It’s a pleasure to be with all of you here this morning. It is always good to be amongst the young. The future of this country is really in the hands young people in their thirties and forties. We, who are older, can only encourage the young and step aside when they race ahead.
I am glad to share the dais with the not so old, Arun Jaitley. He has been kind enough to teach me a few tricks of the political trade. One may become too old to teach, but one is never too old to learn.
I am also happy to be at a Sri Ram College function because I have known Ajay Sriram & his family for decades. Business must plough back into societal development. Education is the key to this. The Sri Ram family has understood and practiced this for very long.
In my talk today I will try and present my qualitative assessment of where we are, broad contours of the way ahead and what are some of the issues that we need to address.
Indian economy is on a roll. And it is likely to remain on the roll for a long time, because the basis of its growth is both wide and deep. Width in terms of sectors that are competitive. Services have been so for a while. It was IT first, then BPOs, now KPOs in every conceivable field. Manufacturing is coming on stronger in sector after sector. Gems, Clothing were traditionally strong, but now Pharma, Auto Components, Steel and, yes, 2 &3-wheelers have gained strength. Depth in terms of the number of competitive companies in each sector. Both these are streams fed by India’s entrepreneurial culture.
Fundamentally, the Indian economy now seems to be on a higher growth trajectory. Good politics & policy can accelerate it. Bad politics can slow it down a bit. But the trajectory is unlikely to change. Sustained 7% plus GDP growth appears to be there for the asking, and 10% growth is well within the realm of possibility. There are many individual and economic forces working in favour of growth; be it globalisation and growth of the global economy, FDI, strength of Indian corporates and a societal urge to lift our standard of living and the willingness to work for it. Markets for many products and services are growing in double digits and will explode as the current per capita GDP of USD 600 per annum crosses USD 1200 per annum.
The most telling evidence comes from Indian companies increasingly acquiring companies abroad. This year so far 112 foreign acquisitions have occurred valued at USD 7.2 Bn. Not counting the mega Corus-Tata Steel deal. Last year deals totalled USD 4.5 Bn up from USD 1.5 Bn in 2004. This year outward FDI would for the first time exceed growing inward FDI!
Whichever way we look, the numbers and the progress are impressive. The 4th largest economy in the world on purchasing power parity basis, 5% plus GDP growth since 1980s and 8% plus since 2003-04, Inflation around 5%, Foreign exchange reserves of USD 165 Bn, a young demographic profile, etc.
The latest World Economic Forum's "The Global Competitiveness Report" shows an improvement, though marginal, in the global ranking of India’s growth competitiveness from 45th to 43rd. China slipped to 54th from being the 48th so India is now ahead of China on competitiveness. More importantly, in terms of Business Competitiveness, which is concerned with firm level competitiveness rather than the largely macroeconomic parameters of growth competitiveness, India is ranked 26th to China's 57th.
There is a buzz about India. Its short term and long term performance. To a point wherein IMF in its World Economic Outlook wondered "Is India becoming an engine for global growth?". Rightly I believe it concludes that though not quite so, but very likely to.
I believe that we stand at a propitious moment in the history of our nation. While we acknowledge the challenges, and there are many– a world of opportunity also awaits us. Globally India is not just a flavour of the week or the month or the year. We are the flavour of the times.
Both in the services and the manufacturing sectors, we are poised to gain from the developments in the world economy. While India's share in the global production and trade in goods and services is small, it is increasing rapidly. We are now in the evoked set of both major markets and major suppliers for a variety of goods and services. We are becoming internationally competitive despite the serious handicaps of lack of infrastructure, right from social infrastructure; that is health, education, drinking water, and sanitation, to, of course, physical infrastructure. The key reason, however, for my optimism, is the quality and entrepreneurship of our people. We have the world’ largest pool of intelligent, hardworking manpower, be it in IT, manufacturing or finance. Also, and this is very important, that demographically, we shall remain a country of the young even in 2025. We have to however ensure that we encash this demographic dividend by investing in their education and their skills.
Any society that wants to move forward needs an environment that fosters enterprise, ambitiousness, competition, openness to change, hard work and a willingness to take and reward risks. We have these in ample measure in our people and our capital markets, even if not yet in our governmental and political party mindsets.
