Arun Shourie on UPA 1’s “dream team” back in 2009

Arun Shourie is not just a noted Indian journalist. He is a renowned author and politician. The collection of the speeches he delivered in the Rajya Sabha form the first two parts of the book “We Must Have No Price”.

Shri Arun Shourie’s Book “We Must Have No Price” can be purchased from Amazon – click here and Flipkart – click here.

The 9^th chapter is based on a speech that he delivered in Rajya Sabha about the situation that prevailed in 2009 when UPA 2 was just formed.

According to Mr. Shourie :

“And the team that has taken office this time is more reassuring. The principal ministers are persons of substantial experience; none of them has the sort of taint that marred several ministers in the first Manmohan Singh Government; equally important, the principal ministers are ones who are less liable to ignite the acrimony that characterised the last five years.”

He had also stated that,

“We must remember that, yes, the country has enormous potential and, in the last ten years, we have had but a glimpse of what can be achieved; but, it is just as true that, unless we mend our ways, unless we improve our governance and discourse, the country can get stuck in that well-documented pit, the middle-income trap: Brazil, Mexico, Thailand, Philippines and so many other countries also registered spurts of high growth rats, only to get stuck before attaining their full potential. In a word, all sides have been afforded an unexpected opportunity to do right by the country; they must seize it, inside Parliament as much as outside.”

Mr. Shourie had also spoken in 2009 about how precariously dependent India is on the US for dealing with Pakistan as well as China when it came to its foreign policy. He had elaborated way back then as to how the US needed help of both Pakistan and China and so will not help India. Pakistan was needed by the US to continue the fight in Afghanistan and Iraq till the time US found an honourable exit. China was needed to finance bailout packages that were necessary then to save its economy and financial system.

With regards to defence policies during his 2009 lecture in Rajya Sabha he had said that,

“Both in regard to internal security as well as fortifying ourselves against external aggression, we face a dire situation.”

Back in 2009 during his speech in Rajya Sabha he had talked about how the countries like the US and UK had totally banned the adoption of communication systems from potentially hostile countries which had proved to plant backdoors and triggers in such hardware and software. He had also told that in India the very same companies had, in spite of the strenuous objections of intelligence agencies, been allowed to install the very same sort of equipment across the country.

During the same speech of 2009 in Rajya Sabha Mr. Shourie had talked about how in spite of the fact that a “dream team” was said to have been in place during UPA 1, reforms remained at a standstill. He had also said that,

“For we should not forget that, because Reforms had been brought to a standstill, the momentum of growth had already begun to slow down well before the international economic meltdown. By March 2008, to cite just one example, over 25 lakh jobs had already been lost in the three sectors. Several reforms, like the dismantling of the Administered Price Mechanism in the petroleum sector, were actually reversed. Similarly, several initiatives which were going to restore our competitivene3ss, had been brought to naught: when we met industrialists in October 2008, we were astonished to learn that for almost nine months there had been absolutely no disbursements from the Textile Modernisation Fund.”

Mr. Shourie in his speech had cautioned UPA 2 in regard to disinvestment and said that proposal of selling up to 51% shares in governmental enterprises while government control over the enterprises will be maintained was the worst possible alternative.

Mr. Shourie had while quoting Sachar Committee Report also sincerely hoped that the UPA 2 Government would think again about where the measures which it is pushing for the ostensible purpose of helping Minorities will eventually lead the country to ?

Sadlt for India that advice from Mr. Shourie fell on the deaf ears of the Sonia Gandhi-Manmohan Singh led UPA Government.

Source: http://www.niticentral.com/2015/01/18/arun-shourie-upa-1s-dream-team-back-2009-296807.html

Arun Shourie on Lessons learnt from Reforms

From the time of mid-1960s when those who argued for liberalisation were traduced as “agents of capitalists” as “World Bank-IMF men”, India has come a long way but there is still lots to be done as per many experts including Arun Shourie, the noted winner of the Ramon Magsaysay Award for Journalism in 1982.

Shri Arun Shourie’s Book “We Must Have No Price” can be purchased from Amazon – click here and Flipkart – click here. 

According to Shourie, India only changed its stand towards “socialism” when the Soviet Union itself broke, in a word, as the Marxist Quran got disowned in its own Mecca. As yet Shourie says that the correctives were not set in motion until there was a complete breakdown in India’s external account to furnish the weak and imprisoned political class the excuse to do the obvious things.

The major issue he says with Reforms in India has been that “Reforms of the more basic sort have been implemented only during two phases: during 1991-1993, the first half of the Prime Ministership of PV Narasimha Rao, and during 1997-2004, the Prime Ministership of Atal Bihari Vajpayee. As against these, Reforms in China have been more or less a continuous pursuit.”

He mentions in the book, “We Must Have No Price” that just as our leaders were for “Socialism for the masses”, many of our entrepreneurs are for “Liberalisation in all sectors except mine”. This he says is an unexpected obstacle that reforms have to face. As per Shourie, one well-known problem in executing Reforms is that “Those who are liable to benefit from them are diffuse and scattered, and the benefits that are liable to accrue to them lie in the indefinite future; on the other hand, the dislocations that Reforms are liable to cause are here and now; the ones Reforms are liable to dislocate are concentrated in industries, in tight geographical areas; they are liable to be organised.”

