India 2.0 Reclaiming its Tryst with Destiny
6 February 2015, Indore Management Association, Indore
India 2.0 Reclaiming its Tryst with Destiny
Indore Management Association, Indore, 6 February 2015
I am thankful to the Indore Management Association for bestowing on me its Life Time Achievement Award. I accept it with all humility on behalf of my colleagues and associates in the Bajaj group. Business is a team game.
Indore has been the centre of enterprise in Madhya Pradesh. What it owes to geography and what it owes to history is something I leave to you to decide. I am a believer in the important role of our past in fashioning us. We should seek inspiration from it to create the future, but we must not wallow in it.
Be it an individual or an institution or a nation, its destiny is made essentially by itself, though the grace of God upon it is essential. When Jawaharlalji spoke about our tryst with destiny, at the stroke of midnight on August 15, 1947, he spoke at the culmination of the freedom struggle. Freedom was a destiny which we had achieved.
Currently, though we have proved the Cassandras wrong, and have some achievements to our credit, we still have a long way to go. The list of things we need to get right, be it growth, infrastructure, employment or income levels or good governance or health services or education, is a long one.
After a decade we are reviewing our options and promising reform. This is a good thing. Let me quickly and roughly lay out what we have going for us and what issues we need to tackle.
What we have going for us is our democratic system, the large size of our market, our entrepreneurs, our being a nation of the young and the willingness of our people to work hard for a better tomorrow. This willingness stems from the strength of our families and our social values.
If this is so, why is our per capita income so low? Why have other nations, be they Singapore or South Korea or even China, who were at our levels in the early 70s, gone so far ahead of us in the last 40 years?
It is because of our mistake in pursuing a misdirected socialist pattern of industrialization between 1956-90. We wasted resources on the public sector and stymied the private sector. We developed a language of rights, not responsibilities and created a huge burden of distortions and subsidies in the economy. From the early 1970s, the quality of our governance declined and the governments became increasingly corrupt and ineffective in providing even basic services to the people.
In terms of mentality we replaced the British with an administration and political apparatus which mimicked the British pattern of administration. We still have the designation of a Collector as the head of district administration. Collector of what?
Added to this, we banished the notion of merit from the government and introduced a notion of seniority and entitlement. No one in the world is entitled to anything besides human dignity and equality of opportunity. The rest he or she has to earn for herself. Unless we have this mindset we cannot progress. If the private sector has progressed it is because it functions on the basis of merit.
No, I am not advocating a jungle raj, but a fair and humane society. Also, we have to seek to be fit and strong and not run after survival of the weakest, beyond a point.
We have created a lot of unhealthy practices in our society. Unless we confront them we will not be able to create a decent destiny for ourselves.
Ineffective, corrupt governance has created widespread tax evasion and an anti-people political and administrative structure. It has created a disincentive to be honest and an incentive to be dishonest. It has created a maze of strangulating controls. It has created distortions in almost every market. The huge and misdirected subsidies and scams like 2G and Coalgate are symptoms of this malaise.
The collapse of the public education and health systems at all levels has hurt us deeply. The private sector cannot fully substitute the government in these areas. If our 5th standard students cannot do 2nd standard stuff, as repeated surveys of Pratham show, then how can we talk of a demographic dividend?
Our labor and tax laws have moved 90% of the employment in private industry into the unorganized sector resulting in lack of competitiveness, poor quality and low wages.
Our huge government and high wages at lower levels in the government with poor productivity and work culture, have resulted in fiscal deficits and no money for investment in badly needed infrastructure.
Public sector banks have been repeatedly looted by politicians and businessmen in collusion with bank officials to create bad loans, whose cost is ultimately borne by the honest tax payer.
As can be seen we have repeatedly chosen wealth distribution, not wealth creation and political expediency over doing the right thing, and now our wrong policies have come home to roost.
Since 1991, however we have been changing, even if unevenly and not fast enough. The liberalization of 1991 removed some fundamental constraints on business and gave it freedom to trade, freedom to upgrade and freedom to start a new business. The ensuing change has shown in stark terms what private enterprise can achieve.
The development of the IT sector has been an eye opener. It has created global respect for our skills. It has created a large number of well-paying jobs. Well in excess of 3 million in Indian companies alone.
Even in other sectors the change has been dramatic. In 1991 Bajaj Auto produced 1 mn vehicles per year and exported 3% of them. Now it produces over 4 mn vehicles and exports 40% of them.
Meanwhile, the old system has been disintegrating. Thankfully so.
For quite some time, voters have been rooting for Bijli, Sadak and Paani rather than subsidies. It started in Madhya Pradesh, and has even affected Bihar. Change has been in the air. In 2014, the nation voted for growth and development rather than narrow caste or communal considerations. And this has happened now in state after state, be it Maharashtra or Haryana or Jharkhand. I believe that this process will and should continue. It is incumbent on politicians and businessmen to ensure that it continues.
Let me now outline what I believe politicians, businessmen and civil society should do and how this can be facilitated?
Politicians should realize the damage done by the socialist clap trap and essentially dismantle the system.
They should focus the government on efficient provision of services in health, education, agriculture, infrastructure and a light but effective regulation of the private sector. Right now we are over regulated and under governed. We should move to being lightly regulated and well governed. Where the efficient and honest are encouraged and inefficient and dishonest are punished.
For this it is necessary to minimize the role of black money and criminals in elections. Public funding of elections is a necessary step in this regard. Also, we need elections only once in 5 years simultaneously to the Lok Sabha and all the Vidhan Sabhas.
It is also necessary for business and civil society to put pressure on politicians to do the right thing.
Businessmen should run their businesses well and with integrity. Growing in size, reach and capability. Creating and sharing wealth.
They have to be ambitious for their companies. But must set for themselves the high standards of governance they expect from the government.
For this it is necessary to establish a meritocracy in our companies. Easier said than done. If there is a failing in our business, the reason often is that we are lenient with our children. We have to judge them by the same standard as we would judge a professional executive. Too many companies have been ruined by incompetent sons or brothers being allowed to take the company to the cleaners.
We have to ask whether the family is for the company or is the company for the family. Only if we practice the former will we even survive in today’s competitive market, let alone prosper.
Family businesses are a reality in India and most parts of the world. They have their strengths and weaknesses. The challenge is to capitalize on their long termism and the natural incentive available and groom succession in a way that the son is better than the father to run the business.
Businessmen need to be ethical. No large business can be successfully run without an ethical under pinning. No self-respecting professional will work for an unethical company today.
Businessmen need to be fair to their stakeholders, be it employees, associates like dealers and suppliers, customers and shareholders. Please note that I have mentioned shareholders last. For it is employees and associates who create most of the value in a company and customer, of course, is king.
I do not support the mandatory 2% CSR spend, but businessmen should do their due in society. We have a tradition of doing so in our country. And now that the 2% CSR spend is here, we should engage in doing what the government has been unable to do. Supporting schools, hospitals and basic infrastructure for an inclusive society.
There are inherent limitations of government, business and the electoral system. Unfortunately, its pillars like the Judiciary & the media too have lost credibility to some extent.
The world is open for business. It values innovation and competitiveness. Where have Google, Apple and Alibaba come from? So, the fault is not in our stars but in ourselves. If we see this clearly, we can begin to progress.
What this broad sweep survey should make clear is that in any system management is important. Management is what is responsible for the present and future prosperity of an institution. It sets the direction and makes sure that the objectives are achieved. As Peter Drucker said a long time ago, Management is a task. It is not embodied in any position or degree. One grows into a management role. One essentially learns from doing management tasks. It does not come with a coat and a tie.
Humility, willingness to listen, empathy for people, help us in doing our job better. This is usually not taught in business schools. But life teaches us this. A business career is a marathon and not a sprint. We are in it for the long haul.
I have been going to the Annual Meeting of the World Economic Forum in Davos, Switzerland now for the last 35 years. I was there again this year from January 20 – 25.
In conclusion, I would like to mention to you 14 major global problems which have been discussed in Davos during the last couple of years including this year. These are:
1. Lack of Leadership
2. Weakening of representative democracy
3. Intensifying nationalism leading to terrorism
4. Profound political and social instability
5. Fiscal crisis in key economies
6. Persistent jobless growth resulting in high unemployment
7. Severe income inequality
8. Rising pollution and increasing incidence of severe weather events
9. Water crisis
10. Rising geo-strategic competition
11. International trade issues
12. Future of the internet and
13. Gender parity
14. World leaders including our leaders will have to be ready to tackle these problems.
Indian management professionals are good. The heads of world’s biggest companies come from their ranks. Satya Nadella of Microsoft, Indra Nooyi of Pepsico, Anshu Jain of Deutsche Bank and many more. But the task ahead of us needs thousands of outstanding leaders. Leaders are not those who occupy offices, but who deliver. In whatever fields they may be.
I have great faith in our people. I have great hopes from the young. I am the President of Shiksha Mandal, an educational trust with 9,000 students in my hometown, Wardha, and the energy and vitality of the students invigorates me.
Most of those present here today are from the privileged sections of our society. It is our opportunity and obligation to do something big with our lives. I wish you all fulfilling lives.
Thank you and Jai Hind.
Revival of the Indian Economy
30 April 2015, Rotary Club of Tilak Road, Pune
Revival of the Indian Economy
Rotary Club of Tilak Road, Pune, 30 April 2015
I am thankful to the Rotary Club for providing me an opportunity to share my thoughts with this distinguished gathering.
Why will I be talking of the need for revival of our economy? For 2 reasons. First, we need the Indian economy to grow on a sustained basis for at least 1 to 2 decades for our people to have a decent living standard. Today, a large percentage of our people have incomes inadequate for providing even the necessities of life like food, shelter, education and health services.
Secondly, the economy was spluttering for the last 3 years of the previous government. With low GDP growth, high inflation, infrastructural inadequacies and serious issues of governance which had created structural constraints for the economy. The global economic climate too has cooled. Unless we address these issues we run the risk of economic stagnation and social dislocation, as also gross underutilization of our economic potential.
Currently, though we have proved the Cassandras wrong, and have some achievements to our credit, we still have a long way to go. The list of things we need to get right, be it growth, infrastructure, employment or income levels, good governance, health services or education, is a long one.
The new government is reviewing its options and promising reform. This is good. Let me quickly and broadly lay out what we have going for us and what issues we need to tackle.
What we have going for us is our democratic system, the large size of our market, our entrepreneurs, our being a nation of the young and the willingness of our people to work hard for a better tomorrow. This willingness stems from the strength of our families and our social values.
If this is so, why is our per capita income so low? Why have other nations, be they South Korea or even China, who were at our levels in the early 70s, gone so far ahead of us in the last 40 years?
It is because of our mistake in pursuing a misdirected socialist pattern of industrialization especially between 1970-90. We wasted resources on the public sector and stymied the private sector. We developed a language of rights, not responsibilities and created a huge burden of distortions and subsidies in the economy. From the early 1970s, the quality of our governance declined and the governments became increasingly corrupt and ineffective in providing even basic services to the people.
