India reform report: C+

Businessmen and executives give economic reform a can-do-better rating.

How far has economic reform made it easier to do business in India? What do businessmen and executives really want? To find out, The Strategist conducted a dipstick survey among 50 companies from 15 sectors for this special year-end issue.

We asked senior executives in these companies to rank, in confidence, 38 issues under four heads "" operational issues, strategic issues, HR-related issues and corporate governance.

The overall verdict from India Inc may not be outstanding, but if you look at the tables at the top of this page, it's clear that there's no overwhelming unhappiness.

If we were to assign, say, a school grade to the 12-year process so far, it would probably be C+. Not terrific "" but, hey, not that bad either.

To start with, everyone agrees on one point: things have changed radically since 1991. As Kalpana Morparia, executive director, ICICI Bank, says, "So much has changed post-liberalisation that it's difficult to point to what has not changed."

Certainly, if you look at the column headed "No change," in each segment there are two stand-out, and related, issues on which our respondents have voted: dealing with state-level authorities and the need to lobby state and central governments.

The vote on the first issue, however, can by no means be considered a major problem: if 19 respondents talked of "no change", 25 voted it "satisfactory".

So what has made India Inc the happiest? In many ways, the issues that were selected reflect the major problems that businesses in India suffered pre-liberalisation.

In descending order, the issues are: access to funds (88 per cent of our respondents voted it "good"); access to information and data (84 per cent); and ability to expand (80 per cent).

That's a big vote for financial reform and the scrapping of licensing provisions in most industries. As for access to information, it's hard to say how much has to do with reform as much as access to the Internet.

Overall, businessmen in India think economic reform has made a major and positive difference to their ability to strategise.

On each of the 13 issues under the head "Strategic issues", the majority of our respondents have voted the changes good. The "bad" column, you will notice, has several zeros.

The interesting point to note is the last item: "Levels of competition". Despite all the vociferous complaints about the lack of a level playing field in the early days of reform, domestic Indian companies, which make up 72 per cent of the respondents in this survey, clearly appreciate the growth in competition. Fully 76 per cent of them voted levels of competition "good".

Gayatri Yadav, marketing director, General Mills India, reflects the general mood when she says, "One of the most important drivers for growth is competition. Companies in India have emerged from a near-death situation to become stronger and better prepared to leverage the benefits of liberalisation."

That is partly the result of the confidence that stems from the fact that it's easier to compete these days than before.

Says Bijou Kurien, chief operating officer of watch manufacturer Titan, "Flexibility to pre-empt competition is the same as before. But the number of strategic options available have increased across imports, exports, manufacturing and so on."

Titan's experience is an index of how things have improved for corporations doing business in India. Kurien, for instance, is appreciative of the shorter time-to-market that post-reform operating conditions allow.

"Now, one can design a product in India, prototype it abroad and manufacture it in India in a shorter period of time," he says.

If there are major gaps, they seem to lie in the area of human resources. Significantly, despite all the complaints about inflexible labour laws that make it difficult for companies to downsize with ease, the opinion of our respondents were divided.

Surprisingly, 15 rated it "good" which surely points to the creative solutions that corporations have managed to come up with to cut manpower costs "" the plain vanilla voluntary retirement scheme being one, and the mandatory leave-on-half-pay being another.

And if 16 rated the ability to downsize "satisfactory" just five rated it "bad". Yet, it was among the leading issue on the list of things that have changed the least.

The evidence, then, suggests that labour laws may not be the huge stumbling block that they are made out to be in corporations' competitive armoury.

The manner in which the Indian steel industry, to name just one, has been able to make itself globally competitive from being one of the most overmanned sectors of the economy is a case in point.

Still, it would be misleading to suggest that companies have easier exit options today. Says R Ramakrishnan, president and chief operating officer, Bajaj Electricals, "Even now, laws are not conducive to restructuring and hiving off businesses."

A few years ago, Bajaj Electricals wanted to exit the dye-casting business. Ramakrishnan says the company has already taken the necessary steps in that direction, including several rounds of VRS.

"But the litigation process which started over a year ago is still not over and I expect it will take at least a few more years," he remarks.

Note also the 16 respondents who rated the issue "retention of employees" as "bad". That's a sign of the flip side of growing competition that had accelerated job mobility at all levels exponentially.

As a senior executive requesting anonymity points out, "Thanks to the emergence of new industries like business process outsourcing, attrition rates are becoming a major cause of concern today, unlike just five or six years back."

The ambivalence in the survey comes in the section of corporate governance. On most counts, our respondents voted "good" or "satisfactory" "" notably on professionalisation of management and communication, both by-products of competition and growth.

What, however, our survey reporters discovered was a discrepancy between what was committed to paper (even under cover of anonymity) and what was said off the record. Here are three samplers:

"Corporations are just paying lip service to corporate governance. For instance, how many CEOs are actually willing to disclose their personal assets online? We expect transparency from politicians but corporations still remain behind closed doors."

"On the face of it, corporate governance seems to have improved because the media asks more questions and companies appear to have gotten more responsible towards the public. But, actually, nothing has changed in terms of transparency."

"Boards are still mere rubber stamps."

Clearly, this is where India Inc's future challenge will lie as the liberalisation process gathers pace. For the rest, much is still expected off the government's bat "" in terms of infrastructure and red-tapism. Despite this, the mood is one of hope.

As J S Mani, managing director, Kodak India, puts it, "Any kind of change or reform has to be a continuous process. I think it has happened to a large extent in India."


The next decade will be the test of the next generation of reform.