Also several characteristics of the media propel it to be an obstacle to Reforms as per Shourie. He says for media, everything comes to have two sides. At the least, national resolve is dissipated: people are dissuaded in advance from putting up with any dislocation for the change. The difficulty is compounded by what has come to be the very nature of “news”. Shourie says that

“The media will be full of stories of inefficiencies of the way things are. But the moment you change them, journalists will rush to the person opposing the changes, to the workers who have opted for the Retirement package, to allies of the Government who are opposing the reform.”

Just as Prime Minister Narendra Modi has always advocated the role of States in bringing about Reforms and not just leave it to the Central Government, so advocates Shourie. He says, “It is a fashion today to say that Reforms should be “inclusive”. But, in our Constitution, each of the sectors that would ensure immediate benefits to the rural areas, to the poor are in the States’ or the concurrent list.”

These sectors include Agriculture; Irrigation; Health; Education; Rural infrastructure, in particular rural roads; Drinking water; Electricity; Housing. When you implement Reforms but there is no improvement in these, the people are easily led to believe, “They are only worried about the industrialists.” The Left as well as the activists get the ammunition to shout, “Reforms are elitist.”

“One of the principal steps that can be taken today to push Reforms is to reshape allocations among States so as to hugely reward the ones that carry through the changes that the country needs.”

Shourie, however, sadly concludes that even when there is a pressing need for them, just don’t get done. A succession of Finance Ministers have announced plans to reform the Public Distribution System; to bring down government equity in banks; to open up sectors like insurance more aggressively; to overhaul the pension system, but none has been able to make any headway on any of them.

Source: http://www.niticentral.com/2014/11/09/arun-shourie-lessons-learned-reforms-244114.html

MSMEs should be self-reliant: Shourie

KOLKATA, AUGUST 2:  

Micro, small and medium enterprises (MSMEs) have become dependent on government doles and funds rather than being self-reliant, Arun Shourie, former Union Minister for Disinvestment, said here on Saturday.

According to him, innovation should take place within MSME units, just as it is the case in other South-East Asian countries. The government should act as facilitators.

“Our MSMEs are dependent on government doles; while globally MSMEs are hubs of innovation. We must wake up to reality,” he said during the 86th Annual General Meeting of the Indian Chamber of Commerce (ICC).

Shourie also stressed on the implementation of technology and R&D in the manufacturing sector and suggested that Government should welcome more private investments to implement modern technologies.

According to the veteran journalist, there was a need to strive for excellence and reduce corruption. This, he said, was the only way to leverage the advantages of the demographic dividend of the country.

Source: http://www.thehindubusinessline.com/economy/msmes-have-become-dependent-on-govt-doles-arun-shourie/article6275322.ece

Arun Shourie says reforms in core sectors can trigger economic growth

The NDA Government for the first time identified the need to have a Disinvestment Ministry, which was earlier headed by Arun Shourie. During his tenure, he led the selling of Maruti, VSNL, Hindustan Zinc among many others. Even though the Congress-led UPA tried to allege him of misappropriation and some of the senior bureaucrats working with him, almost 12 years later, he came out scrupulously clean, proving that every decision during his tenure was in accordance with the Cabinet Committee and principles of valuation were as per Supreme Court norms.

Not a part of the present Government, his opinion are valued since he has seen the true state of affairs. According to a report published in the Economic Times, the senior BJP leader said that Public Sector Units (PSUs) should be saved by monetising its unproductive assets.

“We must monetise our unproductive assets to save PSUs. During my time (as a Disinvestment Minister), we had discovered that VSNL had 700 acres of prime land in many cities. Now, if unproductive assets like these are sold off, it can generate crores in revenue.”

Speaking on “Instigating Reforms” event organised by the Indian Statistical Institute (ISI) in the city marking the 121st birth centenary celebration of eminent scientist and applied statistician Prasanta Chandra Mahalanobis, he said that there were seven banks in the country which were heavily burdened with Non-Performing Assets or NPAs as they are known.

“Rs 400,000 crore is needed for their recapitalisation. This cannot increase their revenue and nor can their expenditure be decreased,” said Arun Shourie.

According to same report, the former Minister said an Indian corporate house owed Rs 1,22,000 crore to banks while another one owed Rs 58,000 crore.

“India is steadily getting debt-trapped. The situation is so precarious that our leading banks and Public Sector Undertakings (PSUs) are failing to raise money from the market. Immediate and innovative reforms have become indispensable,” he further added.

While putting the onus on States to push for reforms by making legislation using Article 254 which deals with inconsistency between laws structured by Parliament and the State Legislatures, he said, “Everything cannot be done by Delhi. States need to come forward and resort to Article 254(2) of the Constitution that allows the State Legislation to prevail, provided the President gives his assent. If a few progressive States initiate the process, rest will follow suit.”

On rising demand for larger budget allocation for the defence sector, he said the 88 per cent budget went towards paying salaries, pension and other maintenance works. “With this, how we are going to modernise our defence forces and face China”, he wondered.

Commending Rajasthan Government for its initiative, he felt that States should take the initiative to reform archaic labour laws to ensure better prospects for job creation and also alter the Agriculture Produce Market Committee Act so that farmers get better prices for their produce. Remembering how an ineffective UPA and inefficient FCA allowed millions of tonnes of food grains to rot only to be sold at unthinkable prices to breweries.

This he felt needs to change. That can happen if the mindset undergoes a change and we work towards creating an environment that helps economic growth.

