Thank you for inviting me to address you today. It is a privilege and an honour to welcome you to India. When your High Commission asked me to speak on the subject, I thought, it would help to take a step back in time so that we get the perspective right.
I was born in 1957, the year Sputnik was launched and Marshall McLuhan announced that the world would become a global village. I was born to a government servant; my father’s quarter had no electricity and running water. I was home schooled until the age of 8 because the places where my father served had no schools nearby. My father had seen the lowering of the Union Jack and the rise of the Indian Tricolour as one who had transitioned from a government official under the Raj to one in free India. Free India meant that it was India of central planning, public sector and controlled private enterprise. My father always exhorted me to do what his father told him: “If work you must, work for the King.” With the British gone and Indian princely states no longer in existence, “the King” now meant the Republic of India. A good Bagchi boy’s employment had to be subject to the pleasure of the President of India. That meant you were groomed from your birth to eventually join the Civil Services or the Armed Forces. Starting a business or working for one was infra-dig. The time from 1947 to the 70s were marked by social and governmental distrust for businessmen.
The government allocated “license and quota” to businessmen to produce anything at all and business prostrated before it for everything. My teens were marked by frequent newspaper accounts of nationalisation and the government’s enactment of two draconian laws called Maintenance of Internal Security Act (MISA) and Conservation of Foreign Exchange Act (COFEPOSA), under which anyone could be detained without due process of law.
The government hated business. Businessmen were considered hoarders and adulterators.
When I joined the workforce in 1976, it was a watershed year because Indira Gandhi had declared a state of national emergency. Shortly thereafter, she lost a historic election that paved the path for a non-Congress government at the centre and its most significant early achievement was the kicking out of Coke and IBM from India! Thus, the period from my birth to my twenties was a time characterised by hatred for business.
From the 1980s to today, I believe, the government has shifted considerably from that position of hate to move towards a position of love for business.
The early shift in that position was heralded by economic reforms of the 80s that sought to do away with the License Raj; the government actually encouraged business and paved the path for both global businesses to come to India and Indian businesses to go outside of the country. Two Prime Ministers and two Finance Ministers and a set of first-rate bureaucrats were responsible for the change in attitude and their position was vindicated by improved economic indices all around. The reform process has sustained itself for three decades by now and during this period, the GDP grew close to double digits – a far cry from the 1% growth during the British times. This is also the time during which the Indian Information Technology (IT) industry came into being and flourished. People say that the main reason it became what it is today is because the government did not understand what it was doing. The idea has some merit but the truth be told: without a few outstanding, visionary government servants, the industry would have been stillborn.
The IT industry today accounts for 4% of the country’s GDP, offsets 65% of oil imports and has grown from $4 billion in 1998 to a staggering $52 billion in 2008. The IT industry has changed the way people looked at businesses in the first three decades after independence. The industry represents a sharp departure from a past in which you needed to know someone rather than something to get ahead. That spurred an entrepreneurial revolution in the country. The IT industry showed that by serving a global customer base with the highest quality, you can create lasting value and did not have to seek largesse from the government. The IT industry set new governance standards. It created shared wealth. It also showed that its success could be replicated and it upped the ambition for players in every single field to be globally significant. The sentiment became, if IT can, we can. It also proved that instead of being the regulator, the government could play the role of a facilitator and a partner for business and spur visible development. The results are visible: there are 20 Software Technology Park authorities that dot the entire length and breadth of the country with 8455 registered units. The success of the IT industry in building a globally competitive position has led the government to introduce the 2005 Special Economic Zone Act that now has 234 units that support a plethora of industries from auto-ancillaries to gemstones and jewellery.
The last three decades have witnessed not just a pro-business attitude by successive governments for the Indian industry, but also there has been a huge shift from looking at overseas companies as the foreign ploy to inviting them as a partner in economic and, often, social development. This has led to major changes in laws relating to ownership, repatriation, intellectual property and dual taxation among others. Today, a visit by Bill Gates and Jeff Immelt is taken as seriously by the Prime Minister’s office in New Delhi as that of a visiting state head.
