Flipkart’s Sachin Bansal and Ola’s Bhavish Aggarwal have demanded protection from better-funded overseas rivals. They have cited the example of China where companies such as Alibaba and Didi have thrived because they were accorded protection by the government. So, while they want foreign capital to be welcomed, there ought to be restrictions on foreign companies, they have said — a clear indication that serious cash is still being burnt by everybody to attract customers. Never mind that they too used their war chest to outdo rivals during the early years.
The Narendra Modi government is keen to make India the most investor-friendly country in the world. It is looking at overseas companies investing large sums of money here. So it looks doubtful if it will accede to Mr Bansal and Mr Aggarwal’s call. It is possible that it might be made into a political issue by the Opposition in the days to come — that globe-trotting Mr Modi has ignored home-grown start-ups is a nice story to sell to the masses in these days of shoot-and-scoot politics.
It would be worthwhile to recall how PV Narasimha Rao and Manmohan Singh in 1991 handled similar demands from Indian industrialists.
Rao had taken charge on June 21, and he made time for the country’s top industry associations only on August 31. During this period, Rao, along with his finance minister, Mr Singh, had devalued the rupee in two phases (July 1 and 3) and had, in the industrial policy of July 24, done away with industrial licensing, pruned the list of industries reserved for the public sector, allowed 51 per cent foreign investment in various sectors and relaxed the dreaded Monopolies and Restrictive Trade Practices (MRTP) Act.
The businessmen were happy that licensing had been done away with the MRTP Act diluted but were concerned about the red carpet being rolled out for foreign capital. Rao listened to all of them but made no promises.
Right through the year, top businessmen pressed hard for protection. In his Budget speech for 1992-93, presented on February 29, 1992, Mr Singh said in plain words that he wouldn’t budge. “Concern is sometimes expressed that the policy of welcoming foreign investment will hurt Indian industry and may jeopardise our sovereignty. These fears are misplaced,” he said. “We must not remain permanent captives of the fear of East India Company, as if nothing has changed in the past 300 years!”
That same year, Mr Singh brought down the peak rate of Customs duty from 300 per cent to 150 per cent, and indicated that more was on the way. Subsequently, he appointed Raja Chelliah as the head of a committee to suggest tax reforms. Businessmen now began to lobby Chelliah and told him that if protection from imports was withdrawn abruptly, they would all sink.
None of that moved Mr Singh. In his Budget for 1992-93, he cut the peak Customs duty from 150 per cent to 110 per cent and said this was the “beginning of a process in which our Customs duties are gradually reduced, over a three- to four-year period, to levels comparable with those in other developing countries”. The next year, he brought down the peak rate to 85 per cent. Everybody fell in line.
In mid-1993, an informal group of businessmen, led by Rahul Bajaj, made a fresh demand for protection. The Bombay Club handed over a five-page memorandum to Singh. It demanded an equal opportunity but didn’t mention “protection” even once. Mr Singh perfunctorily passed it on to Montek Singh Ahluwalia who “filed it”, according to an eyewitness. That was the end of the matter. It was clear to the members of the Bombay Club that the government was not too happy with their initiative. As a result, the group dissipated: It never met again.
The current government must deal with the latest demand with the same sternness. Sequestering foreign investment into good and bad silos is not a wise idea.
Mr Bansal and Mr Aggarwal would also do well to find out what became of the businessmen who had said that liberalisation would be the beginning of their end. It is a fact that many of them were highly inefficient at that time. But, over a few short years, many of them became efficient, which helped them survive. The people who were at the forefront of the demand for protection now run thriving businesses.
Thus, instead of demanding protection, the new-age entrepreneurs must think of ways to reduce the cash-burn and turn profitable as quickly as possible.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