Added to this, we banished the notion of merit from the government and introduced a notion of seniority and entitlement. Friends, no one in the world is entitled to anything besides human dignity and equality of opportunity. The rest he or she has to earn for herself. Unless we have this mindset we cannot progress. If the private sector has progressed it is because it functions on the basis of merit.
Ineffective and corrupt governance has created widespread tax evasion and an anti-people political and administrative structure. It has created a disincentive to be honest and an incentive to be dishonest. The huge and misdirected subsidies and scams like the 2G and Coalgate are symptoms of this malaise.
The collapse of the public education and health systems at all levels has hurt us deeply. The private sector cannot fully substitute the government in these areas. If our 5th standard students cannot do 2nd standard stuff, as repeated surveys of Pratham show, then how can we talk of a demographic dividend?
Our labor laws have moved 90% of the employment in private industry into the unorganized sector resulting in lack of competitiveness, poor quality and low wages.
Our huge government and high wages at lower levels in the government with poor productivity and work culture, have resulted in fiscal deficits and little money for investment in badly needed infrastructure.
Public sector banks have been repeatedly looted by politicians and businessmen in collusion with bank officials to create bad loans, whose cost is ultimately borne by the honest tax payer.
As can be seen, we have repeatedly chosen wealth distribution over wealth creation, and political expediency over doing the right thing. Now our wrong policies have come home to roost.
Since 1991, however we have been changing, even if unevenly and not fast enough. The liberalization of 1991 removed some fundamental constraints on business and gave it freedom to trade, freedom to upgrade and freedom to start a new business. The ensuing change has shown what private enterprise can achieve.
Meanwhile, the old system has been disintegrating. Thankfully so.
For some time now, voters have been rooting for Bijli, Sadak and Paani rather than doles. It started in Madhya Pradesh, and has even affected Bihar. In 2014, the nation voted for growth and development rather than narrow caste or communal considerations. And this has happened now in state after state, be it Maharashtra, Haryana or Jharkhand. I believe that an aspirational India, urbanization and the re-engagement of the middle classes with politics, have much to do with this trend. I believe that this process will and should continue.
Let me now outline what I believe politicians and businessmen should do and how this can be facilitated?
Politicians should realize the damage done by the socialist clap trap and essentially dismantle the old system.
They should focus the government on efficient provision of services in health, education, agriculture, infrastructure and a light but effective regulation of the private sector. Right now we are over regulated and under governed. We should move to being lightly regulated and well governed. Where the efficient and honest are encouraged and inefficient and dishonest are punished.
It is necessary to minimize the role of black money and criminals in elections. Government funding of elections is a necessary step in this regard.
Businessmen should first and foremost run their businesses well. Growing in size, reach and capability. Creating and sharing wealth. They have to be ambitious for their companies. They must set for themselves and achieve the high standards of governance they expect from the government.
Businessmen need to be fair to their stakeholders, be it employees, associates like dealers and suppliers, customers and shareholders. It is employees and associates who create most of the value in a company and customer, of course, is king.
Businessmen need to be ethical. No large business can be successfully run without an ethical under pinning. No self-respecting professional will work for an unethical company today.
The global economic scenario is of stagnation. Barring some growth in the US and Germany, most other developed countries are barely growing. Growth in China is slowing. The resultant decrease in oil and commodity prices is a major assistance we are getting from the global economy. The drop in oil prices is helping in lowering our trade deficit and inflationary pressure and is reducing our oil and fertilizer subsidies.
We need to answer the question “where is growth going to come from?”
I believe, it is primarily going to come from structural changes in the domestic economy. By the government investing in required infrastructure and significantly easing the doing of business in the country to allow business to do its job.
When this happens, domestic and foreign manufacturers will invest in India for the Indian and global markets.
To my mind the key structural changes required are:
1. A sensible labor policy
2. A new land acquisition Act
3. General Goods and Services Tax
4. Disinvestment in Public Sector banks and their professionalization
5. Running the power sector, coal mines, ports and railways on commercial lines
6. Gradual elimination of non-merit subsidies, especially to those above the poverty line and financial help to the weaker sections directly to their bank accounts through their Aadhar cards
7. End of an aggressive tax collection regime.
The Central government has come to power on the development platform. Its intentions are good. But in the first year its performance is a mixed bag. Rajya Sabha is an obstacle. Some constraints have been tackled vigorously like Environmental clearances and the Coal allocation issue. However, the changes I have just mentioned are required sooner rather than later. On top of this, non-issues are absorbing disproportionate energies and vitiating the social climate.
The result is tepid growth, low demand and hence inadequate investment by business.
It is still early days and I would give the central government the benefit of doubt. The Congress party or coalitions do not yet inspire confidence. But BJP should realize that they have been given a rare opportunity. The next time around they may not get it unless they have a track record to show.
To conclude, despite my realism, or maybe because of my realism, I am optimistic about the future of our country. I have great faith in the good sense of our people. But, it will not happen by itself. We will all have to play our part.
These are challenging times. Exciting times. The rewards for those who get it right will be enormous. But let us remember, there is no substitute for excellence, there should be no tolerance of mediocrity and ofcourse we should never compromise with integrity. When we compete with the best, whether in India or abroad, we not only bat for ourselves, we bat for our country. This is our privilege. But this is also our responsibility.
Thank you and Jai Hind.
Economic Situation of our Country
23 April 2015, Rotary Club of Mumbai South, Mumbai
Economic Situation of our Country
Rotary Club of Mumbai South, Mumbai, 23 April 2015
I am thankful to the Rotary Club for providing me an opportunity to share my thoughts with this distinguished gathering.
Our economy was spluttering for the last 3 years of the previous government. Low GDP growth, high inflation, infrastructural constraints and serious issues of governance, created structural constraints for the economy. The global economic climate too had cooled.
The new government is reviewing our options and initiating and promising reform. This is good.
I will try to give my broad assessment of our economic situation and what I believe needs to be done to improve the same.
What we have going for us is our democratic system, the large size of our market, our entrepreneurs, our being a nation of the young and the willingness of our people to work hard for a better tomorrow.
If this is so, why is our per capita income so low? Why have other nations like China, which were at our levels in the early 70s, gone so far ahead of us in the last 40 years?
It is because of our mistake in pursuing a misdirected socialist pattern of industrialization especially between 1970-90. We wasted resources on the public sector and stymied the private sector. We developed a language of rights, not responsibilities. From the early 1970s, the quality of our governance declined and the governments became increasingly ineffective in providing even basic services to the people.
Added to this, we banished the notion of merit from the government and introduced a notion of seniority and entitlement. No one in the world is entitled to anything besides human dignity and equality of opportunity. The rest one has to earn for herself/himself.
Ineffective and corrupt governance had created an anti-people political and administrative structure. It created a disincentive to be honest and an incentive to be dishonest.
The collapse of the public education and health systems at all levels hurt us deeply. The private sector cannot fully substitute the government in these areas. If our 5th standard students cannot do 2nd standard stuff, as repeated surveys of Pratham show, then how can we talk of a demographic dividend?
Our labor laws have moved 90% of the employment in private industry into the unorganized sector, resulting in lack of competitiveness, poor quality and low wages.
Our huge government and high wages at lower levels in the government with poor productivity and work culture, have resulted in fiscal deficits and little money for investment in badly needed infrastructure.
We have repeatedly chosen wealth distribution over wealth creation, and political expediency over doing the right thing. Now our wrong policies have come home to roost.
Since 1991, however, we have been changing. The liberalization of 1991 removed some fundamental constraints on business. The ensuing change has shown what private enterprise can achieve.
For some time now, voters have been rooting for growth and development rather than doles. It started in Madhya Pradesh, and has even affected Bihar. In 2014, the nation voted for development rather than caste or communal considerations. And this has happened now in state after state, be it Maharashtra, Haryana or Jharkhand. I believe that an aspirational India and the re-engagement of the middle classes with politics have much to do with this trend.
Let me now outline what I believe politicians and businessmen should do.
Politicians should focus the government on efficient provision of services in health, education, agriculture, infrastructure and a light but effective regulation of the private sector. Where the efficient and honest are encouraged and inefficient and dishonest are punished. Right now we are over regulated and under governed.
It is necessary to minimize the role of black money and criminals in elections. Government funding of elections is a necessary step in this regard.
Businessmen should first and foremost run their businesses well. Growing in size, reach and capability. Creating and sharing wealth. They must set for themselves and achieve the high standards of governance they expect from the government.
Businessmen need to be ethical and fair to their stakeholders, be they employees, associates like dealers and suppliers, customers and shareholders.
The global economic scenario is of stagnation. Barring some growth in the US and Germany, most other developed countries are barely growing. Growth in China is slowing. The resultant decrease in oil and commodity prices is a major benefit we are getting from the global economy. The drop in oil prices is helping in lowering our trade deficit and inflationary pressure and reducing our oil and fertilizer subsidies.
We need to answer the question “where is growth going to come from?”
I believe, it is primarily going to come from structural changes in the domestic economy. By the government investing in required infrastructure and significantly easing doing of business in the country.
When this happens, both domestic and foreign manufacturers will invest in India for the Indian and global markets.
The present Central government has come to power on the development platform. But in one year of the government, its performance has been a mixed bag. Its intentions are good. Rajya Sabha is an obstacle. Some constraints have been tackled vigorously like Environmental clearances and the Coal allocation issue. But, quite a bit of energy is being wasted in non-issues too.
To my mind the key changes required are:
1. A sensible labor policy
2. A new land acquisition Act
3. Goods and Services Tax
4. Disinvestment in Public Sector banks and their professionalization
5. Running the power sector, coal mines, ports and railways on commercial lines
6. Gradual elimination of non-merit subsidies especially to those not below the poverty line and using Aadhar cards & bank accounts for distribution of subsidies.
End of an aggressive tax collection regime.
7. It is still early days and I would give the government at the centre the benefit of doubt. BJP should realize that they have been given a rare opportunity. The next time around they may not get it unless they have a track record to show.
These are challenging times. Exciting times. The rewards for those who get it right will be enormous. But let us remember, when we go out and compete with the best, we not only bat for ourselves, we bat for our country. This is our privilege. This is also our responsibility.
Thank you and Jai Hind.
Businessmen in Public Life
28 August 2012, Shri Pravinchandra Gandhi Award for Excellence in Public Life, Mumbai
Businessmen in Public Life
Shri Pravinchandra Gandhi Award for Excellence in Public Life, Mumbai, 28 August 2012
Ladies and Gentleman,
I am honored by the Rotary Club of Mumbai bestowing the Excellence in Public Life Award on me. It is a special award for three reasons. First, it bears the name of Shri Pravinchandra Gandhi who was an exemplar for all of us. He had retired as the Chairman & MD of Dena Bank, had been President of FICCI and IMC, President of Bharatiya Vidya Bhavan, Indian National Theatre, Indian Newspaper Society and the Chairman of PTI and of the Janmabhoomi Group of Newspapers. In 2002 he was awarded Padma Bhushan by the Government of India. Second, I am receiving it a year after Shri Viren Shah, who is very close to me, received it. Third, I am a Mumbaite at heart. The place one grows up in is the place which grows on one. Many of my peer group, relatives and friends are in Mumbai. To be honored at home is special.