Source: http://www.niticentral.com/2014/07/01/arun-shourie-says-reforms-in-core-sectors-can-trigger-economic-growth-232583.html

Talk Back with Arun Shourie

Senior BJP leader Arun Shourie tells Bloomberg UTV's Hindol Sengupta why India will be isolated in Copenhagen

Digging our head deeper in the sand

Source: Indian Express

Tuesday , Apr 07, 2009 at 1533 hrs


- Tibet’s cause is just;

- Tibetans have given no cause for offence;

- China has already reduced Tibetans to a minority, even in Lhasa. It is systematically obliterating the Tibetan culture and the identity of the Tibetan people;

- It has not succeeded as yet, but nor has it loosened its vice;

- People across the world feel intensely about this injustice and oppression, but governments are silent.

India’s policy towards Tibet has to be assessed on the touchstone: how does it address the danger that these facts pose for India?

The policy has moved from viewing the government of Tibet as the government of an independent country; to viewing Tibet as an autonomous country or region under the overall “suzerainty” of China; to viewing Tibet as an autonomous region under the “sovereignty” of China; to viewing Tibet as a region that is an integral part of China and one in which China can do as it pleases — what happens to Tibet and Tibetans being an internal affair of China; to not merely viewing Tibet as such, but to accepting what the Chinese say is “Tibet”(as is well known, China has hacked off half the area of Tibet that encompasses half the population of Tibetans and submerged it in Han provinces).

From the time of Pandit Nehru, India’s policy has been to shut its eyes to what is happening in Tibet. In particular, what the Chinese are doing to the culture and people of Tibet; and to the military buildup. This was evident in the way in which, under Pandit Nehru’s firm hand, the Indian government shut its eyes to the roads and other infrastructure being built in Tibet.

Indeed, the “policy” was carried further. The view was taken, and enforced, that we should not only not ourselves raise, we should oppose efforts by others to raise in fora like the United Nations, what was being done to Tibetans. This, Panditji laid down, is what would be in the best interests of the Tibetans themselves!

Along with this shutting of eyes to Chinese buildup is a turning away from the fact that India’s security is inextricably intertwined with the existence and survival of Tibet as a buffer state and to the survival and strengthening of Tibetan culture and religion. One reason of this, of course, is that it is the representative of the government of Tibet who signed the Simla Agreement and not the representative of the government of China — though, it must be remembered, that the objection of the Chinese representative was not to the border between Tibet and India but to the border between Tibet and China. The second reason is that unless there is an area of peace between China and India, an area in which there is no great Chinese military presence, our northern borders are directly exposed. The ecology of India is just as closely interlinked with what happens across the Tibetan plateau. The deforestation of eastern Tibet that has already taken place; mining and other activities that China is pursuing with vigour across Tibet; the diversion of Tibetan waters to the north by China engineering works for which have already begun — all these are bound to affect the entire plain of north and east India, as, indeed, they are bound to affect the countries all along the Mekong.

And this shutting of eyes is typical: we shut our eyes to the Talibanisation of Pakistan; to the Talibanisation of Bangladesh; to the ingress of Bangladeshis into the Northeast; to the consequences for us of China encircling India — Myanmar as a colony, a military pact with Bangladesh, a fully militarised and nuclearised Tibet, a willing and dependent instrument in Pakistan.

In the case of China and Tibet, as the years have gone by, we have shut our eyes tighter and tighter. In the last few years, in particular up to 2007, the Chinese attitude towards Tibet has hardened; the buildup of infrastructure in Tibet — an infrastructure that can be used for military purposes as much as for anything else — has become more intense; and the incursions and other hostile acts towards India have become much more frequent, and much broader in range. To take just two examples, recall how China has striven to prevent closer relations between ASEAN and India and how it has striven to snuff out any chance that there might have been of India, along with countries like Japan, joining the Security Council.

It was only when, during the build-up to the Olympic Games, China felt it necessary to show a benign face to the world, that these hostile acts were tempered. But, the Olympics over, China has resumed its oppression in Tibet just as it has resumed its hard stance towards India in general and on the border issue in particular.

In India, on the other hand, we continue to shut our eyes to both — what the Chinese are doing in Tibet and to what they are doing towards India.

The net result is that the Chinese, having already swallowed Tibet, are now making systematic inroads onto the southern slopes of the Himalayas. The pace at which they are extending their presence and influence in Nepal since the Maoist government took over are to be seen to be believed — and yet to this also India continues to shut its eyes. Nor should any of it surprise us. After all, a China that is spreading its influence in Latin America, Central Asia, Africa is not going to overlook these countries along its southern rim. Had not Mao declared, “Tibet is the palm of China, the Himalayan kingdoms are its fingers”?

(To be concluded)

The writer is a BJP MP in the Rajya Sabha

Responding to the Economic Meltdown

Source: Indian Express
Thursday , Mar 19, 2009 at 1703 hrs
Responding to the Economic Meltdown

Some lessons for South Asia Arun Shourie

(The Asian Development Bank recently organised a meeting in Manila of central bank governors, ministers and senior finance officials from South Asia to consider the impact of the economic meltdown, and possible responses. Michel Camdesus, former managing director of the IMF delivered the opening address, former Union minister Arun Shourie the closing address. This is the text.)

Several features about the current economic crisis stand out. The first, of course, is the sheer scale of what preceded it, and the magnitude of what has happened in its wake: to recall a typical fact, in a recent lecture, Andrew Sheng mentions that, on the eve of the breakdown, the nominal value of financial derivatives and exchange traded derivatives had soared to fourteen times the world’s GDP.

