India Is Missing The Bus Again

This is undeniable, but that does not make it right for the country. What the argument misses out altogether is the fact that India is not alone on the planet. Its destiny is inextricably joined with that of the rest of the world, and the speed of change in the rest of the world has accelerated so much that India, by not being able to adapt, risks its economic viability, perhaps its very existence as a single unified nation.

What is changing the face of the globe is capital, measured in scores of trillions of dollars, controlled by at most a hundred or so very large international banks, pension and mutual funds, and set to work creating goods and services by no less than 37,000 transnational companies, with, at last count, some 174,000 branches and subsidiaries. This capital has no master, and no nationality. It is driven solely by a steadily intensifying global competition into going wherever it scents a sliver of profit at an acceptable minimum of risk. The globalisation of capital has turned most economic maxims on their head. Nowhere is this more true than in trade. Today one-third of all world trade is between branches of transnational companies and the proportion is rising rapidly. Either you are inside this loop or you will sell fish, garments, natural resources and basic chemicals forever.

 

Those who want India to be strong and self reliant, need to face the unpalatable fact that the global community of investors will not wait for India to resolve its ambivalence towards globalisation. It will simply go elsewhere. There are any number of reasons why this will happen. The one that is most commonly advanced that the supply of investible capital in search of investment opportunities in the developing countries is smaller than the demand, and India must therefore learn to compete for it against other claimants, is in fact the least of them. A more important one is that capital is not a stock but a flow. Like water in a stream, if it cannot flow in one channel, it will carve an alternate channel for itself. What is more important, even if that channel was not, originally, the best course for the water to follow, through its scouring action it will, over a relatively short period of time, convert it into the best course. The first channel then becomes redundant.

This is precisely what capital did in the 60s and the 70s when it began to move in search of higher profit margins to what were then the extremely primitive economies of South-east Asia. Many of the pioneers in this move came to India first, only to be turned away. Today, those same South-east Asian economies have grown so large and are so efficiently meshed in with the global production system that the largest exporter of semi-conductor chips is not Japan or the US, but Malaysia! Malaysia is also the largest exporter of air-conditioners and VCRs. Needless to say, it actually produces only a small number of the components that go into these products. Indeed, it is no longer uncommon for components to be produced in as many as 19 countries. But Malaysia excels in the assembly of finished products for export because of its cheap, efficient and docile labour force. The creation of that labour force, as well as of all the other social and physical infrastructure necessary to make it such an attractive assembly

point to go back to the simile, the scouring of the alternate channel till it was glass smooth was achieved by global capital with the help of Malaysias visionary prime minister.

By virtue of its closed economy, India became a backwater in the 70s. Briefly, in the first half of the nineties, when there was a surge in the flow of capital to developing countries, it had seemed that India, which was at last adopting market-friendly policies, would catch a part of this second surge. But in the past two years, reforms have ground to a halt while the flow of investment to the developing countries has shown signs of levelling off. India is, therefore, in danger of reverting to its backwater status once more.

This was highlighted, in tones bordering on anguish, by a prominent Singapore businessman keen on investing in India, who was quoted on January 21, by V Jayanth in The Hindu. But the signs of Indias relegation to obscurity have been multiplying daily. Recently, after three and a half years, the Financial Times closed its fortnightly newsletter for senior corporate executives, India Business Intelligence citing stagnant sales and a growing lack of interest. Gordon Wu of Singapore, who is still pledged, at least on paper, to setting up a 10,000 mw power plant in Orissa, has reduced the staff working on the project to just two, as he waits for the UF government to put through its privatisation of transmission and other amendments to the Electricity Act.

In India, it is a knee-jerk reaction to blame the political leadership for these and most other lapses. But anyone who bothers to examine the present governments record against the background of the policy mess that it inherited, will see that except in the area of fiscal prudence, it has accelerated the pace of reform. The real slack is in the bureaucracy that must carry out the policy changes. The Indian bureaucracy has four features that, taken together, make it the enemy of change: enjoying lifelong job security, it has no reason to push for change, and every reason to examine each proposal to death. In short, it has little idea of the value of time. Second , life-long job security absolves it of accountability for work not done or done badly. Third, as a body it has shown itself to be singularly bereft of innovative ideas.

Lastly, it combines this intellectual barrenness with a chronic suspicion of any suggestions that are made by `outsiders. Not only are industry and trade associations regularly heard and dismissed, not only are scholars slighted, not only are most expert committee reports recommendations implemented piecemeal and grudgingly, but even the so-called technical advisers in the ministries are routinely ignored.

As India approaches its most fateful Budget, the UFs leaders will do well to remember that their interests and those of the bureaucracy do not necessarily coincide. After all, the latter do not have to worry whether they will be in power next year.