I was born into public life. Business came later. In the 1930s & 40s, almost every member of my family was in jail for participating in the freedom struggle. My grandfather was considered the fifth son of Mahatma Gandhi. My father was first in politics then in business, being a 3 time MP between 1957-72. My uncle, Ramkrishnaji, a member of this Club, also devoted more of his time and efforts to public life than to business.
So, though I did not enter into public service till 1986 when I was appointed Chairman of Indian Airlines by Shri Rajiv Gandhi, being a Bajaj and a grandson of Jamnalalji meant that one stood for certain values.
In early 70s I was threatened with arrest for producing scooters much in excess of our licensed capacity. I remember telling the MRTP Commission that going to jail for doing ones national duty was not something that was unfamiliar to my family.
We did not support the emergency. We were also asked to disassociate ourselves from Shri Viren Shah, our partner in Mukand, and wrongly jailed for his alleged involvement in anti-emergency activities. But we did not. Not because we are exceptionally brave but simply because we have a family legacy to uphold.
I got involved in CII from the late 1970s and became its President in 1980 and 2000. Similarly, in the Automobile Association and MCCIA. Since then I have been articulating the business point of view as I see them. I also got involved with the World Economic Forum and started unofficially representing India to the world. Similar has been my involvement with NYSE Euronext, Brookings Institution in Washington D.C., and the global advisory board of the HBS.
In 2003 I was appointed Chairman of IIT Bombay and in 2006 became a Member of Parliament.
All this has contributed to my having a platform to express my views largely on industrial/economic issues and broader social concerns. I accepted these platforms because I believe businessmen should engage in public life not only because of family legacies but due to enlightened self-interest and as a civic obligation.
Whether they desire or not, like it or not, businessmen, especially big businessmen, are in a way in public life of any nation. Willy-nilly their decisions affect large numbers of people, be it as consumers, employees, shareholders or as large contributors to the economy. Their views and decisions on the economy matter. Also, since their businesses are impacted by government policies, be they macro or micro policies, they need to engage with the government at various levels.
Though there are people who think that businessmen should focus on only economic activities and have only a profit motive, and little social responsibility, this debate is by and large settled. The recent case of Rupert Murdoch's "News of the World", a hugely successful enterprise, closing down due to a public uproar about its ethics, makes it clear that business survives on public legitimacy and all its profits and economic strengths ultimately rest on its social legitimacy.
Unfortunately, the present engagement of and the quality of engagement of businessmen in public life in our country leave much to be desired. Like politicians, businessmen are not respected in society. This was not always so. In the Pre-Independence era businessmen were eminent in public life. Be it Sir Phirozshah Mehta, Sir Jamshetjee Jeejebhoy or JJ, Shri Jagannath Shankarshet in Mumbai in the 19th century or a host of businessmen who backed Gandhiji and the Congress in the 1930s and '40s. Gurudev Tagore in his essay "Greater India" wrote a century ago that we had survived as a civilization for so long because civic society had always assumed responsibility for the society and not left it to the ruler of the day. Be it irrigation or education.
If despite all our public follies we continue to make progress, it is because most of our business and society still walk to a different rhythm than our governments. Our society is nurtured by our civilization, our traditions, our epics, the moral fibre and values provided in our close knit families, even when they go nuclear. Indian mothers teach their children to be honest, hardworking, compassionate and just. Most Indian businesses are family businesses like businesses the world over. That most of India lives in rural areas and is middle class in its thinking, valuing education and hard work, helps.
Developments in the US, Europe and India point to the bankruptcy of governments, and the risks posed by high public debt and fiscal deficit. In our country it has led to inflation, which hits the poor and fixed income earners the most.
I believe time has come for business to engage more actively and more purposefully in public life to ensure both economic and social development.
In 65 years of independence we have allowed governments to mismanage the economy and society. Business is the only segment of a society which has the economic strength to differ from the government. It is not easy but it is possible. Nothing good is ever easy.
There are two models of doing business in any country. First, is in competing in the market place. Second, is in cozying up to the government, that is crony capitalism (to loot the public purse). Competing in the market place is a difficult task. But it is a sustainable and ethical model of business. In this globalized world it is also an immeasurably larger opportunity.
At present, exports account for 35% of Bajaj Auto's sales and we have barely 3% of the global market including India. The IT industry's development in the last two decades exemplifies the potential of Indian business to compete globally and in doing so bring prosperity and hope to the country.
Yet, there is the second model which also exists in the developed world but not in the vicious form it exists here. Much of the government contract business, mining and natural resources, road building, real estate business, is rife with this. And this is the side of business that takes place every day. Even in Telecom and Coalgate we have seen this. Thus, Indian business has to choose. If it chooses the first business model it can gain public faith. Else it has to live in the shadows. With all its wealth, but little public legitimacy.
Business in India therefore has a huge role and responsibility. Because it knows how to do things. It has the financial and intellectual capability to do things. But it has to have a broader conception of business.
The first task is to successfully grow our businesses profitably which results in creation of wealth and in increasing direct & indirect employment.
Second, in our business we should be fair in our dealings with all our stakeholders.
Third, we should pay our legitimate taxes and resist corruption.
Fourth, we should engage with the community in as many ways as we can. As is said,
"You make a living by what you get; you make a life by what you give". When we engage with the community, it is not simply money that we give, but direction and integrity of purpose. We should harness private initiative and money for public purposes.
We should also be conscious of the level of poverty and inequality in our society and avoid ostentation and vulgar display of wealth. We had such a tradition but it is fraying.
There are two other issues that I would like to talk about.
1. Business funding of elections.
2. Business engagement in politics.
Political parties require funds to fight elections. In our country, they are mostly funded by black money. Unless clean funding is available to them the corruption we see in government will not reduce. I believe we need to introduce public funding of political parties but till such a measure is enacted business needs to fund political parties in an open, transparent manner. At Bajaj group we have been doing this for Lok Sabha elections.
It is the constitutional right of every citizen to participate in politics. Ordinarily I would not advise businessmen to get involved in party politics. At this juncture however I would encourage businessmen to get into politics. But, they must engage in it as a form of public service, like Sir Jamshetjee Jijibhoy did and not like many current businessmen politicians who do it to further their business interests.
We are at a crucial juncture in our history. We are seeing all around us where corruption, populism and vote bank politics has brought us. It is tearing apart our economic and social fabric. The well-offs' disengagement from politics too has contributed. Witness the low turnouts in elections in Mumbai.
This is our land. We have lived here. We will live here. We have much at stake. Withdrawing into gated communities is not an option, as 1992 and December 2008 demonstrated to us.
I enjoin you to engage with society and in public life. It will be a long and difficult journey. But as Churchill said, in this "never flinch, never weary, never despair".
Thank you.
Marketing to BUILD Businesses
27 August 2012, 12th CII Marketing Summit, Mumbai
Marketing to BUILD Businesses
12th CII Marketing Summit, Mumbai, 27 August 2012
I am here as an industry elder not a marketing guru. I am sure each one of you is capable of teaching me something about marketing.
Before we come to marketing per se let us dwell a little on business as a whole.
To run a company one needs a holistic business sense, which is a mix of a sense of what will sell at a profit, need for capital, technology, HR and marketing. The critical part of any company is its leadership. As is said, the bottleneck is only at the top!
Marketing is a key aspect of a business, but effective only when the company has strengths in R&D, low cost manufacturing, financial strength, committed and competent personnel, etc.
Success today hinges on the ability to anticipate or create a future. And, who better to influence that than marketing people, who are closest to the market place.
Which brings me to the theme of change.
Change is what drives the global economy. Companies have to continually reflect on what should or could change and realign themselves to, or still better, drive the change. In the 1990s the Indian 2-wheeler market was over 50% scooters, 25% motorcycles and 25% mopeds. By 2001 it became 66% motorcycles, 25% scooters and 9% mopeds. It took us some time but we reinvented ourselves. Some may say, and this includes me, a bit too much! But change we did and successfully.
Also, in 1990 exports were 5% of our sales. Last year this was 35%.
And, we are in a slow moving auto industry! Those in consumer electronics or storage devices or music industry have seen much greater change.
Assessing what will change and what will not is a critical capability. I have been hearing of electric or even hydrogen vehicles coming for 20 years and they have still not gained market or business success. Maybe they will in the next 10.
In dealing with change I have found a few ideas useful.
1. Anticipate, anticipate, anticipate. As Andrew Grove of Intel has said, only the paranoid will survive.
2. Future usually comes slowly. It gives one enough inkling. However, we do not listen because we do not like what we hear and those in the game are too invested in the present to destroy it for a different future. Prof. Christensen of Harvard calls it the inventors' dilemma. Our shift to Motorcycles required a huge emphasis on and efforts in the development of our in-house R&D capabilities. This response was facilitated by a change of day to day management from me to my son, Rajiv.
3. So, we should check our assumptions. Very often an assumption we make becomes invalid and leads to our failure. Assumptions of growth are the most common ones that go awry. Many companies assumed a rate of growth or market size or their market share that did not materialize but had invested with borrowed funds to prepare for that growth.
In recent times, one can add assumptions about movement of currencies.
Thinking that the world would change in a non-linear way is a reasonable assumption.
4. Economies and therefore businesses move in cycles. This is a safe assumption. Hence, building in the possibility of a downturn is a sensible thing to do. A couple of years of flat sales. A plunge in margins. Still, the company should remain on even keel. Financial analysts may disapprove of cash hoards but every successful company sits on one.
Bajaj Auto has not had debt on its Balance Sheet for over 30 years. It instead had a great deal of cash and cash equivalents. No leveraging of our equity! Same applies to BHIL and BFS which were formed 5 years ago by demerging Bajaj Auto. These companies together till now have raised less than Rs 1 crore from our shareholders. Their total market capitalization today is around Rs 70,000 Crores! This is in addition to the excellent dividends we have given each year.
We are a nation in transition. From agriculture to industry, from rural to urban, from poverty to prosperity, from lack of choice to competition, from commodity to brand, from domestic to global markets.
Our marketing strategies and structures have to grapple with our realities and these transitions.
In my view the game is played around strategy, brand, product, price and distribution.
Strategy is the fundamental stance of a company. What business are we in? What will we do and what will we not do? There are many distractions for a successful company. Not getting distracted most of the time and getting 'distracted' at times when a giant new opportunity or threat looms on the horizon, is a key task in managing a company. In today's open world even sustaining a single globally competitive business is a herculean task. Managing multi-business conglomerates that we have in our country, due to our earlier license permit raj, is even more difficult.
At Bajaj Auto we have always followed a policy of sticking to our knitting and remained focused on 2 & 3 wheelers, that is, the mobility business. In spite of excellent profitability and cash flow we did not manufacture anything else in Bajaj Auto. Second, we retained our independence by not giving equity to our technical collaborators. Third, we have had a volume orientation.
All these have been vindicated by time. We did see an opportunity in financial services which we entered to finance Bajaj Auto's customers. However, we started new companies for entering the consumer financing and Insurance businesses.
Brand represents who we are. Bajaj Auto was a value for money brand for 30 years. This may no longer be a desirable proposition for shouting from the roof tops for marketing reasons. Customers want up-market association and will pay a premium only for brands with them. So, for a decade, beginning with Pulsar, we have been repositioning ourselves in the consumers' mind.
