Democracy seen misused to cover up inefficiency

Decision makers have used democracy as an excuse for covering up inefficiency and this has been a reason for the low foreign direct investment (FDI) inflows into India than China, felt speakers at a panel discussion on comparative advantages of India and China as FDI destinations.

The discussion was organised on Friday as part of the Confluence 2004, the B-School meet of Indian Institute of Management, Ahmedabad. Speakers, however, added that China too has made several incorrect and often disastrous decisions, although they were made quickly.

Speaking as one of the panelists, Ramesh Mangaleswaran, principal, McKinsey and Company, emphasised the form of government in India and China and its impact on FDI.

He said: "Whether correct or no, China's political structure allows for quick decision-making. In India, though, there are inevitable delays in the decision making process because of the consensus building."

Hasheng Huang, a professor of MIT Sloan School of Management, echoed this sentiment. He said: "People use democracy as an excuse for not getting things done. It is being used as an excuse for hiding inability. But I must admit that China has made some disastrous mistakes too, although decisions were taken quickly in the past."

He added that the picture that emerges is that while China goes all the way in attracting FDI, it is not the case with India at least.

Mangaleswaran said it appeared as if reform in India take place only when the country stares a crisis in the face. "There was a food crisis and the result was the green revolution. Then there was a balance of payment crisis which led to the first generation reforms," he said.

According to Mangaleswaran, there are basically five issues that work against inflows of FDI into the country "" high domestic taxation, high import duty regime, high interest rates, inadequate infrastructure and labour laws which are not investor friendly.

"If these issues are sorted out, I believe the output of India's manufacturing sector will increase at least six times from the present level," he said.

Commenting on the labour laws, Sunil Parekh, chief corporate advisor, Zydus Cadila, said labour accounted for about seven-nine per cent of the production costs.

"After the new Union government has come into power, we are witnessing Left-oriented proposals such as job quotas in the private sector," said Parekh.

Speakers, however, stated that instead of comparing India with China, their economies and FDI inflows into these countries, the focus should be how India and China are emerging as economic powerhouses.

"There is a keen interest in China about what is happening in India. In fact, high level delegations have been to India in the recent past to study its software industry."