The second feature is the pace of wealth destruction in this round: as has been observed, there has scarcely been another period of four to five months in which almost fifty trillion dollars worth of wealth has been wiped out.

Third, as several observers have pointed out, the breakdown differs from the Southeast Asian crisis in other respects also: that crisis was on the periphery of the world economic system; this one has originated in, and has thus far most severely struck the very heart of the system. The result makes demands of its own: as the Southeast Asian economies went into a tailspin, the OECD economies held up; this helped the recovery of the former as they were able to resume exports to the latter. This buoy is not available this time round: while some of our economies may be able to resume growth only when the US, European and Japanese economies come out of the recession, we will have to depend on our own efforts. This is all the more so as governments, pressed by job losses at home, will, overtly or covertly, adopt protectionist measures. As a lemma, the same proposition holds for China: it is idle to expect, as commentators kept saying in the last quarter of 2008, that China would shore up other economies. China is focusing its efforts on reorienting its economy towards domestic demand, domestic requirements, domestic employment: the “stimulus” this effort may provide for other economies will only be a residual.

FOurth, the world has turned out to have become much more intertwined than experts had pronounced it to be. Economies are much more inter-linked, sectors within an economy like India are much more interdependent than had been presumed. How contrived the declarations of October/November last year look just four/five months later – that our economies will not be affected as the “fundamentals” of our economies are strong, as our economies are, in effect, “decoupled” from western economies. Our economies are linked to others through exports of goods as well as services, through remittances, through foreign inflows – through monies that have come in for arbitrage even more so than as direct investment. But more than any of these, our economies are linked with those of US, Japan and Europe through that all-pervasive intangible – confidence. Yes, particular banks and firms have been thrown into difficulties. Yes, there is shortage of liquidity. But the real blow has been to confidence – that is the tsunami that has traveled all the way to our shores. Till confidence is restored, things will not begin to turn around. And notice that as yet, the 4 trillion dollars notwithstanding, nothing that the governments of the US, Europe or Japan have done has shored up confidence.

That is one reason why the periodic declarations, “We expect recovery from the third quarter of 2009/ from the first quarter of 2010…,” are just that much whistling in the dark.

In spite of the scale of the breakdown; in spite of the pace at which wealth has been destroyed; in spite of the fact that nothing that has been done thus far – and what has been done this time round is far greater in magnitude than in any other crisis in decades – has shored confidence, in spite of these features, government after government has underestimated the impact that the crisis is certain to have on its economy. Indeed, several governments – and the Government of India is a prime example – have been in denial. The tsunami has hit countries successively. But, till the penultimate moment, each has convinced itself that the tsunami has passed at a safe distance.

The first lesson is not to remain in denial. Governments must anticipate. They must react at lightning speed. They must overwhelm. The old adage is indeed apt: hope for the best but prepare for the worst. A lemma is: do not be lulled into relaxing your effort by blips: that in Pakistan’s case remittances have, in fact, increased a bit in the last two months may well be due to the fact that workers who are being laid off in the Middle East are repatriating their savings in one go; that automobile sales in India have gone up in January may well be due to some transient factors… Hence, instead of clutching at these straws, prudence dictates that we assume that developed countries will take five to seven years to return to the status quo ante, and devise our responses accordingly.

Nature of the stimulus

The view has been urged, “Our deficit is our stimulus.” Such claims are a symptom: the current crisis is being used by many governments, the Government of India is again a prime example, to cover up the results of mismanagement during the period preceding the crisis. Financial profligacy is what caused the deficits in India, for instance, not some prescience about the impending breakdown. Unchecked, poorly targeted subsidies on food and fertilizers; on petroleum products; a massive waiver of agricultural debts; pay rises for government staff – these three items are what pushed the combined deficit of central and state governments in India to over 11 per cent of the country’s GDP. Not only were these outlays way beyond what prudence would have allowed, they were grossly under-budgeted: the provision for food and fertilizer subsidies was at least a third less than what would manifestly be required; the POL subsidies were kept out of the Budget calculations all together; as were the outlays on the massive increases in governmental salaries.

The assertion, “The deficit is our stimulus,” presumes that our economies are today suffering from the classic Keynesian deficiency of demand. That is far from being the case. Not a generalized deficiency of demand but a breakdown of confidence – this is what is causing industry to hold back on investment, it is what is causing even consumers to hold back on purchases. And that is precisely why cuts in rates of interest, cuts even in taxes are not triggering the surge in investments and purchases that policy makers have assumed would follow: how can the fact that a person will have to pay 2 per cent less as interest lead him to go in for a house when he is not sure whether he will have his job two months from now?

Prior profligacy limits a country’s ability to deal with the crisis. And profligacy today limits its ability to deal with the crisis as it continues into next year. Today the countries that have reserves, that have fiscal headroom, that have the ability to execute massive infrastructure projects – these are the countries that are in a better position to navigate the crisis. When investors and others see that their government is unable to bring its expenditures to heel, their confidence in the future is further damaged. And there is the real effect too: in India, with governmental borrowing of Rs. 3600 billion having become inescapable in 2009/2010, the State will be pre-empting the private sector from the market, it will be pre-empting the very sector on which it is coming to rely not just for executing infrastructure projects but even for financing them. A return to fiscal discipline, therefore, is necessary precisely for meeting the crisis.