In a situation wherein many producers of goods and services are short changing the consumer, brands, especially mother brands, are very important in our country. Tata, Mahindra, Godrej, Bajaj have resonance.
When we started our insurance companies, we and our partner, Allianz, a major global player, branded the companies Bajaj Allianz in General Insurance and Allianz Bajaj in the Life Insurance sector. Within a couple of years, however, they agreed with us and we decided on 'Bajaj Allianz' in both the companies, because Bajaj has a better connect with the customer. When GE tied up with SBI for credit cards it was SBI that mattered to the customer.
In a world of focus and Al Ries and Jack Trout, using a brand for multiple products, what they call line extension, is an anathema. However, I believe it is still relevant in many cases in our country. Of course, this has to be done with care and brand values nurtured across the extensions. Also, to differentiate one model from another sub brands are naturally very important-for example, 'Pulsar' or 'Discover' under the mother brand 'Bajaj'.
Within a strategy and brand, one develops products in consonance with them. Spotting the gap where a product is required and getting the balance between features and price to generate volumes and profit, is an art. Gifted marketing men get it right. Steve Jobs was a master of this art. For a desirable product, consumers are willing to pay significant premiums. Bad quality has little market at any price.
It is also important to have a presence in both the premium and the mass market segments. Premium segments generate prestige and profits. And the mass market generates the volumes to keep the company, suppliers and dealers financially viable. Not all manage to straddle this task. The consumer electronics brands of the US and Europe have evaporated due to their abandoning the mass market. Separate brands for these two segments generally help. However, there are successful companies like Harley Davidson and BMW in motorcycles which only operate in the premium segment.
Distribution and after sales service are a much neglected part of marketing. Dull and boring. Dealing with small town people one finds not hip enough. But it is a real differentiator of performance. A wide and competent network, covering rural markets, committed and loyal to the principal, is a priceless asset and a sure shot ingredient for success. In the case of Unilever in India, for a long time it was their most powerful weapon, maybe more than products or advertising. And, it is also the human side of marketing. Building and retaining bonds with distributors is one of the things I had truly enjoyed when I was running Bajaj Auto.
In doing all this, often there are important trade offs to be made. There are so many constraints and pulls in opposing directions which one has to resolve in the real world. For example, the trade-off between market share and margins.
Indian companies are being transformed from being focused on the domestic market to having a large presence outside the country. This is creating new challenges for them. Which markets should they target? Under what brand should they sell? This is the next frontier for Indian marketing professionals and I am confident they will rise to the occasion.
I have been and continue to be bullish on the Indian economy and Indian companies. What we are suffering from is poor governance. So, for the next 1 – 2 years, the economy would splutter, especially due to a bleak global environment and a weak monsoon. But the inherent strength of our people and companies, a global urge for improving one's lot, especially in developing countries of Asia, Africa and Latin America, would in my view assert itself and lay the basis for sustained progress.
It has been our generation's privilege to lay the foundation of our industrial economy. Looking at all of you, I believe the future is in good hands. I wish all of you Godspeed and Godbless.
Thank you.
Changing India in a Changing World
7 September 2011, SIAM Annual Convention, New Delhi
Changing India in a Changing World
SIAM Annual Convention, New Delhi, 7 September 2011
For a decade now my concerns have become broader than the auto industry. So, when Pawan asked me to speak I was in a bit of a quandary. He wanted me to crystal gaze the industry, a task for which I am no longer the best person in this room. Pawan is not a person who takes a no for an answer, and I guess this attitude is also responsible for the success of Mahindra & Mahindra. So, he gave me the choice of the subject.
I was sure I would see many victorious, battle scarred faces in this room, so I thought that maybe we can discuss the woods and not the trees. The woods are lovely, dark & deep and I have the luxury, at my stage of life, of having no promises to keep!
Consequently, I chose "Changing India in a changing world". For I believe if we read the tea leaves right and place our bets accordingly, and there is some evidence that we are doing so, we would write a new chapter in our nation's history. To be able to do so would be our privilege.
Change has been the only constant for the last 150 years. But the changes that we are witnessing today boggle the mind. The US sovereign rating downgraded. The Jasmine revolution, Rioting in London, fasting against corruption in India. Almost no economic growth and zero % interest rates in the US, Europe and Japan, contrasted with 8% growth in China & India amidst high inflation.
Are we on the same planet?
In my view there are two big drivers of our times:
1. The shifting of economic growth from the developed to developing countries. Between 1990 to 2010 the share of the US in global GDP declined from 25% to 20%, while that of China increased from 4% to 13% and
2. Depletion of non-renewable resources.
These are both large, slow processes and would take time to unfold. The winners would be those that read these changes well and devise appropriate ways to deal with them. There are of course many other issues of poverty alleviation, inequality, terrorism, etc., but we shall leave these for another day.
There are also sub-themes that I would like to broadly enumerate. They are largely about the economy and a few about polity and society. After all, man is not just an economic animal:
1. The world is open for business. It may not be totally flat, but it is essentially flat. So, the whole world is our play field.
2. It is connected. And growing even more so by the day.
3. Innovation and quality are required constants for competitiveness and even the masters of the game can slip, like Toyota did two years ago.
4. Growth in the developed world has slowed and has shifted to the developing world. This is because wage inequality between the developed and developing world is not sustainable on the basis of productivity differentials. This is resulting in high unemployment in the developed world and resulting social tensions. Also, despite reduction in absolute poverty, inequalities within and among nations have risen.
5. The world is aging in the developed world & even in China. This raises issues of pension & health costs and the resulting strain on public finances. The young are in India & Africa and in the developing countries.
6. Environmental issues like climate change, water availability are coming to the fore.
7. Prices of Non-renewable resources like oil & minerals have risen and are likely to continue to rise.
Polity and Society:
1. There is no country which is an undisputed global leader today. The multi-polar world is on us but without the necessary mechanisms of decision making. As Kishore Mahbubani of Singapore describes it, we are in a ship without a captain or a crew.
2. Democracy is becoming a universal norm & is spreading. But global quality of governance is proving to be highly inadequate.
3. From the state as the arbiter of our fate we lurched to the private sector but both have now been shown as false Gods. A new balance is required but is largely not there in most countries.
4. Terrorism has become a fact of life, especially in Central & South Asia. Its roots may be economic, social or religious.
The Global Economic Outlook in 2011 continues to be fragile. We are now in a period of turbulent, long term structural change. Not the usual recession that one can climb out of. It has left the major economies of the US and Europe in an unsatisfactory situation and with difficult choices, which they are finding difficult to make. These in turn can compound their problems. How the US deals with its fiscal and trade deficits and unemployment and how Europe resolves the crisis in Greece, Portugal, Ireland, Spain and maybe even Italy, are important questions. Will the Euro survive? And if it does not, can the EU? As of now, the nettles do not seem to have been grasped. A spectre of slow growth and high unemployment compounded by high commodity prices hangs upon us. Hopefully not a double dip recession. At the IBC meeting of WEF in Geneva on August 25 & 26, there was a strong view that before the end of this calendar year, Europe will be in greater difficulties.
Yet, overall I remain optimistic. Because –
1. Developing countries are continuing to grow, especially China & India. Also, Africa & South America. This is over 80% of the world population.
2. This growth in the developing world also offers important new opportunities for the developed world.
3. The process of globalization and technological development has lowered barriers for trade, investment and technology flows for every one.
4. The Jasmine revolution in Middle East and North Africa, while disruptive in the short run, will broaden and deepen markets and expectations. It has triggered a revulsion for dictatorships and corruption, which is resonating globally. This has even reached our shores.
I believe that those with open minds, committed to a better future and not unduly weighed in by the past will prosper, irrespective of where they come from.
In this changing world what is happening to India?
1. Growth potential of India is strong due to current low incomes and the strength of our entrepreneurs and society.
2. Indian society is both pro-growth and investing in education, through not enough. Essentially, no longer reliant on the government for fashioning its future.
3. India is more a federation than a country. Federal governments have significant leeway and determine both growth and social stability more than the Central government does. In many states, governments have become pro-growth. Notably in Gujarat, Tamilnadu & now even Bihar. Recent state level elections reconfirm the electorate's desire for growth. Communist govt. in Bengal routed after 30 years of their rule. Voters have voted against corruption in Tamil Nadu and have rewarded performance in Bihar. Therefore, growth impulse in India is likely to persist despite various constraints.
4. India has a strong tradition of entrepreneurship. With loosening of government controls since 1991 this entrepreneurial base is exploding across the country. Aspirations of people are high and they are willing to work hard & smart to achieve them. This provides tremendous human energy. Even if distorted at times, the genie is out of the bottle and will not go back in.
5. 6 of the 7 Bn people in the world live in developing countries. Products developed for them in India have relevance across all developing countries. Indian companies are striking it good in Asia, Africa and Latin America.
6. MNCs are emerging out of India. Export growth robust. From 3% in 1990 Bajaj Auto's exports have grown 30% of sales. In 3-wheelers, now over 60% of sales. Indian companies taking over companies in both developed and developing countries. Outward FDI was close to inward FDI in 2009
7. At last some hope that the cancer of corruption will be successfully tackled.
This may be in the medium term. What about the short term?
1. Broad story is good but marginally lower growth of 8% during 2011-12 (7.8 & 8.2% in previous two years) in a situation of persistent 9% p.a. inflation. Even with slower growth in the developed world, oil and commodity prices likely to remain firm.
2. China, Argentina and Turkey have higher growth rates than us.
3. Reserve Bank has been hiking interest rates and recently increased the repo rate by 50 basis points to 8%. Hopefully, we may be coming to the end of this cycle.
4. Inflation largely due to supply issues in food items and global commodity price increases. Inflation not really being controlled directly, but may decline due to lower demand growth resulting from high interest rates.
5. Exports have bounced back. Rupee has largely remained stable, in fact appreciated, against USD and Euro, even though high trade deficit persists, due to capital inflows.
6. Fiscal deficit high at around 5%. Tax revenues continue to be buoyant. Government spending is very high on social programs (inefficiently implemented), government employees' salary increases and on infrastructure. Unfortunately, a good deal of inefficiency and corruption exist in government spending.
7. Government responded well to the global crisis of 2008 by loosening fiscal policy. Therefore, growth remained high, in a global context, at almost 7%.
8. Turbulence on the political scene due to some high profile corruption cases and, of course, Anna Hazare's crusade against corruption.
9. Broadly, with the liberalization that has happened in the last 20 years, the fate of our country is in private hands, not of the government. The government does not significantly hinder enterprise now.
10. Change is needed in labor policy & privatization of ports and electricity. DTC and GST must come w.e.f. 1.4.2012
11. The key change required is in the mindset of the Indian private sector. We have to be committed to meeting the needs of our customers, be it in India or abroad. We have been lucky that the Indian consumer was not so demanding. This is changing and the global customer is demanding. If we do not lift our game, we risk missing the great opportunity and being washed out like the Indian cricket team in England.
