International management consultant Partha S Ghosh specialises in turnarounds of a different kind these days. He advises state governments on how to draw on their core
competencies. After working closely with N Chandrababu Naidu, Ghosh advised the West Bengal government on how to stage an industrial comeback. Ghosh's report was a 21-point recipe for district-wise economic development of the state.
A former senior partner with McKinsey & Co, Ghosh has his own consultancy firm, Partha S Ghosh & Associates. His prescription for India lies in giving fillip to labour-intensive industries coupled with improved conditions for labour to trigger export-led growth. Currently involved with the restructuring of the Small Industries Development Bank of India, Ghosh spoke to
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Shehla Raza in Calcutta on the Indian corporate sector and public policy. Excerpts:
Q: What are your views on the current trends of corporate restructuring in the country? What is the best way for Indian corporates to restructure?
A: To my mind, Indian corporates are not really focused on competitiveness. As liberalisation was kicked off in the early 1990s, Indian companies spread themselves thin through diversification when American and European companies were stressing on micro-focus and depth.
Q: But companies these days are getting out of non-core areas...
A: (Laughs) See, Indian corporates today are using the term "core competence" in a clever way. The scope of core business here is enormous, like business coordination and financial management. These are omnibus terms that do not necessarily mean focused business. It needs to be accepted that Indian corporates, barring a few, have not done much beyond trading in the past 50 years. Therefore, their focus on core competence is superficial.
Another flaw that I detect in the current trend of restructuring is that while it has become a fashion to rope in services of international management consultants, most of them bring buzzwords from the American or Western context and try to supplant them into the Indian situation. These words clearly do not belong here.
Q: What are these buzzwords?
A: Concepts like "re-engineering", "total quality control" and "just-in-time". Indian corporates have not really gone through a process of engineering, so where is the question of re-engineering?
Q: What should Indian corporates focus on?
A: This calls for a total change in the Indian psyche. The emphasis should be on breaking barriers between management and shareholders and management and labour. In a way, labour militancy is justified here. If we look at the American, European and the Japanese models, labourers and shareholders are as much a part of the company as the owners. This has been made possible through mechanisms like stock options, where workers, management and owners all have a stake in the welfare and the health of the company.
Developed economies apart, countries like China, Malaysia, Turkey, Brazil, Argentina and Mexico have much better working conditions for labour. Clearly, the corporate sector in these countries invest more in their people than their Indian counterparts.
Q: What is your opinion about the way the government is divesting from public sector units?
A: Whatever changes have so far been undertaken are cosmetic. Cross-selling of stakes between public sector units is simply creating an ownership of inefficiencies. Public sector units need to be salvaged in stages. While outright layoff is not a final solution, important matrices need to be worked out, benchmarked and utilised to add value. These include defining output per unit of labour, the investment-output ratio and working capital-output ratio.
In the first stage, the public sector units need to adopt growth strategies for high productivity to become globally productive, and, therefore, trigger export-led growth. The consumption of steel, fertilisers and other items is still very low in the country. For some time, these units must stop recruitment and concentrate on existing manpower. There must be growth, with vibrant and tough standards.
Q: How will workers already laid off be rehabilitated?
A: This is where the role of labour-intensive industrial clusters in the private sector comes in. For the last 15 years the private sector has by and large gone in for capital-intensive investments, and hence does not provide viable job alternatives for workers laid off by the public sector. I would call for better coordination between the public and private sector.
Q: Corporate governance is another buzzword that seems to have caught the imagination of Indian corporates. What do you feel about it?
A: That corporates have woken so late in the day up to their responsibility to the shareholders and banks and financial institutions amazes me. It raises fundamental questions about how Indian entrepreneurs have handled the issue of accountability and responsibility all this time. The solution does not lie in approaching institutions such as the Board for Industrial and Financial Reconstruction when things go wrong.