A critical factor in the transformative relationship between the government and the industry has been the increasing role of a new breed of industry associations like NASSCOM and the CII. In the decades after independence, there have been several industry bodies that were seen as lobbying organizations and not as platforms for constructive policy dialogue; in short, thought leadership was not expected from them. That changed with the NASSCOM and CII as they brought a collaborative, constructive spirit of dialogue over debate for the industry and the government to work together. The issues voiced by them are heard seriously and more than lobbying for largesse and grievance redress, the government actually has upstream engagement with them in matters of policy.
The last three decades have been marked by a very interesting departure from a past that has brought a new sense of social respectability for the Indian businessman. In folklore, the businessman was always inconsequential, often portrayed as the greedy and heartless potbellied man. He was certainly, no hero. Today, the businessman is the new hero after iconic individuals like Dhirubhai Ambani, N R Narayana Murthy, Azim Premji and Ratan Tata who are all hugely respected by the society and are seen as national role models. Government officials no longer see these people as defaulters but as people who have as much commitment to nation building as anyone ever could.
Quite interestingly, the idea of globalization was embraced by politicians in power even before many leading businessmen of the 80s did. The comfortable mediocrity of a closed economy actually served the limited ends of many entrenched beneficiaries of the License Raj. There was an active lobby in the name of the Bombay Club that sought to tell the Indian government that the Indian economy should not be opened up; that Indian industry was not ready for foreign competition. Once the path to opening up the economy was settled, there has been no reversal and despite the many anxieties in multiple sectors, India has remained in the forefront of liberalisation and economic reforms.
Historically, we have been an infrastructure-indifferent nation. While the West has always taken a maximalist view, through centuries, Indians have had a minimalist view and there has been a “make-do” mindset. During the last two decades, primarily driven by the pressure of urbanization and the need to build world-class infrastructure, we have seen the idea of Public-Private Partnership become a buzzword. It is a significant departure from the past and marks a sharp departure from the mindset of distrust during the first three decades of independence.
While every major infrastructural project today, from airports to national highways symbolize the new spirit, where the government has not been able to make progress is in the privatization of public sector companies due to fractured nature of coalition politics. Different political parties, from time to time, have formed the government at the centre and issues like privatization have been soft peddled as a result.
India as we know is a federated nation and has dual government at the centre and the state level. States are often governed by political parties of sometimes radically different agenda vis-a-vis the party in power at the centre. Despite that, in most cases, we have seen a pro-business, pro-reform mindset. Part of the pro-reform mindset is related to the realization that the huge investments in building infrastructure and money required to keep the government afloat depend on indirect taxes. As more Indians buy consumer goods, it is the government that is laughing all the way to the bank.
That said, every government has been acutely aware of the vote bank and the idea of economic reform and pro-business attitude has often been seen as anti-poor. We have seen governments fall because of this perception and there remains substantive a rural-urban divide. There remains a larger issue: would government ever see its role merely beyond distributor of gains to being a participant in the creation of lasting economic value.
Amidst all this, where do Indian businesses share motives with the Indian government and where do they diverge?
First of all, there is consensus on a “Made-in-India” variety of economic liberalization. It is slower than what the protagonists would want but more surefooted than what the antagonists would like to see. As part of the overall umbrella of liberalization and reform, there is broad consensus on monetary policy, taxation, the development agenda and the idea of public-private cooperation.
Where do their motives diverge? The divergences relate to privatization, labour law reforms, judicial speed and for some, an overhang of corruption. Probity in the public space has eroded more sharply in the last three decades than in the last three centuries. Actually, the lack of transparency suits business some because, managing opaqueness is seen as business acumen and a core-competence by many.
As we balance the convergence with the divergence of motives between the government and business, today, today the glass looks fuller than empty. It has been a journey that has witnessed a shift from hate to love-hate to almost, love. For the first time in generations, we are witnessing the rise of entrepreneurship in every sector, in every small town in the country. As someone who does not work for the King as my father told me to, and as a first generation entrepreneur myself, I believe there has never been a better time to be engaged with the economic rise of India.
The sign is clear. Ladies and Gentlemen, India is open for business.
Thank you very much.