It is not that we do not have issues that hold us back. However, we have in the last two decades demonstrated that they will not tie us down. We have a half full glass that needs to be filled. We should focus on filling it. The important thing is for the nation to travel with hope in its heart. In this it is important for every section of society to have a sense of inclusion and access to decent education and health services. Access to education and health services is becoming a soft under belly of our nation and we need to deal with it efficiently and without any further delay. If the government does not do this, then business has to pitch in.
There is therefore a lot of responsibility on Indian companies to realize their and the country's potential and deliver more employment and better incomes to as many people as possible. The real question is not whether we will make our place in the sun. But why, with low employee cost and a large domestic market, we have still not conquered global markets.
Today, uncertainty is the only certainty. Management is about keeping one's head in the face of this uncertainty. To steer a clear course, but remain open to course correction.
I believe in the idea of India. It's a beautiful idea of justice and celebration of diversity. I believe in the people of India. They are innately fair and not self-centered. I believe in the youth of India. They are smart, hard working and avid learners. So, I believe India would ride the change in a changing world. To that thought, I raise a toast.
To India!
Indian Industry’s Past, Present and Future
30 March 2011, National Defence College, New Delhi
Indian Industry’s Past, Present and Future
National Defence College, New Delhi, 30 March 2011
Air, Marshal Roy, Rear Admiral Iyer and members of the 51st Course on National Security and Strategic Studies,
Good morning gentlemen. I have heard a great deal about this institution. It's my privilege to be here today. I thank Air Marshal Roy and Rear Admiral Iyer for inviting me.
I would focus on providing you an overview of Indian Industry's past, present and its likely opportunities and challenges for the future. The more important part would be the interaction we would have after the talk. This talk is more in the nature of an appetizer.
Indian industry has seen very significant and rapid changes since our independence. Pre-independence industry was miniscule, dominated by British companies, which were largely in the Jute and Plantation sectors. Post independence, the foundations of our industrial development were laid. Between 1950-69 a broad based industrial base was created. But, due to a shortage of foreign exchange and the government's left leaning world view and industry-politics nexus; a high tariffs and tight controls on technology and material import regime, was established. This throttled change and innovation. This gave rise to an economy of shortages, further slowing innovation and productivity and quality improvements.
Nevertheless, the emphasis on developing a manufacturing sector at that time was the right one. If we compare ourselves with Pakistan and some other countries today we should tank our founding fathers for nurturing Indian industry, whatever the critics might now say. In the early years of industrialization, every country, be it the US, Germany, Japan, Korea or China have followed similar policies of facilitating development of local industry. However, this policy should have changed from, say, 1970 but, unfortunately, continued till 1985. For Indian industry, the '70s was a lost decade. China started liberalizing from 1979.
Let me add that my definition of local is whoever manufactures, provides employment and adds value in the country, not the color of someone's skin. This leads to skill development and revenue generation, for individuals and through taxes for the government.
The other major factor in assisting our industrial development was the setting up of good institutions of higher learning like the IITs, IIMs and Regional Engineering Colleges. We did have a few institutions even from the 1850s but their capacity was limited, and their focus was not industry. Ultimately, development of a nation rests on talented, well trained individuals. The National Defence Academy too was set up in the 1950s.
From the mid-1980s we started to liberalise. New technology was allowed, as were new entrants, though largely as joint ventures between Indian and foreign companies. But, major and more significant liberalisation started from 1991, when industrial and import licensing essentially ended, foreigners were allowed 100% equity in most sectors, and imports tariffs were brought down steeply. The exchange rate was also corrected substantially.
What has been the outcome of these policies and their implementation?
During 1950-1980 we were moving at what came to be known as the Hindu rate of GDP growth of about 3% p.a. This barely moved the per capita income growth as population was increasing at around 2% p.a. In the 1980s we grew at around 5% p.a. This moved marginally to 5.5% between 1991-2003. However, from 2004 the economy has grown by 8-9% p.a.. In 2008-09, when the world economy almost shrank, our growth was 6.7%. Industrial growth has always been higher than that of the economy, but the two move in tandem.
Thus, we are now in a qualitatively different situation.
Global Overview:
Before we discuss the national scene, we need to place ourselves in a global context. With import tariffs generally below 10%, we are subject to forces of the global economy. The share of trade in GDP in our economy is now 46%, which is much higher than the 27% of the US. In most sectors, foreigners are permitted 100% owned companies and thus in may sectors Indian companies are competing head on with the global majors.
How does global industry operate?
First and foremost, it exists in a competitive market and is therefore geared towards change. Essentially, competition is based on technological innovation and continuous improvement. Also, cost competitiveness, based on productivity and employee cost, is important. Furthermore, major companies operate globally for both production and sales. They source goods, technology and even employees from where it is most advantageous to do so and sell their products and services all over the world.
This industrial world has come into being, driven by the ambitions of large global firms. It has been aided by the lowering of shipping costs due to containerisation, development of cheap and reliable communication through phones and computers, and the lowering of tariffs and other barriers to trade under the Uruguay round of 1994. It is now an open and connected world that we live in. Tom Friedman called it flat.
Under these conditions, manufacturing is gradually moving from high cost developed countries to emerging markets ever since the 1960s. First it was South Korea, Taiwan, Hong Kong and Singapore; then, Malaysia and Thailand and, since 1979, China.
According to the Harvard Historian, Niall Ferguson, there is a virtuous positive correlation between economic freedom and political freedom. In his recent book, "Civilization: The West and the Rest", he has said that "For 500 years the West patented six killer applications that set it apart. The first to down-load them was Japan. Over the last century, one Asian country after another has down-loaded these killer apps – competition, modern science, the rule of law and private property rights, modern medicine, the consumer society and the work ethic. Those six things are the secret sauce of Western civilization.".
Size of populations matter. Of the 7 Billion people in the world, only 1.5 Billion are in the developed countries. So, ultimately, markets will also move to emerging markets. It was because developing countries were mismanaging, largely due to undue reliance on the government and stifling of the private sector, that their growth and share of the global economy was low. Since the 1980s this has changed almost everywhere. In 1989 in Eastern Europe and we are now seeing a massive change in WANA countries. Thus, growth is now in emerging markets of Asia, Africa and Latin America. In 2010 almost half (46%) of global growth was in these regions. This is likely to continue to be the pattern.
Also, the developed world faces challenges in maintaining its current high incomes, especially for its ordinary citizens. Till recently there was supposedly a division of labor, wherein high-tech goods were made in the west to support higher incomes. However, now the situation has become more complex. Technology flows are unstoppable and ultimately technology resides in people. The productivity and capability of people in the developed world is not 40 times better, which is the income differential, than in India. It may be 2-5 times better, and in some areas like IT even this is debatable. So, a period of readjustment, wherein incomes increase in the east and stagnation, if not decline, in the west, seems inevitable for a new equilibrium to be established. Its implications remain to be seen.
The world faces issues of sustainability, of climate change, but the history of man tells us that new solutions emerge given human ingenuity and proper incentives. I remain hopeful that the end is not near. In 1972 the Club of Rome, of which for some time I was a member, issued dire warnings of the end of resources. The world has largely dealt with these.
However, the "Triumph of the Market" or the "Washington Consensus" phase that lasted broadly between 1980 and 2008 is over. The financial crisis in the US and Europe since 2008 has exposed the risks and limits of free markets and, in the final analysis, highlighted the responsibility and power of the nation state. Nation states matter. To decide on the rules which govern markets and within which companies and nations operate.
This is the globalised world we operate in. We have to understand how it operates and impacts us. Grab the opportunities it throws up and be mindful of its threats. On the balance it has offered us opportunities.
Let me come back to our situation.
We can see what has happened in our country since 1991 as a process of adapting to this globalised world.
Three major things happened in Indian industry in the 1990s which have propelled our country on to a different trajectory.
1. Many existing companies successfully transformed themselves.
2. Many new companies came in to being.
3. Off-shore outsourcing industry developed to create a large number of well paid jobs in the country. Though this began with IT and BPO companies, it has now broadened itself in to IT Enabled Services and KPOs.
Many large Indian companies went through gut wrenching change in the 1990s and the last decade and have come out stronger. Some fell by the way side. Of the private companies in the top 20 in 1991, 16 were still in the top 50 in 2010. This indicates that the issue till 1991 was essentially of government policy and not company capabilities. It is also a sign of vitality of our entrepreneurs that new business groups and new industries like IT, Pharma are now in the top 20.
The World Economic Forum of Geneva produces a very respected global competitiveness ranking. For decades, on issues within the control of companies we scored a significantly higher ranking in the world, under 30, compared to our overall ranking of around 50.
Let me illustrate this process of change with the experience at Bajaj Auto. In 1997-98, a little over a decade ago, we sold 1.33 Million vehicles of which barely 3.5% were exported. In the year ending tomorrow we would have sold 3.9 Million vehicles of which 30% were exported. We have become much bigger and more competitive, locally and globally. We have competed in India and abroad with the best in the world, since 2000.
By whatever parameter one can assess performance, ours has shown a quantum improvement. We used to make about 1 Million vehicles per year with 18,000 people. Now we do 4 times the volume with less than half the people, a 800% improvement in productivity. Our R&D manpower has increased from 195 in 1990 to over 800 now. Our profitability or operating margin is the best in the automotive industry – not only in India but world-wide.
One would find a similar process in almost all companies that have prospered in the new environment, be it Tata Motors or Mahindra & Mahindra or the Aditya Birla group. Not that there were no casualties. Premier Automobiles, LML, Kinetic, DCM Motors and many others either folded up or were taken over.
At the same time, there has been a flowering of Indian entrepreneurship. At 7,000 we have the largest number of listed companies in the world.
Many new companies and sectors have bloomed, most notably in IT, Telecommunications and Pharma. Private sector Banks and Insurance companies have given both PSUs and foreign companies a run for their money. IT and ITES companies have become the largest employers of educated people in the country.
While serious difficulties remain in starting and running a business, notably the lack of venture capital, poor infrastructure, inflexible labor laws, a plethora of regulations and rampant corruption, it is easier than before. (Of course, inflation, fiscal deficit and to some extend CAD continue to be concerns). In 'Ease of doing Business', which is an annual survey done by the World Bank, we rank a poor 134th out of 183 countries. But, due to the entrepreneurial depth in our country, despite the constraints, new businesses are multiplying. I believe that the 9% growth rate that we are achieving is because of the efforts of our entrepreneurs in every nook and corner of our country. And these include our farmers. This growth is not because of but almost despite the government.
Another big change is that Indian companies are internationalizing themselves, not only by selling abroad, but by acquiring companies there. A decade ago no one spoke of outward FDI. Now it is a significant figure. It was USD 27 Billion in 2009. We have Tatas taking over Jaguar and Land Rover and Corus, Mahindra taking over Ssangyong, Birla's taking over Novelis, Bharti Airtel acquiring Zain in Africa. Bajaj Auto owns 38% of the Austrian motorcycle maker KTM.
This takes our companies to the next level. A whole new mindset, new skills, new culture, is required to run such an operation. I believe more and more companies, even medium sized ones, will move in this direction. And this provides the basis for continued optimism about our country's growth.
