Column: The India hype is ahead of reality

(FE 06/04/2006) The economic growth India has achieved, to quote the finance minister, is ‘quite a heady mix’ and we saw the effect recently in Davos, where the world looked at India with great interest. We discovered our importance in that milieu. We even believed in what we were saying in that we have ‘arrived.’ Today, when we talk of double-digit growth, it does not appear to be so raucous.

If we analyse the profile of this growth, it is clearly fuelled by private enterprise. In the past few years, private enterprise has blossomed—unshackled, it is finding new business opportunities and crossing the shores of the country. It is truly a statement of what enterprise can achieve despite problems. It is also a demonstration that democracy (in the context of developing countries) is capable of delivering such growth, and that private enterprise, operating within the confines and pitfalls of a democratic set-up, can still flourish. India’s success demonstrates that democracy and economic growth in developing economics are not in conflict.

This growth has three major components. One of these is the manufacturing sector, whose competitiveness has increased enormously in recent years. It has come about with companies becoming more productive on the shop floor and more conscious of customers’ demand for quality. This is not confined to the top echelons of industry but has cascaded down. Japanese words such as kaizen and muda are now a part of the shopfloor lexicon. In an economic sense, this means we have used less capital to get more output, enormously increasing the capital-output ratio of the manufacturing sector in recent years. We must also recognise that this has happened despite strong inhibitors, including lack of labour flexibility.

The second area where private enterprise has contributed is the export orientation witnessed primarily in the services sector. This sector has demonstrated our ability to deliver value and succeed in a high-tech industry. It is a case of proving the impossible: global success despite a poor image of brand India. It is an extraordinary statement—a snake charmer can also compete in the software industry.

The third component of the growth performance—again, with private enterprise in full play—is the spawning of several self-employed entrepreneurs, especially among the lower strata of society and women, despite lack of credit access and lack of physical infrastructure.

In each of these theatres of action, what is common is the will to succeed, the determination to scale obstacles.

But having said that, to my mind, this is not a sustainable model of growth and the hype that is being generated is ahead of reality. It is not sustainable for two reasons. Shopfloor competitiveness cannot give you long-term presence in the market unless backed by innovation and creativity, leading to the ownership of intellectual property and intellectual capital. Does the total wealth portfolio of this country contain a reasonable amount of intellectual capital that can be used? No. We are too dependent on our mineral resources and conventional resources or capital rather than intellectual capital.

Also, while we have proved that we can grow despite infrastructural issues, growth has largely come about because of the headroom we have had in the domestic market. Our exports, other than those who can cross the shores through telecommunication links, cannot flood the global markets without adequate physical infrastructure and our ownership of intellectual capital. The way out is to create even more entrepreneurship, backed by ideas and a huge thrust for getting the leadership position in intellectual capital, in every industry segment.

This can be done across three levels.

At the national level, we need to identify missions. A national mission should target a few hundred patents in cutting edge technologies. If we consider the automotive industry, we can’t ignore the prospects of oil reserves drying. We should respond by taking a leadership position in alternative fuels—set up a national mission for this. It is incorrect to say we don’t have the resources. This can be done in private-public partnership. We need to think big. National missions can also look at technology to attack issues such as drinking water or sanitation.

Second would be industry-level missions. One ready example is the Core Group for Automotive Research (CAR), set up by the central government and the automotive industry. CAR is associated with a wide range of ongoing dispersed research, in materials, telematics and such other areas. We can devise a mechanism by which the technology gains can then be shared by the industry.

The third is at the company level. The challenge of any chief executive is to promote innovation and creativity. To compete in the market on the basis of what you currently have takes you up to a point. However, to make the leap takes a great deal of creativity in finding innovative solutions to everyday work through employee involvement and in developing leapfrog technology.

Parallely, we need to pursue global trade, not in substitution of the internal growth mode but in conjunction with it. The roadblocks are not only the lack of physical infrastructure, but also mental block. Global trade is not a choice anymore. FTAs, today, are not driven by economics but by geo-politics. Once we are into an FTA, we are sucked into an entire gamut of free trade. The key issue is how we can manage this change to supplement internal growth.

—By R Seshasayee, MD Ashok Leyland