There is another reason for this. The crisis is no longer a generalized one. By now it is sector-specific. It is location-specific. It is firm-specific. Units in Tirupur in Tamil Nadu producing garments for exports have been hit hard. By the time the stimulating effects of a general deficit will reach Tirupur, an age would have passed.

Moreover, jobs are not malleable. Establishments in the gems and jewelry business have had to cut down operations drastically in Gujarat. Assume that, through deficits, the Government finances public works in Bihar or even in Surat. How many diamond cutters will be inclined to or even be able to avail of them?

To be of help the relief must be in the locality and in the industry that has been hit. Faced with a sudden fall in purchases of trucks, the commercial vehicles sector will be helped not when the Government goes in for an even larger general-purpose deficit but when it decides to expedite procurement of trucks for the country’s defence forces.

The same goes for individual firms. To pluck an example from India, the very firms that were the pride of the country yesterday as they acquired firms abroad are in danger today: several of them acquired the foreign firms with substantial borrowings. Today, with the collapse of markets, the fall in commodity prices, the evaporation even of working capital, they are finding it difficult to service their obligations. That constitutes a twofold problem for the country. First, at the very time that foreign funds have been withdrawn – close to 70 billion dollars in the last six months – about $ 53 billion short term debt has to be serviced – either through repayment or through renewal – in the coming year. Second, a failure of even one of these firms will not just be a problem for that firm, it will be yet another blow to confidence in general. In a word, governments should be planning not just general packages but location-specific, industry-specific and firm-specific relief.

While doing so, governments must keep the inarticulate in mind also. With sources of external commercial borrowing having dried up, Indian corporates, for instance, will be turning to Indian banks and the Indian market. The small and medium establishments, already hit by the sudden and extreme risk-aversion that has seized our banks like banks elsewhere, will now be squeezed out completely. Yet, as a recent McKinsey study reminds us, this is a massive sector. It accounts for 40 per cent of manufacturing output, that is about 17 per cent of the country’s GDP. It accounts for close to 44 per cent of exports. Most important, it employs close to 30 million people. Closures and lay-offs in this sector will be diffused. But they will be of an order that, if unattended, can trigger social unrest.

For the same set of reasons, governments should be alert to early signs of stress even in sectors that are conventionally regarded as strong. In India, for instance, it is generally assumed, and quite rightly so, that our banking sector is safe as it has been conservative. It has made substantial progress in bringing down non-performing loans to just about 2 per cent of its outstandings. But recent studies – by Chetan Ahya and Ridham Desai of Morgan Stanley, by Joydeep Sengupta and Anu Madgavkar of McKinsey – remind us other that there are facets also: about 40 per cent of corporate India’s asset base has a return on incremental capital that is lower than the cost of capital; and Indian banks have lent $ 100 billion to these vulnerable firms – loans that account for a fifth of total bank loans. In a word, take no sector for granted. Identify the vulnerable units in each sector, and prepare contingency plans for them – remembering always that a collapse of any constituent of any sector will impair the most important variable that is needed for revival, the very variable that is most fragile today – namely, confidence in general.

In such environment general deficits will be as much of a stimulus as throwing money out of the window. The stimuli which will really help are ones that strengthen the viability, sustainability, and competitiveness of the economy for the long run -- that is, for the time when this particular crisis would have passed and the economy would be back to its normal course. A good example of this kind, for instance, is the announcement in the US that it will be deploying a good bit of its stimulus plan towards creating a green infrastructure. Outlays to create alternate energy which liberate economies like those of South Asia from their current dependence on imported oil supplies; expenditures to multiply and enlarge manifold the current facilities available for higher and technical education, facilities which would overcome the extreme shortage of technical personnel in these countries would be examples of the same kind. An excellent initiative, one that we should emulate, is available from Singapore. The Government has launched a plan under which a person losing his job can enroll in an institution for acquiring higher skills than the ones that are required for his existing job. He is paid a stipend for every day that he attends a class for five hours of class. When the current downturn is behind us, the person will be able to seek a job which is better paying and which demands more of him than the job that he has just lost.

The crucial variable here is the ability of the country to execute these projects expeditiously. This is why China is way ahead of, say, the typical South Asian country. To begin with, it has $ 2 trillion of reserves. With these it can finance massive infrastructure projects – an option that is not available to a country like India which, through the Government’s profligacy of the past three years, has robbed itself of fiscal headroom. Equally important, China has large supplies of engineers and skilled personnel – because of the extensive programmes which it had implemented earlier for both, training engineers as well as for upgrading vocational skills. With those two trillion dollars it can also, as it is doing, acquire mineral and other resources in other parts of the world, the resources that it will need for its long-term growth. Most important, China has a shelf of projects which it can start implementing forthwith: many of these projects had been prepared to the last detail as long ago as 2005. Several of them were kept in abeyance, in a sense, as it was felt that the economy was overheating. Now they can be implemented without any delay. And that is possible because China has overcome the customary obstacles which hold up the execution of projects in countries such as ours. It has acquired an unmatched capacity to implement projects expeditiously. In our case, apart from implementing such projects as can be implemented now, the current crisis is yet another occasion to make every effort to acquire the ability and resources to improve the capacity to implement projects more expeditiously in the future.

Why not start straightaway? Institute massive rewards for firms and local and provincial governments that expedite the implementation of projects? Institute tax rebates for companies which, instead of laying off workers, retain them and have them acquire better skills?

