India needs a new state-enterprise partnership to unlock business growth

An idea on JRD Tata's birth anniversary on July 29

In the 1980s, journalist Rajiv Mehrotra interviewed JRD Tata for black & white TV. Upon learning about the Tata group’s philosophy, investment and social contributions to the community, an intrigued Mehrotra asked whether the group was capitalist or socialist. In his lilting French-accented voice, JRD replied that it was capitalist in some ways but was socialist in others. “Maybe Tata is a socialist capitalist,” he said with a shrug of his shoulders. JRD was a lifelong advocate of responsible and free enterprise. 

Governments struggle to facilitate enterprise because adipose bureaucratic tissues have accumulated over decades into atherosclerosis. The World Bank group stopped publishing its Doing Business Index due to data-integrity issues. India’s most prominent votary of the country having improved in ease of doing business now argues for reducing policy uncertainty. 

According to the government data, India has 65 million enterprises, of which only 200 hog the media reportage. Thinking tangentially, if we cannot find a bypass to our sclerotic business regulations, a Business Cockroach Party could emerge to protest the Business Enterprises Endurance Tests. Therefore, we must explore a radically different model to actively promote Viksit Vyavasaya (Developed Enterprise) covering internal trade, exports, manufacturing, and innovation. India needs 10,000 enterprises of scale without worries about hundreds of regulations by many dozens of government departments. 

If we can expand the contribution of manufacturing, exports, trade and commercial services from the current 65-70 per cent by 10-15 percentage points, jobs can get created and gross national product (GNP) will accelerate. Bharat needs a bypass surgery, perhaps by recruiting the blockers to unblock the atherosclerosis. Here are three models; there are surely many others. 

First model: Stake to govt 

Sam Altman of OpenAI has announced a 5 per cent free stake to the United States government because the firm “seeks to clear political obstacles by securing financial buy-in from the Trump administration” (Financial Times, July 2). The government will not pay; it will get a free ownership stake for the firm to secure good relations with the administration. This may not suit us. 

Second model: Stake to the public 

In his book Beyond Punjab, Prakash Tandon recounted what led Lever Brothers, the predecessor of Hindustan Lever, to offer shares to the Indian public (not the government) around 1956. After independence, T T Krishnamachari sequentially became commerce and finance minister. He desired that Lever Brothers seek equity participation from the Indian public. The company’s corporate headquarters, in London, initially resisted sharing equity. However, the government’s firm nationalist stance catalysed the necessary transition. Thus, Hindustan Lever became one of the first foreign subsidiaries to offer stock to the Indian public in 1956. The action was to avoid angering the government. This model is not relevant to ease of business.

 

Third model: The Titan story 

The third model is an accidental product of the licence raj. With tweaks, maybe it has potential through assigning blockers to unblock.

 

In 1984, Tamil Nadu Industrial Development Corporation (Tidco) invested ₹10 crore in the equity of a private enterprise called Titan Watches Ltd. That shareholding is now worth ₹1 trillion, apart from rich dividends over many years! Here is the charming back story. 

Xerxes Desai, then chief executive officer of Tata Press, identified wrist watches as a business opportunity in 1977. Watches were reserved for SSI (small-scale industries) and the public sector in those days; HMT used to be the dominant domestic manufacturer, apart from a few small-scale firms. Tata Press tried to acquire a Bengaluru-based SSI watchmaker, Hegde and Golay, but this effort was unsuccessful. 

After seven frustrating years of exploring options, Tata Press received an invitation from Tidco, which had acquired an industrial licence for watches. Tidco invited the Tata firm to partner it equally in a joint venture. Their joint application to the government failed for procedural reasons.  Then, a small investment company named Questar Investments was established by Tata to consummate the joint venture. This worked! 

The joint venture, named Titan, a name derived from Tata Industries (TI) and Tamil Nadu (TAN), was established with technical collaboration with France Ebauches of France.  Since inception, the board of Titan has always been chaired by a nominee of Tidco, which strictly played governance and facilitation roles, leaving management to Tata managers. Tidco always behaved professionally with freedom to professionals, but willing to facilitate legitimate approvals and clearances for the company. 

The narrative has been captured beautifully in the book Titan, by Vinay Kamath, based on which there is a recent Amazon MX film series, titled Made in India. 

Conclusion: India desperately wishes to accelerate forming private capital and increase the share of manufacturing and exports within the GNP pie but regrettably has only modest results to show. Should we consider a bypass surgery to promote enterprise, exports, research, and innovation? Maybe state industrial development corporations can pay for and participate in equity and play the role of guiding entrepreneurs through the maze of regulations? This may coopt the “blocking community” to deblock. 

Attempts to improve ease of doing business so far have generated more publicity than results. The government must consider how to act as a guardian angel for enterprise rather than interfere in operations, employment, and favours. 

Bharat must decentralise vyapaar from an increasingly centripetal Centre to the states. 

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The writer’s new book, CHANAKYA AND SUN TZU: A Business Lens on Trade, Thought, and Travel, has been coauthored with Nirmala Isaac  gopal.mindworks@gmail.com