If any proof was needed that it is the quality of human capital that determines the economic performance of a country, then it is India.
And yet we should not lose our sense of proportion in thinking about the rise of India. While adjusting its economy to the new reality and utilizing the new opportunities, we should not overlook the enormity of the economic gap that exists between India and the developed countries. There are many roadblocks that India has to overcome, before it can become a significant player in the international economic scene on a sustained basis. Though we have largely climbed out of the ditch that we had dug ourselves into during the controlled economy mindset between 1960-90, we are still at the base of the mountain that is to be climbed.
It is clear that we have to focus on growth, look for areas where we can grow and facilitate it by removing impediments to growth in them; but we need to make our growth inclusive, else we will not develop in a sustainable manner. Inclusive in a positive and pragmatic manner, not in a populist, politically expedient manner.
The fact remains that we still have unspeakable pockets of poverty in rural and urban India. The growth of the economy is skewed geographically, within income groups and among sectors. We have farmers committing suicide in droves in some areas because agriculture is no longer viable. We have some parameters like malnutrition amongst children that places us in the league of least developed countries. Therefore, there is a need for a sense of proportion and a set of sensible priorities.
Growth has made a dent on poverty. From 36% people being below the poverty line in 1993, we now have 22% below it. This is progress. However, this masks wide differences between states. In some states still over 40% of the people are below the poverty line. We can't have such a situation and expect social stability. We must remember that a fourth of our districts have been declared "naxalite affected".
We must ensure that the pattern of growth is such that whoever is striving should have a sense of progress, a sense of a stake in the system. Enclaves of prosperity can not thrive in a sea of despair. Those that succeed should be creators of a community of hope.
The world is multi dimensional. Economy is one axis, Society & Family are another, Politics yet another. Developments in any of these axes influences other axes. It is their balance that will determine outcomes.
Let me briefly run through these dimensions. I am an industrialist not an academician. My perspective is one wherein one has a reasonably accurate picture of a phenomenon. One may have one's preferences but one must be aware of the lay of the land on which one walks. Broad brush perspectives are adequate for my purposes.
Economy: To a group of students of commerce and economics, I have nothing very new to say, but the very nature of the globalised economy that we are now a part of, is that change is the only given; and hence one needs to constantly update one's assessments of opportunities and challenges. We can only appraise a company on a global basis. Till 1991, this was not necessary. We were part of a closed economy. Now the opportunities and challenges are global. No Indian company can prosper for long if it does not compete in global markets. There are no longer isolated wells in which we can live. There is only one giant ocean that we inhabit. Being very clear about this is important. An earthquake in Indonesia can become a tsunami in Chennai very quickly.
We have the advantage of good quality people and significantly lower cost. But the game now is increasingly lost or won in the product arena and not just the cost arena. Mopeds cost Rs. 20,000 but have 5% of the Indian market. Motorcycles that cost almost twice this amount account for 85% of the market. It is essential to invest in R&D and in networking with global sources of technology.
In this scenario what should business do? I believe it should continue to push the envelope as it has been recently doing. The Indian growth story is largely the result of our entrepreneurial spirit and an achievement oriented society. We have to adopt a global viewpoint on both threats and opportunities and plan and act accordingly.
During the last fifteen years, Indian industry has gone from exuberance at the opening up of the Indian economy, to being shell shocked by the fierceness of competition, to finding its feet. In the last 3-4 years we have witnessed the turn around of Indian industry. This is why, despite everything, industry is growing, exporting more, investing more. I am very optimistic about our future. The best is yet to come.
Indian business has its work cut out for itself. Develop and strengthen in the domestic market and move into overseas markets. Also, look around the corner for newer products and technologies.
We have to leverage our already good and improving position in services. We have to move up the value addition ladder and are already on this path.
For improved competitiveness in services and also for manufacturing we have to strengthen our education system. Since most of the expansion of higher education institutions is occurring in the non-government sector I am sure the focus would shift from quantity to quality. Entry of foreign institutions should be encouraged. Right now there is a bit of a policy vacuum about it, which needs to be corrected.