The steady growth of our economy, in a world where growth in developed markets was lower anyway, and badly hit after 2008, has meant heightened interest of foreign companies in our markets. Inward FDI has gone up from USD 4 Billion in 2000 to over USD 34 Billion in 2010. IBM has over 100,000 employees in India. Many companies including Mercedes Benz have opened up their R&D centres in India, even in non-IT sectors. GE employs 600 Ph.Ds in India.
Decisions are taken by companies, not countries, and they will do what they think is in their own long term interest.
Industry is the engine of a nation's development. Not just in terms of taxes and employment, to which it contributes handsomely, but because it is the activity that drives an economy. It, along with agriculture, is the only activity that creates a surplus. The industrial mentality, which is based on an effort to create something, then conserving and further developing it, is central to the functioning of the modern world. It is interesting that we find this concept in the writings of Manu, in Arthshastra and in Panchtantra.
So is everything hunky dory in our country? Far from it.
Even 63 years after independence our per capita income is very low. About USD 1,000 per annum. (Developed world US$ 35,000/-). The level of poverty in our country is unacceptable. (40% live on $1 per day). We need to move many of our people out of agriculture, so that agricultural holdings increase to a viable size and yield per acre increases. (Industry and services to absorb such persons). Our industrial and social development is uneven leading to large pockets of our country being ripe for disaffection. The extent of spread of Naxalism/Maoism reflects this. Our quality of governance is abysmal. We have an electoral democracy which is increasingly being captured by goons and money bags.
The tragedy is that we have so much potential. If we get our government right, we can fly. On the balance, I continue to remain optimistic. We are seeing that better governance at the state level in Gujarat and Bihar is delivering both on the economic side as well as on the social and political. Our people are good. It is our leadership in politics, bureaucracy and industry, which has let us down. Unfortunately, Indian industry, especially large companies, have been timid politically. In the UK I have heard a PM being called "stupid" by an industry person and recently the head of 3M, a US multinational, upbraided President Obama for his wrong headed policies towards business. Indian business has unfortunately still not earned a stature and credibility to frankly speak its mind. Also, the Indian state can still be vindictive and unlawful if it so chooses. But, as the streets of Tunisia, Egypt and Libya show, ideas and raw courage can still move mountains.
The core reform we need is in the government seeing itself as an enabler rather than as a controller. When dealing with developed countries, one is struck by the unison with which industry and government speak, especially when dealing with other countries and multilateral organizations. In our case we still suffer from a colonial mentality, with the government keeping industry at an arms length. Despite improvement, it is still not a satisfactory situation.
The recent Bihar assembly elections, exposures by the electronic and print media and the assertiveness of the judiciary under the new Chief Justice of the Supreme Court, provide hope that fairly soon, correct policies in the national interest will be followed by our central and state governments to promote growth, development and ensure law and order. Also, attractiveness of corruption would gradually reduce.
The governance agenda is constantly evolving and there is high awareness of the need for a more responsive, effective and transparent process. India's growth process under a democratic government is a sustainable, humane and just path to development.
We should recognize the importance of India being strong, based on two pillars. Economic strength and military strength. This strength is crucial for global respect and credibility. A weak India is not good either for India or the world. But a strong India, a balanced, mature India, a non-threatening India, is critical.
Some of the key reforms we need are:
1. Availability of key physical infrastructure. Power, roads, airports. And, also social infrastructure including education and health.
2. Improved governance – A significant reduction of wasteful or misdirected expenditure by the government, specially on non-merit subsidies.
3. Improving delivery of services by reducing inefficiency and corruption.
4. Bringing down inflation and fiscal deficit.
5. A flexible labor policy with adequate safeguards for labor
6. Dispersal of industry.
7. Electoral reforms: a) State funding of elections b) Concurrent elections to Parliament and State assemblies and once every five years, c) Political parties not giving tickets to anti-social elements to stand for elections.
The challenge for Indian industry is to develop size and technological capability. For this it needs management capability. Most private sector Indian companies are family managed and in the second, third or fourth generation. The probability of family firms being managed well can decline across generations. But in our country there is still a strong desire within children of business families to work for their companies. So, in Bajaj Auto the fourth generation is managing and each generation has been trained better than the previous one. And, such companies, are essentially run by owners with commitment and continuity who are also competent professionals.
While technology is changing fast, I believe that in most businesses it is possible to judiciously buy technology and have internal capability to develop it further and convert it into products. This is how Bajaj Auto, Mahindra, Tata Motors have evolved. Even in newer sectors, companies like Suzlon in Windmills have taken the route.
Business schools tell us that the key requirement is the front end which deals with the customers. This is the issue of distribution, of brands, of skilled assessment of customer desires. The back end of productivity, technology are easier to handle in all but the very high technology areas.
In the corporate sector, doing a quality job and meeting commitments is a necessary way of life. Or the enterprise will not survive. Achieving this requires certain habits of thought and behavior. Some of these are a commitment to the idea of merit and creating an atmosphere conductive for it to flower, a focus on constant improvement and a desire to learn continuously. The corporate sector spreads these habits to those it associates with. This itself, in our 'chalta hai' country is a very important contribution to nation building. It is our IT sector which reshaped the world's and our own view of ourselves, from being second raters to first raters.
Indian industry now has the track record of competing with the best in the World. We have the intelligence, the commitment and the drive and, most importantly, the entrepreneurial depth.
Of course, businessmen are motivated by profit. But the desire to satisfactorily meet the needs of customers and to compete with the best and come out a winner, is a deeper and a more enduring source of motivation for most industrialists.
Over a century ago, Swami Vivekananda said something that still resonates remarkably. 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. And, if such a thought drives a country, what can stop it from realizing its dreams?
Jai Hind.
What Managers Must Know About the World
22 November 2008, All India Management Association, New Delhi
What Managers Must Know About the World
All India Management Association, New Delhi, 22 November 2008
Ladies and Gentlemen,
When Rekha Sethi invited me for this event, I asked her why was she inviting an old war horse to an event rightly about & for young colts. She mumbled something about wine getting better with age and all that. Not at 4 in the afternoon , said I.
Anyway, here I am.
At the outset I congratulate AIMA on its outstanding contribution to the field of professional management in the country. That in the process, its annual surplus exceeds that of major industry bodies, excluding CII, is very laudable. Professionalism has come to mean one of two things in our country. Competence and values on the one hand and a mercenary "everyone has a price" philosophy on the other. We must labor hard for the ascendance of the former, i.e. competence and values, and set a personal example to negate the corrosive latter. Competence without moral and human values is trash.
In earlier sessions of this convention, issues like the importance of a global mindset, of innovation and of entrepreneurial managers have been discussed. I will not belabor these issues. Instead, I will try to flesh out some macro issues that I believe every manager, old or new, has to get to grips with in this world.
If any one had told us even two years ago that the US financial system would undergo a huge crisis, it is unlikely we would have paid heed to him. Some of the biggest names in the system, from Bear Sterns to Lehman Brothers, to Freddie Mac and Fannie Mae to AIG to Merrill Lynch, to Washington Mutual and now Wachovia, have gone through gut wrenching change, with some of these names likely to fade into oblivion. Even the two remaining & the largest Investment Banks, viz. Morgan Stanley and Goldman Sachs, had to bow to the inevitable and have had to become Commercial Banks under the supervisory control of the Fed.
If anyone had said that FDI from India would almost equal FDI into India would we have given that credence? This and much more is happening. Welcome to the brave new world, which is both flat and round.
Now almost any business, anywhere in the world, is affected by competitors, by events anywhere in the world. One can call this globalization. This throws up both opportunities and threats, not just one of them. I find it disconcerting when people pretend that only one of these exists. The drum beaters of the left only see the threats, the buglers of the right only see opportunities. We, as businessmen, unlike some politicians, have to be credible.
Big business, which is what many of those assembled here today, represent, is even more influenced by significant geo-political and geo-economic developments.
In the last two decades, global growth has been good, despite hiccups like the 1997 Asian Crisis, in an environment of low inflation and easy availability of low cost capital. Whosoever has made efforts to grasp the opportunities has benefited, be it China , SE Asia, India or Latin America . It has been a period of great hope and great improvement in the lives of billions of people. Of course, it could have been better, more equitable etc. , but it has laid to rest the ghost of government led growth and raised the sphinx of private sector led growth.
In 2008 however we are seeing the end of this era of high growth and low inflation, at least for a while. Growth is likely to be sustained, especially in developing countries, but under less benign conditions. We would have to work harder and more intelligently for it. Oil & perhaps commodity prices could continue to rise, protectionism in developed countries could increase, climate change will become much more of a real issue and ,above all, there could be much greater volatility in all of these. We have to also deal with the impact of terrorism and Sovereign Wealth funds.
The second major development is that geo-political centres of power are being realigned. Till 1990 we had a bi-polar world. With the disintegration of the Soviet Union, we had two decades of a virtually unipolar world dominated by the US . Now, with a resurgent China , Russia and India and an economically weakened and inward looking US, and an indecisive Europe, we will be in a multi-polar or no polar world, of shifting alliances between these powers, and countries like Saudi Arabia , Iran and Brazil . The rise of oil prices and Europe's dependence on Russia for gas supply, has introduced a new dimension in the global power game.
I have long maintained that this flux provides significant political and economic opportunities for India and that a policy of equidistance with EU, Russia and China , and a slight tilt towards the US , is in our interests.
The last two decades have also made it amply clear that the issue is not market or state ; this has turned out to be a false choice. The answer is market and state. I like to say, I am a free market socialist. Sounds like a contradiction. But virtually every country is veering around to this view, including the US.
In our country we still have too much of the state and not enough of the market. So, we need to move in the direction of greater role for the markets. Currently, we are over regulated and under governed. Ultimately we should be better governed, well regulated with essentially free markets.
Which brings me to the issue of the state of governance in our country, which does deeply affect business operations & interests.
The current situation is unsatisfactory. Coalition governments are here to stay at the centre and growing even in the states. The nexus between politics and criminals can continue to be ignored only at our peril. The quality of the political system & leadership, barring some notable exceptions, leaves much to be desired.
What is important for business is that it put its weight behind the right political forces and seek to influence them in a transparent manner. Either we can try and cut deals with the political system for our selfish ends and harm the economy and polity, or we can try to improve the system for all businesses. Business has by and large not covered itself with glory and our credibility with the public is low. The resistance to land acquisition for industrial development is a pointer to this perception.
Recently, I came across a book written a century ago by Gurudev Tagore called "Greater India". It makes the important point that our civilization survived all the turmoil over centuries because in our society, the community provided for itself and did not depend on the government. Our dharamshalas, schools, water bodies were built and maintained by the society. Gurudev called for the reinvigoration of this Swadeshi, swavalambi Samaj concept. These essays predate Gandhiji's freedom struggle, but almost predict the program that Gandhiji brought to fruition.
The biggest contribution business makes in society is by running its business well. This is our core purpose and core contribution.
But as organizations grow large and influence the economic environment as much as they are influenced by it, we need to engage with the environment. This engagement can be said to be at three levels.
