One can hear the spokesmen protest: this is a wrong perception, the Indian corporate sector is ready for the battle, just you wait, we'll show everyone. But not many are convinced. The protestations are too loud, the back-up action too thin.
Explanations for this behaviour abound. The one which is believed most widely has its roots in India's social world view, which expects nothing better from the bania. Extreme self-seeking conduct is the norm.
A more hard-headed explanation, based on economics, is that businessmen are rational and so will not commit hara-kiri willingly. Indeed, they will seek to create conditions which favour them exclusively. In that sense, goes this argument, Indian businessmen are no different from their counter-parts elsewhere and it is up to the others to stop them from forcing the government into making perverse policies.
A third, more fine-tuned explanation, is that not all of the Indian corporate sector is afraid of what lies ahead. It is only the old but politically influential families who are worried about losing companies which they have come to regard as their own. But because they are so high-profile, they give everyone a bad name.
As always in such cases, it is a combination of these reasons which has led to the current perception that the Indian private sector cannot be trusted to do the job of industrialising India on its own. It will need to be prodded, either by the government or by foreigners.
It is sobering to think that it was precisely this view which underpinned the Bombay Plan of 1944 and subsequent government policies through which the state marginalised the corporate sector. Those decisions were based, in a very large measure, on the corporate sector's plea to the government in the early 1950s that it didn't feel confident of carrying out the massive programme of industrialisation.
That was true of other newly decolonised countries as well, and that is how government prodding became necessary. Now the worldwide experience shows that the private sector can be prodded in two ways. One is the East Asian way, in which the state played an important guiding and hand-holding role. (But, equally, a critical ingredient of success was the absence of opportunities offered by the popular democracy for a businessman-politician-bureaucrat nexus to develop along the extensive lines seen in India).
The other type of prodding took the Indian form, in which the government actually became a major shareholder via its financial companies (rather inappropriately called development financial institutions). This, along with the political control of the financial system ensured a nice, cosy arrangement by which many Indian companies, especially the ones which are regarded as family heirlooms, simply refused to grow up. On a rational expectations view, they didn't need to.
There are many indicators of this failure. The small size of their operations, the poor quality of their products, their low R&D budgets (less than 0.01 per cent of turnover on an average) leading to repeat imports of often obsolete technology, a poor corporate savings rate of not more than 4 per cent of GDP), poor organisational ability, a tendency to treat shareholders with contempt (not to mention siphoning off profits), and, overall, a general lack of confidence outside the sheltered environs of the Indian pool.
But at the same time all but the last of these can be justified on perfectly valid grounds. Licensing did not allow large and world scale operations; the absence of competition meant there was no pressure to improve quality; it also meant little incentive to invest in R&D; repeat imports of poor technology was inherent in the system because it made commercial sense; the poor corporate savings rate was because of a faulty tax structure, as was the need to siphon off profits abroad; and as for the shoddy treatment of the shareholder, well, if you don't like the heat, why don't you get out of the kitchen?
In other words, as the World Bank has been saying, rightly too, it was primarily because of wrong policies that the Indian corporate sector did not grow more rapidly and mature into a modern machine.
But now those disabling factors have almost vanished. Licensing was abolished five years ago, peak tariff has been slashed from over 200 per cent to just over 50 per cent and the average is around 27 per cent, price controls have been all but dismantled, the tax structure is better than it has been for the last 25 years, rates of return in India are very attractive and the environment is exactly what Ficci and Assocham and lately CII, had been asking for.
And yet, what do see? Persistent calls for swadeshi and tariff protection, the non-voting shares, the protests over the patents bill inspired mostly by the Indian Drug Manufacturers Association, the attacks on MNCs by the CII and frantic behind-the-scenes activity with just one objective in mind, namely, ward off the evil day when we may have to compete.
This surely must raise a new worry: if the public sector is so close to reforming itself, what about the private corporate sector? When is it going to reform itself? How will attitudes within it change to allow for the new and inevitable reality of globalised production and financial systems?
It is also supremely ironical that now, with reform being internalised by all the political parties and the ideological opposition to them virtually gone, it is the corporate sector which is dragging its feet. This suggests that the agenda for the next few years must be the reform of the corporate sector. Just as the capital markets were forced to change and just as the public sector is being forced to do the same, the corporate sector also needs a firm push from behind.
Indeed, the imperatives are exactly the same as those that are driving public sector reform, namely, the urgent need to utilise scarce capital better. From the economy's point of view, after all, it doesn't matter who uses it badly the public or the private sector.
