution was brought about by millions of zealous computer freaks working on their own. No grand design is needed.

We just need to throw away the chains that have shackled Indians in the last 50 years, through a system of incentives, a pride in what they are doing, and an environment which encourages enterprise. Somewhere in India, you have a Bill Gates, a Jack Welch and an Andy Grove. These are the individuals who will build India in the new millennium.

Competition

One of the strongest lessons of our experimentation with a planned, closed economic model is that business needs competition to be efficient and effective. We need foreign competition in India for two reasons: one, to make Indian business efficient in the domestic market; and two, to arm Indian business with the confidence to compete with these same competitors in foreign markets.

To the legitimate worry that Indian business is not ready to compete with big MNCs, I have an analogy to offer. The success of the Indian cricket team against Australia, the unofficial world champions. In the domestic market, you need to load the dice in favour of local business -- not by subsidies, which make businesses inefficient, and not by protection but by incentives for efficient performance.

Lower taxes, lower interest rates, lower power rates, lower income taxes for people who work for local companies…. This is similar to preparing spinning tracks for the Australians. You do not need to stop competing, but create conditions that if local business performs to potential, like the cricket team has, success will be theirs.

Foreign competition should be free to invest in every sector. The fact is that the presence of a P&G or a Kellogg's has done little harm to Indian businesses that they have competed with. Consumer goods will remain a favoured investment destination because the domestic market is already large and developing. More importantly, competing with these MNCs will give domestic firms the confidence to be able to take them on in the global arena. With a large domestic business supporting the efforts in the global arena, the consumer goods sector, especially the processed foods industry has the potential of developing into India's competitive advantage in the 21st century.

The role of the government

The national agenda is quiet on the pre-poll promise of the Japanese MITI-type institution to support identified sectors of the Indian industry. I hope it is not an idea which has been buried like so many other electoral promises. While the government has little business running businesses, it can dramatically alter the competitiveness of a sector if it plays the role of a coach-cum-manager. The MITI model is now too well-known for me to dwell on it in detail. The MITI ran Japan Inc. Maybe we cannot afford a similar body to run India Inc. The risks of political and bureaucratic subversion, creating another monolithic Planning Commission, are too great.

There is merit, however, in creating individual agencies for specific sectors. One for the IT industry, another for food processing, another for armaments. To be effective, these will need to have representatives from all stake-holders -- manufacturers, suppliers, bankers. Aggressive industry growth, domestically and globally will be the only mandate of these bodies. The government's role will very clearly be defined as that of the manager -- ensure that the members meet, talk, and agree on joint-action plans.

The public sector is another area crying for attention. Your national agenda states -- "We will also expedite comprehensive reform of the PSUs, including restructuring, rehabilitation and divestment." I hope the words do not reflect the priorities. The one clear lesson of our failed marriage with socialism is that running of business is best left to private enterprise. At stake is not the share price of Indian Oil in the free market, but a far more fundamental issue.

Will the government continue to be a businessman and make a mess of it, or will it start doing what it was mandated to do -- govern? The words "restructure" and "rehabilitate" scare me. They tell me of a government which sees itself an active player in business. Trying to do a Jack Welch on our PSUs is a noble intention, but a popularly elected government will never have the wherewithal or the will to do that.

This letter is not meant to be a complete examination of the issues that confront you. I hope, however, that it will be of use to you as you get going with the difficult task ahead.

Sincerely,

Shalabh Kumar

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