In recent weeks, industrialists have felt emboldened to openly criticise the government for lack of reform. This is no minor development. In the past, no matter how bitterly they felt about government policy in private, industrialists and businessmen made public statements that were invariably emollient or, at best, anodyne for fear of upsetting thin-skinned ministers and politicians. It is now clear that India Inc is sufficiently exercised to protest about policy stasis in far stronger terms than it is instinctively programmed to do.
All the same, there is surely considerable irony in the current protests that has escaped general notice. In some aspects, they represent a significant collective philosophical reversal — almost as radical as the government’s about-face on retail. To wit: think back to 1991-92 and the emergence of the famous Bombay Club lobby of domestic business interests.
Of course, the fellow travellers of this club insist that no such lobby existed, that it was purely a media creation. Be that as it may, what were India Inc’s complaints at that time? That Indian industry did not have the wherewithal to compete globally for lack of infrastructure, good labour laws, an efficient judicial system and so on and so forth. The burden of Indian industry’s argument then was that it needed all these things to be in place before foreign competition should be allowed, otherwise it wasn’t competing on a level playing field.
There are the same familiar elements in the current round of criticisms: on infrastructure, labour, judiciary. The new elements are the discontent over the lack of a land acquisition policy and arbitrary diktats that designate “no-go” areas for industrial projects and mining bans that have put crores worth of projects on hold.
But the remarkable point about the 21st century litany is that it also includes a deep discontent over the fact that the government is not doing enough to encourage foreign direct investment (FDI). The backtracking on FDI in multi-brand retail was the sparking point of course, but there’s a great deal of unhappiness at the foreign capital ceilings on insurance, banking and pension, legislation for which has been stuck in Parliament for ages.
For instance, in an interview to Business Standard last week, Marico’s Harsh Mariwala, in his capacity as Ficci president, pointed out that India lags many of its peers when it comes to rules for doing business. This is a telling statement; Mr Mariwala is clearly worried about how foreign investors view India. Pre-nineties, many of India’s large industrialists were pretty comfortable in the cosy Licence Raj arrangement, so no one really cared how foreign businessmen thought about India, the issue didn’t arise.
The Bombay Club’s complaints at that time were considered disingenuous; after all, India enjoyed a considerable global advantage in labour costs and the exchange rate (the self-same benefits that powered the outsourcing revolution). But they also reflected a deep-seated lack of confidence in India Inc’s ability to compete. Once business and industry realised there was no going back on reform, it stepped up to the plate and did what it had to do – not without considerable pain – to make itself globally competitive. Note that this was despite the fact that all the problems they listed persisted (and still do) and foreign competitors entered the fray.
By then, the virtues of FDI also rapidly became evident, opening huge new business opportunities (and emerging empires) in telecom, insurance, banking, airports and infrastructure, to name a few. As economist Ajay Shah pointed out in a 2009 article, “Once the pressure of imports came on, political lobbying by Indian companies started pushing politicians on reforms — e.g. cutting restrictions on foreign inputs such as coal or debt capital, building highways, breaking the grip of DOT over telecom, etc.” (http://www.mayin.org/ajayshah/MEDIA/2009/p_india.html)
By the new century, Indian business felt confident enough to compete not just in India but in the global arena, creating transnational corporations that benefited from the exchange of best practices. Having come up to speed as far as global competitiveness was concerned, domestic business was ready to make another great evolutionary leap forward when the 2008 global meltdown occurred.
Businessmen are now frustrated because they are unable to take advantage of the slowdown in the West to grow their businesses as fast as they would like — solely on account of a non-functioning government. They now understand well how encouraging FDI would not cramp their competitiveness but enhance it. That’s such a long way from the Bombay Club’s self-serving position that the government would do well to listen.
