Lazy companies

India Inc must learn to compete with foreign rivals

In an unfortunate recent trend, many dynamic Indian companies in several sectors have explicitly or implicitly sought protection for their sectors from the government. In many cases, this is not because of unfair trade practices from abroad, such as dumping, but because other participants in those sectors have received funding from abroad. The argument is that such funding makes it difficult for “Indian” companies to compete. This claim was made most recently by the chairman and managing director of SpiceJet, Ajay Singh, in an interview to this newspaper. Mr Singh, who has earned considerable respect for his energetic efforts to turn the airline around, said foreign direct investment in the sector was a problem. Speaking in the context of Qatar Airways’ expressed desire to increase its routes from India to its hub in Doha, Mr Singh said some “foreign airlines can use their state money and come and depress our fares”. He also pointed out that recent entrants like AirAsia and Vistara spent money to fund their losses. Overall, he argues, the industry suffers. Mr Singh is entitled to have his point of view on this issue, and he is correct that India should focus on trying to create airline hubs in India rather than in the Gulf. But the broad thrust of his arguments is disturbing. 

Indian companies should not be afraid of foreign competition, however well funded. In fact, they are welcome to go out and seek funding themselves; if well-run and transparent, the current international financial milieu is such that they will be able to find it at an attractive cost of capital. It is not just the aviation sector in which leaders of companies have recently expressed such sentiments. Recently, the co-founder and executive chairman of e-retail giant Flipkart, Sachin Bansal, said “What we need to do is what China did and tell the world we need your capital, but we don’t need your companies”. Bhavish Aggarwal, who runs the taxi aggregation app, Ola, said on the same occasion that “the markets are being distorted” by foreign investment. Just as Mr Singh is concerned about the threat from Vistara and AirAsia (both imports from Southeast Asia) as well as Qatar Airways, Messrs Bansal and Aggarwal are speaking in a context where they are locked in a battle with Amazon and Uber, respectively.

The approach being taken by these companies is worrisome. There is only one reasonable response to foreign competition in a market economy: To try and be better and more efficient, and to come up with ways to serve the consumer better. Instead, however, this approach suggests that the business model for a firm should rely heavily on the fact that a firm is Indian. This creates lazy companies and will help neither consumers nor, in the long term, India Inc. It is true that a wave of protectionism is sweeping the world, especially in the developed world. But India, which is still growing and which struggles with competitiveness, cannot replicate that approach. Regulators and the government must remember that Indian consumers will be best served if there is adequate competition — especially in a sector like aviation where there is a significant room for improving services.