R P Goenka Calls For Greater Reforms

R P Goenka, former president of the Federation of Indian Chambers of Commerce and Industry and chairman emeritus of RPG Enterprises, said on Tuesday the economy remained unaffected by the meltdown in the neighbouring Asian economies because of its strong industrial base.

Presiding over a convocation of the Institute of Management Technology here, Goenka said despite the rupee taking a beating of 10 to 15 per cent, we managed to survive (the meltdown).

Unlike many industrialists, who have been seeking greater protection for the domestic industry, Goenka wanted reforms to pick up. We need more reforms to stabilise and compete in the world market.

 

Goenka, who heads the Calcutta power utility company CESC Ltd, said reforms in certain sectors have not cut down bureaucratic controls. Before reforms, we needed 48 approvals to set up a power plant. Today, after all these reforms, we need 46 approvals. So much for reforms!

He said domestic companies were moving from a protected market to a global economy. This poses great challenges and offers immense opportunities. The practices and strategies of yesterday are no longer relevant. Business itself has become a new concept, he said.

He said it was partly because of the failure to recognise this change that the crisis in South-east Asia took such a sinister form. Korea was a role model for China and a wonder country for most others. No one could even imagine that Korea, which was admitted to OECD only last year, could face such a crisis. The ferocity of that crisis can be judged by the fact that it cut the value of the won to half its level in just two months. A $60 billion bail-out package had to be sought from the International Monetary Fund to get the economy back on the rails. Even that will take time.

Goenka said there were lessons to be learnt from that bitter experience. We are at the crossroads of economic history and we have to understand what went wrong in Asia and how we can escape a similar catastrophe.

He said reforms in the crisis-ridden countries did not follow the right sequencing as a result of which many currencies were overvalued and companies excessively leveraged.

What is more, long-term investment was financed from short-term external borrowing. In Korea, for instance, nearly 60 per cent of external borrowing was short-term exposing it to the threat of default.

Goenka said the failure to understand and rectify these weaknesses led many to put the blame on speculation.

We need to appreciate that speculation does not take place in a vacuum. There have to be cracks in the economy from which speculators benefit. No doubt, once the players get into the act there is generally a stampede which takes the currency value far away from reasonable levels, he said.