Integrating the Indian economy with the global economy

Aditya Vikram Birla was conferred the ‘Management Man of the Year Award’ in 1992, by the Bombay Management Association, the premier management association in India. In a hard-hitting, forward-looking speech, he identified the challenges which corporate India and the government needed to grapple with. Even today, his words ring true.

Excerpts from his speech:

A global village

Unbelievable and unprecedented events have torn through the fabric of recent history. Perhaps, more epochal economic and political changes have taken place in the past three years than in the three-quarters of a century that preceded it.

The Berlin Wall has fallen. Russia, that monolithic tower of communism has split and its socialist trappings discarded and abandoned. The once invincible power now grapples with the task of making the transition to a market economy. And, most astonishingly, helping in the process, are a group of economists from that citadel of capitalism, Harvard University.

The East European countries have unshackled themselves from their communist chains and are vying with each other to attract private capital and make the vital transformation and breakthrough to establish market-driven economies. The economic ferment is fast spreading to China where enterprises flourish as the country reverses from the dead-end road of centralised planning.

This then is the world scenario: countries competing and vying with each other to put in place policies which will attract private enterprise, initiative and capital. Governments and people everywhere realise that this is the only certain route to prosperity.

India cannot isolate itself from the world economy. It has to catch up and move in step. It has to, therefore, deregulate, draw in foreign capital, encourage private initiative, attract multinational companies and encourage Indian companies to become multinational. We have to create an atmosphere where Indian entrepreneurs and corporations develop into world citizens. Therefore, the choice before us needs to be starkly restated: It is not, whether to deregulate or not and whether to integrate with the world economy or not; rather it is, whether we want to survive or perish. We are faced with a Hobson's choice.

Today, the countries of the world have become so interdependent and inter-linked that they are making political and historical boundaries increasingly irrelevant economically. With global integration, goods will be produced at those locations that provide a distinct economic advantage for doing so. We, in our Group, have some exposure to this larger world stage.

We have manufacturing operations in eight countries and trading offices in several others. We have about twenty joint ventures operating outside India. These ventures thrive in a free and competitive environment. In fact, our dynamic and outstanding Finance Minister, Dr. Manmohan Singh, has repeatedly stressed that India needs to integrate with the world economy. This is indeed a laudable cause. But do we really know how to go about it?

How do we achieve this challenging objective? Are we aware of the pitfalls and opportunities for industry?

It is a difficult road requiring consistent actions across a wide range of areas. Most importantly, there has to be a national will. Positive as the start has been, we cannot remain stranded in midstream, left to the mercies of the currents. We must go the whole way and reach the other shore. If we miss the boat this time, the lost chance could take a long time to come our way again.

The task before the government

First and foremost, we as businessmen, have to develop an international mindset. The world over, business is becoming outward looking and market oriented. Unfortunately, in India, we have developed a psyche of looking inwards. For us, for a long time, the world has been India and India has been our world. We need to get out of our shell. It will be difficult to change the mentality and vision of businessmen who have for too long operated in a protected market, thwarted by controls. But it is imperative to start to look beyond our doorstep and out into the world. Consistent with this larger view, we must put up production capacities that are not fragmented and not located in the wrong areas due to political considerations. Plants have to be rationally sited and be of world-scale to cater to international markets. Such plants alone can lower costs and create competitive export surplus.

The task before corporates

Much as the corporate sector needs to take the initiatives as mentioned, we cannot succeed unless the Government is also a participant partnering the process. The Government has already done a lot. Dilution of the MRTP regulations, scrapping of industrial licensing in certain industries, opening up of more industries to the private sector, reduction of some taxes and introduction of partial currency convertibility are some such steps. Yet, much more needs to be done.

Legislative measures

Do we need such self-defeating laws that stall and hinder progress? Of the complexities of our laws, I compare them to what Winston Churchill said about the Soviet Union: "It is a mystery, wrapped in a riddle, trapped inside an enigma."

The laws must be pruned and those that do not contribute to growth, but retard it, must be discarded and scrapped. The Government has taken the first few tentative steps. But we need to take bold, firm and decisive steps with greater speed to achieve our objectives. As I said, stopping midway means certain death. The third legislative area concerns the philosophy behind the making of the Budget.

I have first-hand experience of operating in eight countries. I also interact actively with businesses in several other nations. No other country has a process as complex, as filled with abrupt directional changes, year after year, as India. In fact, the only certainty about the Budget is the uncertainty it creates.

Today, on the faith of certain fiscal policies and implied promises of the Government, you go ahead and put up a project. Halfway through, you find that customs duties or some tax has been raised, resulting in a project cost escalation of several crores of rupees. How do you cover these cost overruns? With such uncertainty, how can it be expected of businesses to grow and flourish, least of all integrate themselves with the global economy?

The entire regime seems to be characterised by subjectivity and uncertainty. In fact, among the eight countries in which we do business, India is the riskiest place, not because there is any physical threat to your project but due to the ever-hanging fiscal threat. And this can happen not due to competition but, perhaps due to an over enthusiastic fiscal change made in the Budget.

The Budget, in most countries, is what it is meant to be, an expression of the income and expenditure of the country, no more or less. It should not be an occasion to play around with the destinies of individuals and companies by subjecting them to make-or-break changes. I suggest that the Budget-making process be made totally transparent, carried out in full view of the nation and based on expert opinions with all sections of the public contributing, since it is their pocketbooks on which claims are being made.

Administrative changes

Achieving success in taking administrative measures is the more difficult part for the Government. Firstly, our cost of production is higher than most countries. This is not due to our businesses being inefficient. In fact, as far as raw material and utility consumption are concerned, on a ton-by-ton basis, we are as competitive, in many industries, as anyone else in the world. Yet the rates of our inputs specially coal, petroleum products, electricity, transport and communication, which are all supplied by the Government are way out of line with what prevails in other countries. The same applies to the cost of finance, with our interest rates being much higher than in most countries.

Take another vital input - electricity. We have power cuts and blackouts even after paying, on an average, 26% more per unit, than in the ASEAN countries. In fact, India's overall power plant capacity utilisation is dismal.

At our Renusagar plant, the load factor is 95%. In contrast, the all-India average is around 55%. This is because there is no management, there is no autonomy and there is no accountability. How can we integrate with the rest of the world if our basic inputs are of such poor quality and are so highly priced? The answer lies in having a greater public awareness of this sorry state of affairs. Also, we must improve the quality and lower the cost of our inputs supplied by the Government by making public corporations autonomous and accountable.

Conclusion

We, as a country, must realise that deregulation and the free market economy is not a luxury; it is not a largesse being showered by the Government on the private sector; it is not a favour being done by the Government. It is a compulsion. If we do not deregulate, if we do not cut down bureaucratic delays, if we do not untangle the red tape, if we do not bring efficiency to the public sector, how will prosperity come to this country?

Therefore, let us all realise that deregulation, decentralisation and liberalisation are actions essential to the country's self-preservation in a world where there is intense competition among countries to attract capital and investments. The task of integrating with the world economy is a task of enormous and stupendous magnitude. Mere slogans and speeches will not help.

The will of the entire nation will be tested in this mission. It is not the task for one man or the private sector or the Government. It is a job in which industry, Government, labour, the opposition and the bureaucracy will all have to pitch in and work as one team. I hope, God will give us the wisdom to work in harmony and discipline. Then, and then alone, will we be able to achieve the dream of integrating India into the world's economic mainstream.

Let us solemnly promise to create the national will to integrate with the world
economy.