We can not afford to neglect agriculture. Just too many people are engaged in it. With widespread subsistence farming I do not think market oriented farming is a practical proposition. The risks in rain fed agriculture are too high to make an input intensive strategy viable. Contract farming is in its infancy but eliciting much interest from corporates and farmers. However, I believe it will work only in pockets with irrigation, infrastructure and entrepreneurial farming communities. The likely shift to mass retailing may give a fillip to contract farming. But I believe that the existing Indian agricultural trading system, though not without its rough edges, is an efficient, low overhead operation and competing with it will not be easy. I believe dispersed industrialisation can provide the basis for a prosperous agriculture. The dormant government machinery has an important role to play in providing services to Indian agriculture.
Urbanisation is a reality, but when a city grows beyond 20-30 lakh people it creates more problems than it solves. In a fundamental sense it becomes unmanageable. We have to therefore create more poles of urbanisation. Even better, we should improve the incomes in agriculture and provide good schooling, health and transportation infrastructure in rural India so that people are happy not to move to towns. It is because of the complete breakdown of this infrastructure that there is a scramble to the city. In the whole of Northern India there are possibly fewer liveable cities today than was the case even 30 years ago.
In 1991 we moved from a closed market to a progressively open one. But there are pervasive remnants of the closed mentality in the nooks and crannies of government. Hence, there are a number of pending issues, most importantly in electricity and labour policy, that are not conducive for business development. There are all kinds of economic distortions in the economy that skew decisions - from non-merit subsidies, artificial prices, politically expedient investment incentives etc. Corruption continues to be a serious concern.
We in industry have to keep seeking reform and at the same time continue to do our best under conditions of no or partial reform. The momentum generated by economic growth will slowly loosen the boulders in our way.
One of the unfortunate developments in the last 15 years in India has been that internal liberalisation has not kept pace with external liberalisation. Import duties and FDI have been correctly handled, but the constraints on domestic producers have not been dealt with adequately. Inadequate infrastructure and rigid labour laws are major handicaps industry in India suffers from. These require difficult political choices to be made. The rationale for external liberalisation can always be laid at the altar of the WTO!
India today is one of the most open and transparent markets to operate in, in the developing world. After the Dubai Port episode in the US and the Arcelor saga in France, leave alone the protection to agriculture in the developed countries, we need not be diffident about our policies and practices regarding external liberalisation. There can be further external liberalisation. But this is not the what is holding back domestic or foreign investment. The slow pace of internal liberalisation is.
Globalisation ,on the balance, is both inevitable and a force for good. Yet, it has to be understood and managed by countries keeping in mind their enlightened self-interest. Untrammelled globalisation can not and should not be an end in itself. India has the size and the quality of manpower to at least attempt to deal with the rough edges of globalisation. We have to ensure that inequity among nations reduces rather than increases, as has been the case till now. For that we need fair global trading and investment rules.
From the economy let me move to the social realm.
Our family system is by and large helping our economy grow and ensuring that our society remains healthy. The support for education in our families, the selflessness of parents, the stability of our marriages, matched by the efforts of our children, are exemplary. I realise this is changing in large cities in upper income groups, but India lives in its villages and small towns and we have a large, striving middle class where these values are by and large still valid.
Building a sense of shared future in any society is difficult. And, in India, we are too diverse a nation to believe in jingoistic nationalism. However, our country has evolved a deeply ingrained sense of "Sahishnuta". Live and let live. We can argue about the origins, the causes of this concept, but it is a living tradition in our country. We can live with diversity. We do not want to impose a single idea on everybody. We can’t because each group in our society is a minority in its own way. What we have, our culture of tolerance, is something the world is trying very hard to metamorphose into, but without success. We should cherish this. But as happens often enough, what we have, we don’t value, because we don’t understand its value. What none of us should forget is that first and foremost we are Indians-proud Indians.
Let me now come to politics, my new found area of interest.
The key drag on the economy is our political and bureaucratic system. They have no requirement of being globally competitive! Also, we have a huge negative legacy.