The first level is to be trusted as a company by society. To have legitimacy. We do not fully realize the importance of this. It is when things start to go wrong that the importance of public perceptions becomes evident. The quality of talent that we can attract & retain is also partially linked to such perceptions and realities. This is earned by the quality of our products and services, our corporate governance practices and by our CSR activities.
The second level has to do with influencing rule and policy making. This is very important in the long run. Rules and policies are not God given. It is in the interests of businesses to see that they are sensible. These can be from Octroi to labour legislation to the WTO negotiations. Businesses need to engage with policy making at all levels.
The third level is philanthropy.
I take this opportunity to exhort all of us to allocate 1% of our net profit to support social provision of services. This will include CSR activities and philanthropy. I am confident it would make a greater impact than the 30% of our profits that we pay to the government! At CII's national session in January this year, a CII initiative on health showed that it was able to reduce diseases by over half in selected villages merely by spending around Rs 20 lakhs in a drainage system for the village. Ideally, our associations like CII and AIMA should organize such efforts and identify good ideas and NGOs through whom this money can be canalised.
It is within this broad sweep that we must chart the course of our companies. I would in conclusion stress two points which I consider important.
First, we need to review our strategies. Do they adequately reflect the opportunities and threats faced by us? And the answer in many cases would be "not enough". We still have miles to go before we improve our offerings and our geographical reach. We are at the dawn of a new era. Ten years ago, Indian MNCs was just a wild thought. Now, it looks doable but we still have mountains to climb. This is a challenge every competent manager cherishes.
Second, let us take a close and frank look at our organizational culture. Is it conducive for attracting and retaining talent, ethical behavior, honest feedback from all, disagreement with the boss? Does it reward the straight and punish the crooked?
Being able to disagree with the boss is to my mind a key requirement for sustained results. Some attribute the outcome of the IInd world war to the freedom to disagree within the British forces and the absolute obedience within the Germans.
It is when both these, strategy and organization culture, are robust that we can place big bets even on relatively weak market signals. The success of Microsoft, Google, Airtel can be attributed to the ability to do this. If we look at our own company's successes and failures we would realize the centrality of this feature. When the demand for a product is obvious, competition intensifies and margins weaken. It is when it is not obvious that we have the latitude to dig in to a market and realize the first mover advantage.
Quality of management is the key resource any organization has and therefore the core attribute which should be cultivated in it. I believe that it comes from the organisation's values and performance orientation. If these are in place, the rest can be put together. As leaders in organizations, all present here today have a make or break role to play in this process in their organizations.
The world is ours for the making. Ours for the taking. Let us make it and take it.
Thank you.
Speech in Rajya Sabha
23 August 2006, Rajya Sabha
Speech in Rajya Sabha
Rajya Sabha , 23 August 2006
Thank you, Mr. Vice-Chairman, for giving me this opportunity to make my maiden speech. My family comes from Wardha and Shri Janeshwar Mishraji, who is not here, mentioned about the Ashram of Gandhiji which is Seva Gram and that is where my late grandfather Jamnalalji invited Gandhiji in the early 1930s from Sabarmati near Ahmedabad. Mr. Vice-Chairman, Sir, a lot has been said about this subject. I would try not to repeat it and one of the ways, I will do it is by concentrating on my region which is Vidarbha and which is the cotton bowl of the country. So, I will talk about cotton, Vidarbha and then, later on, a little bit about the economy and the society.
We have heard that suicides primarily are by small and marginal farmers. It is very correct. We have also heard that like any commodity, Mr. Vice-Chairman, industrial commodity, in the services sector, IT or otherwise, only way one can be sustainable and one can survive is when the selling price exceeds the total cost of production. Keeping in mind States like Maharashtra and Vidarbha where less than five percent of the land is irrigated, the chances of crop failure are obviously very high. So, if you take the cost of production of cotton in Maharashtra and Vidarbha, it is much, much higher than other places including a State like Gujarat.
Wherever a human life is lost unnaturally, it is a tragedy. But when someone takes his own life, in my view, it is a catastrophe. And yet, in recent years, we have seen thousands of farmers taking their lives with numbing regularity. What should be done? Costs have to come down or selling prices have to go up. For the time being, I would not worry about the consumer and the customer; though on onion prices, Governments have changed. But let’s leave it aside because here, we are not talking of the production of an industrial commodity, we are talking of 65 per cent of the population of this country. They are consumers as well as producers. We have heard enough that if you don’t take care of the farmer, how will India move forward? I fully share that view because we are all inter-dependent.
The Minimum Support Price for cotton in some States, has been lower than the cost of production. As Shri Arjun Senguptaji was rightly saying, MSP is fixed to ensure that a farmer, at least, gets something more than his cost - cost-plus approach. Mr. Vice-Chairman, the 2004-05 report of the Commission for Agricultural Costs and Prices estimated the cost per quintal of cotton – I won’t give too many figures, only three figures at Rs.1643 in Gujarat, Rs.2229 in Karnataka and Rs.2216 in Maharashtra. But there was naturally only one Minimum Support Price and, in that year, that was Rs.1960. Cost being above MSP does seem to explain and, at least, it is one major reason for the distress in Maharashtra and Karnataka. In Gujarat, because the cost was lower than the MSP, we have not heard of that many or, if any, suicides from there.
So, the first point I am making, Mr. Vice-Chairman, is that you can take care of debt items—and I will come to that in a moment – but all those are temporary measures of help today, tomorrow. If you are to keep selling your product, in this case, cotton, or any other agricultural product, at a price lower than the cost of production, no amount of debt can take care because ultimately, the debt has to be repaid. Ek bar maf kar denge, do bar maf kar denge, interest ko bhi chod denge, lekin paise kahan se ayenge? Chahe budgetary support yeh kam kare, bank kare, ooper se to paise nahi ayenge kyon ki yeh to tax payers ka paise hein. So, ultimately, the farmer must make a profit. Yes, I will talk a little about the private moneylender, about whom much has not been said except some passing reference by a few speakers.
I may also mention, Sir, that in 2004-05, the Maharashtra Government offered prices of around Rs.2,500/- per quintal. Very good. But, then, it became unsustainable for their budget. Sir, in 2005-06, they reduced the price to Rs.1,980/-. I have already referred to the cost of production, in Maharashtra, of cotton, which was higher than Rs. 1,980/-. And the result is for all of us to see. Of course, Sir, I cannot say to my Agriculture Minister that he has been unfair to Vidarbha and partial to Western Maharashtra! That would be a very unfair comment, Sir, because I come from Vidarbha and he comes from Western Maharashtra! But that is a fact of life. Even when we have had a Chief Minister like Vasantrao Naik, who was from Vidarbha, probably not much was done because he did not have that strength.
Private moneylenders, Sir, when do they lend money? When the banks and the cooperative societies do not lend. The marginal farmer has not paid his loans. He cannot get loans elsewhere. Also, the moneylender is not only supplying inputs. He is also now buying the output. So, he has a stranglehold on the farmer. I understand that, nowadays, they are charging as much interest as 60 per cent per annum. Sir! I think, Manohar Joshiji or someone else mentioned 30 per cent. Sometimes, they charge 60 per cent. At 60 per cent, even the best-run industrial establishment will fold. Whether he charges two per cent, four per cent or six per cent, is not the point. The question is — I don’t understand it, Sir; maybe, the Agriculture Minister will tell me — that there is the Bombay Moneylenders’ Act. 1946. Our Agriculture Minister was, probably, four years old at that time, Sir, and I was a little older! Now, that Act says that if the moneylender is not licensed, he cannot recover his loan; he cannot go to courts, and if he is licensed, the total outstanding amount cannot be more than twice the loan. And it also specifies the rate of interest. I do not know why my State Government is not taking advantage of that Act. There must be some reason for that.
Rajnathji rightly referred to the WTO. I do not want to take too much time on that. I would only say this. When we talk of market prices, we talk of normal market prices. The international cotton prices are not normal. US$4 billion dollars, Rs.18,000 crores, is the subsidy provided by the US alone to just its cotton farmers. The total subsidy for farmers by the OECD countries is US$ 350 billion. Cotton farmers get Rs.18,000 crores there. My farmer, in Vidarbha also, maybe, can compete with the American farmer, but he cannot compete with the United States Treasury. Kamal Nathji, in some other context, rightly said that he can compete with the wheat imported, or any other commodity, in the agricultural area, but he cannot compete with the subsidies which a country like the United States provides. And because of this, I come to my recommendations, Sir.
In the short-term recommendations — Mr. Arjun Sengupta said about the import duty — first of all, Sir, I am referring to the import duty on cotton which is not produced in this country. If it is not produced, nobody gets hurt. And the textile mill people are very influential people. You know, industrialist, big industrialist, not people like me, small industrialists, Arjunji. So, fine.
But when cotton is produced in this country, if we import cotton from a country which subsidises its cotton farmers, then we must have an anti-dumping duty. I don’t understand why it is not there. It would be WTO compliant.
If there are no cotton imports from such countries, fine. I am just saying, if there is cotton import, which is a subsidised variety, then I must have a countervailing duty.
Sir, why don’t we hear about suicides from Gujarat? One reason is that, obviously, 40 per cent of the land is irrigated. In Vidarbha, it is four per cent. It is important that in Gujarat farmers normally also have some other income from dairying, vegetables, etc. which they supply to the nearby industrial centres. That does not exist in Vidarbha.
Sir, I believe that the relationship between agriculture and industry is symbiotic. A prosperous agriculture develops industry and a prosperous industry develops agriculture incomes. I strongly believe that India can’t move forward, unless its farmers move forward; and the growth is only of value, when it is inclusive.
Sir, the irony of the fact is that the cotton economy in our country has good growth in demand ahead of it. The domestic market is growing and with the end of Multi-Fibre Agreement, though China has benefited quite a bit, a very large market has opened abroad for us also. Our exports of cotton clothes are growing and we have further potential to grow.
Mr. Chairman, Sir, may I suggest six short-term measures and two medium-term measures? I am not referring to the long-term measure because John Maynard Keynes said,” In the long run, we are all dead”. My six short-term measures — some of them are being implemented or will be implemented or have been announced by the Government — are: One, a one year moratorium on repayment of dept owed to private money-lenders. This has been done for six months or so by the Andhra Pradesh Government. A two-year moratorium — I am saying only a moratorium because I don’t want to start a bad example of non-payment of loans — on repayment to cooperative institutions and banks, especially, by small farmers whose holdings are below two hectares and whose loan is below Rs. 1 lakh. But the banks must step in to help such farmers. Two, Immediate disbursal of, at least, Rs. 1 lakh to the families of each farmer who has committed suicide. I don’t want this to be misused. However, if you ask ten kinds of questions like whether he has committed suicide or whether he was murdered or whether he died in an accident, he will never get this money. Three, there should be a declaration that private money-lenders and the private sector man can’t charge interest above a certain rate, whatever the Government thinks fit, I would even say 20 per cent. Four, all land transfers that have been made in the last two or three years should be reviewed, and if the cause of such land transfers was exorbitant interest rate, then it should be considered, within the laws of the country, whether that transaction can be invalidated; and, of course, the lender should be repaid his loan. Five, a review of the Minimum Support Price of cotton and the appointment of the Maharashtra Cotton Procurement Federation, in addition to the Cotton Corporation of India, as an agent to procure cotton at the MSP. Six, anti-dumping duty—I referred to it already—should be levied on cotton, if cotton, which is subsidized, is imported.
