At a breakfast meeting of a small group of business leaders in Delhi last week, the visiting head of a global engineering giant said he expected to see his India business grow from a billion dollars to $2.5 billion in four short years. That works out to a compounded annual growth rate of 25 per cent, in an economy that may not grow faster than seven per cent. The head of a private airline said the aviation market was growing 15 per cent a year, and he planned to expand rapidly because the Indian aviation market was under-served. The head of a consumer “softs” company was equally optimistic, as was the chief of one of the big software firms. Listening to the drift of conversation round the table, it was hard to think of this as a country that was going down the tube.
There was a time when the celebration of success stories in the business press came up against the justified criticism that the media was ignoring the warts in the system. Today, the shoe seems to be on the other foot. Everyone is focusing on the problems; too few are looking at the good news that is still there. In concentrating on the admittedly riveting sight of Kingfisher and Air India self-destructing before our eyes, we have taken our gaze away from the success stories in the same field of aviation; this is a classic case of Schumpeterian creative destruction — the inefficient are being driven into the ground, the efficient are soaring high. The market is working.
Winners and losers are being sorted out elsewhere as well. HDFC Bank has a stock price-to-earnings ratio of 24, whereas Indian Bank has a ratio of 4 — telling very different stories about how investors view the two banks. Asian Paints is going at a multiple of 37 times earnings, and Hindustan Unilever at 34 — pointing to great optimism about the future of these companies. So if some of the leading Tata companies are going at multiples of no more than 5.6 (Tata Motors) and 7.4 (Tata Steel), or if Reliance is going at 12 and Reliance Infrastructure at barely 6, there are other places to put your money. Mamata Banerjee has been hogging the headlines for all the wrong reasons in West Bengal; meanwhile, in Gujarat, car companies have already announced that they are setting up factories with the combined capacity to produce a million cars a year — more than the total Indian car market a decade ago.
It is an old truism that the private sector’s dynamism and efficiency have tended to make up for the problems created by the government system. That trade-off has become more complicated in recent times (and explains some of the scams) because public-private partnerships have brought some questionable enterprises into prominence, fired by businessmen out to corner resources. Now that some chickens have come home to roost, politicians are learning about jails first-hand, and once high-flying businessmen have seen their companies’ P:E ratios drop to as low as 2! Yet others are paying the price for over-reach during the boom phase, like debt-laden real estate companies. On the plus side, however, it would be foolish to deny that some of the increased spending by governments (Centre and states) is showing up in better numbers — a doubling of the number of children in secondary school, some dramatic changes in agriculture, improvements in public transport, and stuff like that which rarely makes it to the headlines. So while it is true that a witless government that may get pensioned off before it can approve a pension Bill has brought the house down on itself, let us not make the mistake of thinking that it is all falling apart, because it isn’t.