As of now, a majority of Indians are outside the virtuous circle. Till they are outside, political parties are going to pander to them. In a recent paper, Robert Bates of Harvard, studied the link between political and economic reform in Africa. He came to the uncomfortable but credible conclusion that the pressure to be re-elected makes politicians both fiscally imprudent and encourages them to focus on redistribution rather than growing the cake. Until the electorate consists of people who are out of poverty or who realize that what appears politically pro-poor is in economic terms often not so, we can unfortunately expect left of centre economic policies to hold centre stage in India. In Bihar, it took 15 years of lack of development before the electorate revolted.
Also, the composition of the parliament, wherein coalition governments seem inevitable, is not conducive to big ticket reform. Governments would be hesitant in pursuing big ticket reform, but would go along with sectoral policies and decisions that are reform oriented. Reform by stealth if you please. Some state governments, like Haryana, Tamil Nadu, Gujarat, Maharashtra and even communist ruled West Bengal, have been investor friendly. It helps that at the state level they have clearer legislative majorities.
We need good governance to achieve our goal of sustained, high rate of inclusive economic growth. This will come from changes at the top and pressures from below. The pressures from below will increase, as economic and social development makes our people more self-assured and more articulate.
Competitive politics is unfortunately accentuating identities, because that is where vote banks can be built. But we now seem to be reaching a point of diminishing returns from such politics. At least I hope so. The winners are, and most likely will increasingly be, those who can successfully build inclusive identities.
To ensure that we are able to take hard decisions, the Lok Sabha and all the State Assemblies should go to elections simultaneously; co-terminously, and only once in five years. From 1952-62 this was very much the case. To make this possible we shall have to legally ensure that a vote of no-confidence in the Leader of the House, the Chief Minister or the Prime Minister, is like in Germany, accompanied by a positive vote-of-confidence in an alternate party and person.
Quality of leadership is crucial in determining outcomes. Leadership is not just a matter of charisma or showmanship or public relations. It is of understanding today, it is of envisioning a better tomorrow and having the confidence in oneself and of one’s team to make our future happen. Leaders are those that deliver better outcomes. Occupying a chair does not make one a leader.
Gandhiji occupied no chair but led the country from subjugation to freedom, striding like a colossus. . We will do well to remember Gandhiji’s teachings of the seven social sins – wealth without work, pleasure without conscience, education without character, commerce without morality, science without humanity, worship without sacrifice and politics without principles. In my view we have under-achieved precisely because we have ignored these teachings.
India is a land of thousands of Gods, many peoples. Of many ideas and dreams which have coexisted for a long time. This will continue to be the pattern of Indian culture and the Indian economy. I believe the Indian ethos of tolerance, of assimilation, is a great asset. We may be influenced by the world but will not be swept off our feet by it. India appears a country with a lot of turmoil on the surface, but with innate stability, as behoves an open, democratic society with a free judiciary and press.
So, my dream for India, in say 20 years from today, is a country where poverty has been banished. Where parental income is not a barrier to good health and education, where talent is encouraged, achievement celebrated and the less strong can live with dignity. A country retaining its age-old humanism, tolerance of differences and a world view that is a cross between that of a yogi and an entrepreneur. A country that retains its soft power in offering an alternative, attractive way of life that celebrates life, to the world. Where the past and the future complement each other in the present. It is not that important to me whether or not we are a so-called economic superpower tomorrow, though a sustained, high rate of inclusive growth will in all probability make us one.
Over a century ago, Swami Vivekanand , a great cultural nationalist, who believed in India, its people and their destiny, said something that still resonates remarkably. I can do no better to summarise my thoughts than to quote him. He said, “Let us all work hard, my brethren. On our work depends the coming of India of the future. She is there ready waiting. Arise and awake and see her rejuvenated, more glorious than she ever was-this motherland of ours.” If there can be a thought that drives us in India it is this. If such a thought drives a country, nothing and no one can stop it from realising its dreams!
You, my young friends, are the future of our country, a country poised for a great transformation, that will give it its rightful place in the comity of nations. This is your privilege. This is also your responsibility. Do what will make you proud of yourself, your family proud of you and your nation proud of you. Material achievements are necessary, but it is the non-material that endure. My best wishes to all of you for this journey, called life. God speed and God bless.
Thank You