A role for the ADB

And this points to a vital role which an institution like the Asian Development Bank can discharge at this moment. Andrew Sheng and others justifiably remind us of the curious charge that has been put out – namely, that countries of Asia have exacerbated the current crisis by their excessive savings, that the current crisis has been made possible, indeed that it has been intensified by what have been called “global imbalances”. This is one of those predictable surprises. Our countries were being hectored incessantly that we should increase our savings rate. And now we are being told that, because we have done so, we have contributed to intensifying the existing crisis! But, for a moment, take this charge at face value. The cure is obvious. The cure to “global imbalances,” it has been rightly said, is to develop the capacity within Asia to use our savings here.

In addition to improving our capacity to implement projects within our countries, we should enhance our capacity to implement cross-country, regional projects. There are a large number of such projects which can be implemented, but which have been languishing for reasons that are as remediable as they are well-known. Setting up power projects in Nepal from which power is sold mostly to India; setting up projects to exploit the natural gas resources of Bangladesh from which a large proportion of gas would be sold to India – these projects have not got off the ground for decades because undertaking them has become a political issue within Nepal and Bangladesh. This is where the Asian Development Bank, with the trust which countries in the region repose in its fairness, and in its objectivity and expertise, can play a vital role. It should, for instance, draw up the terms and conditions which would be best for Nepal and would be fair to India for implementing power projects in that country.

This is the role which would be more appropriate than to expend time and effort in setting up yet another institution. As is customary in the wake of every crisis, today also proposals are being advanced for setting up new institutions. Shouldn’t we set up an institution for regional monitoring? Shouldn’t we set up an arrangement, a regional fund for helping our countries tide over such crises? Our experience with new institutions in response to crises has been, that, ten years after they have been set up to deal with the problem, the problem remains as it was, and the institution has become a new problem. Therefore, instead of going in for more institutions, an organisation like the ADB should use its influence and expertise and acceptability to persuade governments to at last start implementing cross-country projects.

Reforms

The current crisis has triggered a sort of triumphalism among those who have traditionally opposed reforms in our countries. “See,” they say, “capitalism has failed; liberalization and opening up of the economy, integration with the world has brought all these problems upon us.” Therefore, they are pressing, not just a halt to further reforms, but for a reversal of many of them. With this logic in hand, we should just have remained at the hunting and gathering stage. Had we only done so, none of the crises that afflict countries periodically would have touched us at all! The lesson is the opposite one. Every circumstance, every arrangement, every new setup opens up new opportunities just as it also occasions new problems. We should not, for that reason, shy away from reforms and progress. The lesson is to institute such correctives and reforms as the new circumstances demand. One of President Obama’s advisers has a good maxim: “No crisis should be allowed to go waste”. In the current circumstances also, the people, as well as governments will be prepared to take measures today which they would not have taken in normal times. The new circumstance should, therefore, be used to affect improvements that are necessary in the light of the crisis as it has unfolded, and at the same time to institute those reforms which will enable our countries to adopt policies and implement projects more expeditiously – policies and projects which, as we noted above, will strengthen the viability, competitiveness and sustainability of our societies for the future.

But all this is contingent on our having clear-headed, competent, purposeful, strong governments. This is the real deficit, the real crisis in our societies – apart from the advance that has been registered in Sri Lanka of overcoming the terrorist threat, and apart from the steady hands that guide Bhutan, governments in South Asia are losing grip as well as legitimacy. No stimulus package, no slew of economic reforms can survive the wreckage of governance.

Considerations that go beyond countries

One of the important features about the current crisis is that the breakdown has not come about because of one rogue, not even because of a handful of rogues. This is not the work of a Harshad Mehta or a Madoff. Entire industries have been involved in bringing about this collapse. Mortgage salesmen, banks, financial analysts, chartered accountants, auditors, rating agencies, regulators, central bankers and the governments – what has happened is the joint product of one and all of them. I’m reminded of a phrase which Joseph Berliner had used to describe the inability over decades of Soviet planners to get at the facts about individual enterprises. The reason, he said, was that from the bottom – the shop-floor of the factory – to the top – the provincial and central planning bodies – everyone had a vested interest in exaggerating the production figures and minimizing the quantities of raw material that had been used to produce the particular item. The reason, he wrote, was that functionaries all along the line were knit in “interlocking webs of mutual complicity.” These “interlocking webs” of the complicit are precisely what account for the current breakdown. For that reason, merely adding one more twist to a regulation or even to the law; merely setting up another institution which in the end comes to work in the same way as the existing institutions – such steps will not do.

For we must examine how this mountain of sand swelled to such proportions and “no one noticed.” We must reflect on the ease with which what was good for a few got dressed up as being good for all. We must reflect how warnings, even protests, some of them from leading statesmen of Asia itself, were disregarded. In fact, they were drowned in the general applause and acclamation of “financial innovation” which was said to be taking place. We must reflect how, in fact, regulations were enacted in countries like the U.S. but were not enforced. We must recall how, at crucial turns, regulations were, in fact, relaxed.

There were several reasons why all this happened. For the present purpose recalling just two of them will suffice. First, the beneficiaries, for instance the investment bankers, had acquired the position and “the intellectual stature” of referees. They were interlinked with advisers, analysts, rating agencies, and ultimately with the regulators. That is how what was good for them came to be dressed up as being good for all. Similarly, several governments and central bankers, as is now acknowledged even by some of the prime actors themselves, blew into the bubble and made it swell even more. The reason was that they took the resulting rise in asset values as certificates for their performance, they took them to be evidence of the correctness of their policies and as proof of the confidence which markets all over the world reposed in them personally.

