The current climate of despair in the business community in India at being treated “unfairly” by the government has a familiar ring to it. Indian governments since Independence have had such an ambivalent attitude towards private industry in general, and foreign business in particular, that policies have ricocheted between unduly business-friendly to unduly unfriendly and rarely anything in between.
The result is a permanent uncertainty about doing business in India that two decades of attempted reforms have done nothing to change. A goodly portion of this ambivalence has to do with the socialist legacy that, though defunct in the West, lingers on in 21st-century India accompanied by the vague suspicion that domestic or foreign private industry does not really benefit the aam aadmi who line up at the hustings. That notion famously influenced Jawaharlal Nehru’s policies, placing the public sector at the “commanding heights” of the economy with a private sector strictly licensed over what it produced, how much and to whom it sold. It was called a “mixed economy” and the sheer ineffectiveness of it rapidly earned India the dubious descriptor of “mixed-up economy”.
No doubt the magnitude of poverty and destitution in post-colonial India demanded a large, benevolent role for the state. Nehru was sufficiently impressed by the carefully crafted images of “happy workers” in the former peasant economy of the Soviet Union to consider it a model. Still, it is noteworthy that the robustly patriotic headlines of the day rarely reported the plight of the many land losers to the large government-owned factories and dams that mushroomed in the first few decades of Independence, a considerable portion of it on tribal land. It is difficult to believe that they were happy to be dispossessed, uncomplainingly accepted the compensation they were paid or became satisfied employees in those conglomerates built on their ancestral land.
Indira Gandhi, after initially toying with the idea of partial liberalisation, turned positively Stalinist in her anti-private sector stance. Ignoring the evidence of rising prosperity in the rapidly industrialising Asian Tigers next door, she chose to “eradicate poverty” by tightening the grip of the licence raj, nationalising as much of private industry as she could and taxing those that remained at punitive rates.
The first big exodus of foreign companies followed, mainly the oil majors, some of which, ironically, are trying to make a comeback, then plantation and textile companies as foreign ownership laws were made more stringent. With capital hard to come by and licensing a costly procedure, India stayed as garib as ever. Still, Unilever appeared to face few problems acquiring Brooke Bond and Lipton in overseas deals. There were no demands for capital gains tax involved in acquiring assets located in India.
Mrs Gandhi’s regime was also the time when India signed the double taxation treaty with Mauritius. That certainly changed the colour of money in many Swiss bank accounts and now ranks as one of the current tax administration’s major headaches.
In contrast to the mixed signals from Mrs Gandhi’s rule, the Janata Party was perhaps more consistent in its economic policy: it did not like private business at all and foreign business in particular, and George Fernandes saw off IBM and Coke in short order.
Rajiv Gandhi’s partial liberalisation certainly set the tone for the 1991 Big Bang, but it was his finance minister V P Singh’s famous raid raj and blacklist of large corporate income tax defaulters that kept business on the back foot. Apart from some Indo-Japanese joint ventures, the business scene hardly changed and it stayed that way through the revolving door that was Indian politics till the Congress came back in coalition in 1991.
Since then, though, the welcome mat to private and foreign business has been strictly conditional and the early euphoria quickly dissipated on the back of tumultuous politics. The Indian government provided a counter guarantee for a wholly dodgy deal with Enron subsidiary Dabhol Power Company — but many legitimate foreign power producers retreated in the face of unchanging policies. One of its ministers took large bribes for telecom licensing but mobiles remained an elitist service.
Surprisingly, it was not the Congress, which always claims the reforms legacy, but the Bharatiya Janata Party that proved more unambiguously industry-friendly than any other national government to date with its large-scale privatisations, reasonably successful road projects and sensible changes in telecom and infrastructure policies. And it is the Congress-led dispensation under another Mrs Gandhi that has proved even more industry-unfriendly than her predecessor. L’affaires Vodafone, Shell, Nokia, Hindalco, etc fall into that bracket. Ultimately, the courts will decide who is right and who is wrong on these intricate issues. But taken together with delayed environmental clearances, protracted battles over land acquisition, pointless bottlenecks over coal and gas supplies, they all contribute to the general slump in perceptions about India that some minor policy tweaks and roadshows are unlikely to dispel.
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