Sir, the two medium term proposals are; One, to increase irrigation in the region through irrigation schemes and villager level initiatives to conserve rain run-off. Mr. Sitaram Yechury and Shrimati Brinda Karat are not here. Two, as I said, the relationship between agriculture and industry is symbiotic. So, we must encourage industrialization in these areas.
Sir, we have 60 per cent of the population living on agriculture. America has only two per cent of its population living on agriculture and it produces more than what it needs. Today, we are employing 60 percent in agriculture. But we can’t continue to absorb 60 per cent in agriculture. It may not be two per cent. It may come down to 40 per cent or 30 per cent or 20 per cent. Where will the surplus persons go? They have to go to industry and they have to go to the service sector which are complementary to each other. So, I would suggest that we must encourage industrialization in these backward areas by providing infrastructure. This is what is required. Industry does not want fiscal incentives. In fact, that distorts our decision-making.
In Himachal and Uttaranchal, I was against extending the benefits given by three years; that distorts the situation. Even I am going there. I didn’t want to, but there are such benefits that you cannot ignore them. Sir, in these backward areas, if we provide the right infrastructure, and, my friends may not like it, a flexible labour policy – don’t give them in areas where I am already there, but only in these backward areas – then, a lot of industries will come up in these areas, and both agriculture and industry would benefit.
What we need are a few, but effective measures. In our governance, we have come to be obsessed sometimes with the form, and we are unmindful of substance. There are, for example, 29 Government Resolutions of the Maharashtra Government on Cotton as of 24th May, this year. I don’t know whether they are only on paper. I may add that someone has to be responsible to implement all these plans. Right now, everyone from PMO downwards is responsible which means, perhaps, no one is responsible. I would suggest, especially for Maharashtra, that a Cabinet Minister level or a Deputy Chief Minister level person is appointed, and this position be created in Maharashtra with the sole responsibility of improving the state of agriculture in Vidarbha. A young and a dynamic person—he is not here; otherwise, he will shout at me – Shri Praful Patel, who is considered to be one of the best Ministers in the Centre, should be given this responsibility.
Sir, since this is my maiden speech, I seek your indulgence in saying a few words to outline my broad perspective on our economy and society. We pledged at our independence to take India forward. We have taken it forward, but nowhere near as much as it can be taken, or where it was capable. The glass is still only half filled. We still have unspeakable poverty, which was referred to by Dr. Arjun Kumar Sengupta, where 28 per cent of our people, that is, 300 million people, are living on less than one dollar a day , a poverty which crushes human dignity, stalking our land. Our poor governance, in my view, has, by and large, been a drag on our development. It is the tenacious spirit of India, alive in the hearts and minds of every Indian, whether he is a worker, farmer, businessmen, entrepreneur, or, I do not know whether I should say, politician, and their spirit, hard work and entrepreneurial ability which have taken and continue to take our country forward.
I believe that we stand at a propitious moment in the history of our nation. While we acknowledge the challenges, -- there are many challenges – a world or opportunity also awaits us. As you know, in the world, India is not just a flavour of the week or the month or the year. We are the flavour of the times. Previously, it was only China. Now it is China and India.
Both in the services and manufacturing sector, we are poised to gain from the developments in the world economy. We are becoming internationally competitive despite the serious handicaps of lack of infrastructure, right from social infrastructure, health, education, drinking water, sanitation and of course, physical infrastructure. The key reason, however, for my optimism, as I said, Sir, is the quality and entrepreneurship of our people. Though low as a percentage of our population, we must strive to increase this. We have the world’ largest pool of smart, hardworking manpower, be it in IT, manufacturing or finance. And, this is very important and we are conscious of it that demographically, we will remain a country of the young even in 2025. We have to ensure that we encash this demographic dividend by investing in their education and their skills. With education and skill, India will become a great country; we shall capture the world in the next 25 years. But if our youth are not educated, are not skilled, instead of becoming a great asset, they will become a great liability. Sir, we need good governance to achieve these goals of inclusive economic growth. This will come from changes at the top and pressures from below
The pressure from below will increase, as economic and social development make our people more self-assured and more articulate. The reopening of the Jessica Lall and Mattoo cases, under intense public pressure, bodes well for our democracy. Democracy is not just elections. Democracy is active participation by every citizen in the affairs of the state, and the state exists essentially to provide public goods and services to its citizens.
In this connection, in passing, Mr. Chairman, Sir,--I have no time to go into details – I would like to add that to ensure that we can take hard decisions, the Lok Sabha and all the State Assemblies should go to elections simultaneously; co-terminuously, and only once in five years. We should also ensure that a vote of no-confidence in the Leader of the House, the Chief Minister or the Prime Minister should be, like Germany, which is a democratic country, accompanied by a vote-of-confidence in an alternate party and person.
Sir, quality of leadership is crucial in determining outcomes. Leadership is not just a matter of charisma or showmanship or public relations.
But 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 us a leader.
Sir, Gandhiji occupied no chair but led the country from subjugation to freedom, striding like a colossus in our hearts and minds. We will do well, may I say so, Sir, in all humility, 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, precisely, because we have ignored these teachings that we have under-achieved
In this august House, I will endeavour in all humility to play the role that the Constitution envisaged each Member to play. That is, on behalf of the people of India, hold the Government accountable. No more, no less. We have enough good laws. What we lack is speed and justice in their implementation. I would like to consider myself as representing a large political spectrum. Three of the major parties in Maharashtra supported me as an independent; and my family is steeped in the Gandhian culture, and this gives me a lot of pride. So, I will try to be even handed as an independent, with right and wrong for the country being the sole yardstick for holding an opinion, though I may be mistaken at times.
In conclusion, Sir, coming into this august House, I am conscious of my responsibilities to the nation. Panditji’s ‘Tryst with Destiny” reverberates inside my mind. I have come here to try to help in all humility redeem the pledge that was taken by our founding fathers. So, may God give me the strength to make a difference! I get a strong feeling, Sir, that I can bank on the support of both sides of this august House.
Thank you, Sir.
Realising the Indian Dream
23 November 2006, Wharton India Economic Forum, Philadelphia
Realising the Indian Dream
Wharton India Economic Forum, Philadelphia, 23 November 2006
It's a pleasure to be with all of you here today. I am a Harvard man but my commitment to India is naturally higher and wherever there are friends of India I am happy to be there.
Dreaming is a fundamental human right and the starting point of all change. Realising a dream is the more difficult but an equally if not more important part of the dreaming. This is when the dream confronts reality and must either change reality or perish. Luckily when the dream is as broad as a national one, it never perishes.
Today I will try and present my qualitative assessment of where we are on realisation of this dream and what are some of the issues that we need to address.
India 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.
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 totaled 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 a marginal improvement 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 yet, but very likely to.
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 even the year. We are the flavour of the times. Previously, it was only China. Now it is China and India.
Both in the services and the manufacturing sector, we are poised to gain from the developments in the world economy. We are becoming internationally competitive despite the serious handicaps of lack of infrastructure, right from social infrastructure including health, education, drinking water and sanitation and, of course, physical infrastructure, power, roads, ports, etc. The key reason, however, for my optimism, is the quality and entrepreneurship of our people. We have the world' largest pool of smart, hardworking manpower, be it in IT, manufacturing or finance. Also, and this is very important, that demographically, we will 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.
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.
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. But what is this mountain? Which dream will we chase?
It is clear that we have to focus on growth, but we need to make it inclusive, else we will not develop in a sustainable 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 place us in the league of sub-saharan countries. Therefore, there is a need for a sense of proportion and a set of sensible priorities. The last government ran an "India shining" theme in its bid for re-election in 2004 but it did not strike a chord. The outcome was the result of many factors, but this slogan certainly did not work.
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 over 40% of the people are still below the poverty line.
We have to aim for broad based, balanced growth for the sake of its social and environmental sustainability. More than that, at least to me, a dream of unbridled materialism is not very appealing. It's a hollow dream that does not challenge the soul. Tagore's dream of India in his poem "Where the mind is without fear" is a much more worthwhile dream.
The world is multi dimensional. Economy is one axis, Society & Family are another, Politics yet another. Environment is turning out to be something one can't disregard. All of us are influenced, by all these forces. It is their balance that will determine outcomes.
Developments in any of these axes influences other axes.
Therefore, if we are to realise the Indian dream, we must be eclectic in our thinking and doing. The world does not move in a straight line. If any proof was needed, the situation in Iraq is proof that linear thinking does not always work. So, though I like Goldman Sachs projections for 2050 for India I don't take them too seriously.
Indian business has its work cut out. Develop and strengthen in the fast growing 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 educational institutions should in my view be encouraged. Currently 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 am not sure if 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 may not be easy. In my view dispersed industrialisation can provide the basis for a prosperous agriculture. The dormant government machinery has an important role to play in providing services to agriculture. Some private sector agro-business initiatives like e-choupal of ITC have contributed positively to rural incomes.
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 our government. Hence, there are a number of pending issues, most importantly in electricity and labor policy, that are not conducive for business development. There are many government policies that distort decision making - from non-merit subsidies, artificial prices, politically expedient investment incentives etc. Corruption continues to be a 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 gradually loosen the boulders in our way.
The politician's need for re-election in a democracy sometimes makes him wary of sensible economic decision making. In India it makes him an unashamed populist. India cries for good governance and political and administrative reform; of mindsets, policies and processes.
Yet, at the same time in Bihar, one of the worst governed states, there has been a change of government a year ago on precisely this plank of development versus populism, when populism finally lost.
So, In India, for every example there is a counter example. What is clear is that the well developed or, more correctly, developed regions, for even within a state wide disparities exist, are moving ahead strongly and are having a domino effect on other states. However, non-coastal states and regions, other than around Delhi, are having difficulty in attracting investment.
There are incongruencies between words and deeds of politicians in India. Also, the composition of the parliament, wherein the ruling coalition is dependent on left parties support from the outside for its survival, is not conducive to big ticket reform. However, this government will be unable to pursue big ticket reform, but would go along with sectoral policies and decisions that are reform oriented. Reform by stealth if you please. Even this is possible because the left does not want this government to fall.
We need good governance to achieve our goal of inclusive and rapid 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 ambitious, self-assured and more articulate.
To ensure that we can 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 should ensure that a vote of no-confidence in the Leader of the House, the Prime Minister or the Chief Minister, should be, 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. It is precisely because we have ignored these teachings that we have under-achieved.
India is a land of thousands of gods, many peoples. Of many ideas and dreams coexisting for a long time. I believe this will continue to be the pattern of Indian culture and the Indian economy. 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 is a country with some turmoil on the surface, but it has innate stability, as behoves an open, democratic society with a free judiciary and press.
It is not important for me whether or not India is a so-called superpower, say, 20 years from now. My dream for India, 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 weak can also live with dignity. A country retaining its age-old humanism, tolerant of differences and with 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.
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. 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, what can stop it from realising its dreams?
Thank you, Sir.
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