After all, it is not that warnings were lacking. It is not the case that everyone was convinced that the innovations were all for the good. All of us today recall the statement of Warren Buffet – about an entire category of these innovative instruments being “Weapons of Mass Destruction”. We recall the warnings of Naseem Talib, of Roubini, of Jeremy Grantham. The point to reflect is, “How is it that these warnings went unheeded? How did they get drowned?”

The second point to reflect upon is more fundamental: are there features that are inherent in this kind of a financial universe and which make such breakdowns inevitable? Take, for instance, the simple matter of Asset-based Lending. Marry it to the perverse incentive system which became the characteristic of the financial world in the West. Loans would be given on the basis of the value of a category of assets, say houses. As the volume of loans against that category of assets for further investment in that category of assets increased, the value of those assets went up. Accordingly, in the second round, those who could offer those assets as collateral were able to borrow even more against those assets. That in turn raised the value of those assets even higher… And the larger the volume of loans that got made against those assets, the higher the rewards that accrued to those stoking the fire. And notice, the extent to which “innovation” was taken to further this fire: so much so that today the banks themselves, and the companies that ostensibly insured the transactions of those banks do not know the extent, even by a broad order of magnitude, to which they have become exposed to those toxic instruments.

To continue with the current example, so as to safeguard ourselves against future collapses of this kind, we must devise and hone gauges of our own to identify bubbles. And it should be the duty of our governments and central banks to alert our citizens, in particular small, uninformed, retail investors about bubbles that are emerging. Even this recent episode shows that when asset prices rise at the astronomical rate at which they did in the last five years, a bubble is getting formed. Similarly, when transactions come to have little to do with reality, that too is an indication that we should heed. In this last round, for instance, far-fetched and unimaginably esoteric formulae became the basis for millions of dollars to move into and out of “packages”, and countries. The ratio of one currency to another; the ratio of those two currencies to that of another pair of currencies; correlations of absolutely distant variables over whatever stretch of time fit that string of observations… Such determinants became the automatic triggers for transactions. They had nothing to do with what was happening in the underlying sectors, in the firms. When things are reach such a pass, we should know that transactions and instruments have departed so far from reality that they are bound to come down in a crash.

Thus, the spiral and the eventual collapse were inherent in the design itself. But there is an even more basic question that we must ponder. Are the spiral and the subsequent collapse inherent only in a particular sector? Or is it that the economies themselves have got addicted to bubbles? The real estate bubble in one round. The dotcom bubble in the next. The sub-prime and yen-trade bubble in the third…

Therefore, while much has been made of the fact that this breakdown was triggered by a policy failure, the failure to save Lehman Brothers, the fact is that the failure to save Lehman Brothers was just the occasion for what happened subsequently. That failure, to recall an expression used in a very different context, was just “the spark that lit the prairie fire.” The fact that entire sectors collapsed, that entire economies went into a tailspin so swiftly upon the decision not to save a single institution shows that the whole structure had become just a wall of sand. That is what we should reflect on for our future.

Several operational conclusions follow.

A few things to do

First, there is much talk of a new international economic architecture. Unfortunately, once again almost all work on what shape that architecture should take is being done in the very countries, sometimes by the very institutions and personnel whose excesses and misjudgments, to put it no higher, have led to the present pass. But they are, and quite naturally, loath to part with power. They may well let time pass. They may once again busy us in futile debates. And ensure that processes and institutions remain in their control. That would only ensure that the next bubble, and with it the next jolt will not be long in coming. That is all the more likely because, in those societies, the ones whose excesses and greed have led the world into this pit have got away scot-free. Others – tax payers who must pick up the bill for the bailouts, workers who must suffer joblessness – are the ones who are defraying the cost.

Second, we must keep our ears open to the Cassandras. We must not get swept away by intellectual fashions. Certainly, we should not succumb to the urgings of financial wizards and advisers who chastise our countries and governments for not keeping up with innovations that have been adopted “all over the world.”

Third, these events remind us once again that we must think for ourselves. We must be centres of countervailing intellectual, institutional and real economic power. Unless we build up these capacities, we will remain vulnerable to being misled by persons and institutions that have ideas that suit them rather than us, to say nothing of agendas they might have.

It is equally important to nail the culpable. First, we must document and nail the double standards of the West and of international institutions and international advisers. Policymakers in Southeast Asia recall vividly the advice which was thrust down their throats in the late 1990s. “No, no,” they were told, “you must let those who had made mistakes collapse. That is the way the market ensures that the mistakes will not be repeated in the future.” Governments in Southeast Asia, the government even of Japan, the country with the second largest economy of the world, let banks and other firms fail. These were then bought up at throw-away prices by western companies and consortia. And what is the position today? We are told that all rulebooks have to be thrown overboard. We are told that governments must intervene to save the companies and institutions which have done such gross wrongs, which have made such enormous mistakes, which have been propelled by little else than personal greed – we are told that governments just have to intervene and save these institutions at the cost of the taxpayer because, otherwise, the system as a whole will come down. When that was to be the consequence for our countries, no one was prepared to listen. Not just advisers, but institutions on which countries across the world, including our countries are represented insisted that failure was the only instrument for improvement. These double standards continue to this day. How many have spoken out against the protectionist measures which have already been announced by President Obama? Has he not announced that tax reliefs will not be available to firms that outsource their work? Has he not announced that foreign nurses will not be an employed or welcomed? What if the leaders of one of our countries had announced such measures?

