India Inc's next challenge

If businessmen are to be believed, India Inc. is on the cusp of big things. The optimism is not just a result of the IT story; manufacturing successes are beginning to emerge as well.

Indeed, given the high spirits with which businessmen and industrialists have approached the new year, it might seem gratuitously critical to suggest that Indian business has only partially met the challenge that could make it a "China-plus" in the global scheme of things.

Looking back at more than a decade of reform, Indian business certainly has good reason for harbouring strong self-belief. From being among the highest-cost producers of products ranging from cars and components to chemicals and steel, Indian cost structures are now among the world's most competitive.

In terms of productivity, Indian labour has measurably improved, though it lags China. The rush of global CEOs to India last year""Nissan's Carlos Ghosn, Nokia's Jans Ollila, Microsoft's Steve Ballmer, IBM's Palmisano, Pepsi's Steve Reinemund, Coke's Neville Isdell, to name just a few""is testimony to the country's growing importance in global corporations' scheme of things, both as an increasingly affluent market for and as an efficient producer of goods and services.

It is when you look at India through the prism of global scale economics that the optimism diminishes a little. And this is India's next big challenge.

With notable exceptions""Reliance in oil-refining capacity, Tata Motors in commercial vehicles, Bajaj Auto in motorcycles""Indian corporations lack the scale that could make them strong, sustained players on the world economic stage.

Sundry comparisons point to the distance that India Inc. has to travel. At some 40 million units a year, China is the world's largest producer of TV sets; India's annual production is 10 million.

At 330 million tonnes, China is the world's largest producer of steel; after a decade of hectic expansion, India's annual steel capacity is 30 million tonnes.

Brazil is the world's largest producer of iron ore; Chinese companies figure at nos 5 and 10 on the list of the world's top ten iron producers. Indian names on that list?

None. In textiles again, the sector in which India is supposed to make major gains with the dissolution of quotas, China outperforms India by a factor of roughly five. In value terms, India produces $30 billion worth of textiles to China's $145 billion.

Indian textile exports are roughly $15 billion; China's is $80 billion, which is roughly equal to India's total annual exports of all goods!

In automobiles, one of the most visible symbols of economic liberalisation, India is a minnow compared to Brazil and China, at an annual capacity of 1.6 million, compared to 3 million and 5.5 million, respectively. Chinese cars will soon be driven on American roads.

Businessmen might argue that attaining global capacities depends on access to long-term finance, a friendlier tax regime, and reliable infrastructure.

All true, but it should also be remembered that the leaps that Indian manufacturing made in efficiency took place despite these deficiencies. Globalisation entails thinking big; to paraphrase the New Age gurus, for India Inc, it's now all in the mind.