For the same reason it is very necessary to document and nail the red-cards and yellow-cards which rating agencies and other monitors keep handing out. How come they were giving triple ‘A’ ratings to institutions and to instruments and to packages which we now see were entirely hollow? Are these not the very rating agencies and monitors that hand out ratings of one kind or another to our firms, indeed even to our countries, ratings that then influence the decisions of investors and thereby move billions of dollars into or out of our countries? We must document their record so that, in future, they command only as much authority as the intrinsic worth of their work deserves.

Conclusions

In a word,

We must grab the crisis by the forelocks, as we would grab time.

Second, by now the remedies have to be sector-specific, location-specific, firm-specific. General-purpose deficits are no answer to the downturn into which we have been pushed.

Third, we must think for ourselves. In particular, we must document the advice that was thrust down our throats over the years.

Fourth, we must focus on working and reforming existing institutions and processes rather than on setting up yet another slew of institutions. For this purpose institutions like the Asian Development Bank, countries like India and others in South Asia should coordinate and sustain intellectual effort.

[1] Andrew Sheng, “From Asian to global financial crisis,” Third K.B. Lall Memorial Lecture, Indian Council for Research on International Economic Relations, New Delhi, 7 February 2009.

Listen to the new India, hear success ring in your ears

Listen to the new India, hear success ring in your ears
Dated August 15, 2003
The Indian Express

Twenty to twenty-five years ago, even 10 years ago, few of us had heard of Information Technology. Today, exports from this industry are worth $10 billion - that is, over Rs. 45,000 crore a year. That figure is 20 per cent of our total exports.

In spite of the fact that each of the markets to which we supply IT software and solutions has been in the trough of recession for years, IT exports have grown by 26 per cent this year.

Infosys had not even been born 25 years ago. Wipro was a company selling vegetable oil. Indeed, other than the ''Tata'' in Tata Consultancy Services, there is scarcely a name in the IT industry that was known then.

And guess what the average age is in the industry? Just 26 and a half! These 26/27-year-olds have changed the world's perception of India. It's not just a country of snake-charmers; it's a country against which protectionist walls have to be erected. Of course, we can also charm snakes.

And not just, to pluck a phrase of Malcolm Muggeridge, snakes in snakes' clothing!

And these 26-year-olds are changing India's perception also of itself: that India can; that, therefore, we should face the world with confidence.

That is the situation in activity after activity. We lament the fact that, while we are ahead in software, we have lost out to China in IT hardware. That is true - as of the moment. We shooed away firms like Motorola when they approached us in the early 1990s for facilities to set up manufacturing operations in India. China welcomed them, it wooed them, it created every conceivable facility for hardware firms from Japan, of course, but also from Taiwan, a country at which 400 of its missiles are aimed. It has thereby leapt ahead.

But the game is hardly over. That world-class hardware can be produced in India is evident. How many of us would have heard of Moser-Baer? Located in unprepossessing Noida, it is the world's third largest optical media manufacturer, and the lowest-cost producer of CD-Recorders. Its exports are close to Rs. 1,000 crore.

The firm sells data-storage products to seven of the world's top 10 CD-R producers. And it produces them so efficiently that, to shield themselves, European competitors had to file an anti-dumping case to stop and penalize its exports to Europe. Moser-Baer fought on its own. And won.

A firm most of us have not heard of. A firm that is manufacturing products at the cutting edge of technology. A firm exporting Rs. 1,000 crore of products that require the utmost precision and technological sophistication. A firm that European firms fear.

And equally important - the very international fora that our ideologues shout are instruments of exploitation hold against European firms, and in favour of this Indian firm.

There is more. Moser-Baer has acquired Capco Luxembourg, a firm that owns 49 per cent of a Netherlands-based CD-R distributor. And it has set up Glyphics Media Inc. in the United States-for markets in North and South America. And here we are being made to shiver at the thought that foreign firms are about to swallow us!

Heard of Tandon Electronics? Its exports of electronic hardware are close to Rs. 4,000 crore!

At a moment's notice, my friends Amit Mitra of FICCI and Tarun Das of CII send me particulars of firm after firm, in sector after sector, that has broken new ground. A sample:

• Fifteen of the world's major automobile manufacturers are now obtaining components from Indian firms.
• Just last year, exports of auto-components were $375 million. This year they are close to $1.5 billion. Estimates indicate they will reach $15 billion within six to seven years.
• Hero Honda is now the largest manufacturer of motorcycles in the world-with an output of 17 lakh motorcycles a year.
• One lakh Indica cars of the Tatas are to be marketed in Europe by Rover, one of the United Kingdom's most prestigious auto-manufacturers under its - that is, Rover's - brand name.
• Bharat Forge has the world's largest single-location forging facility - of 1.2 lakh tonnes per annum. Its client list includes Toyota, Honda, Volvo, Cummins, Daimler Chrysler. It has been chosen as a supplier of small forging parts for Toyota's global transmission parts' sourcing hub in Bangalore.
• Asian Paints has production facilities in 22 countries spread across five continents. It has recently acquired Berger International, which gives it access to 11 countries, and SCIB Chemical SAE in Egypt. Asian Paints is the market leader in 11 of the 22 countries in which it is present, including India.
• Hindustan Inks has the world's largest single stream, fully integrated ink plant, of 1 lakh tonnes per annum capacity, at Vapi, Gujarat. It has a manufacturing plant and a 100 per cent subsidiary in the US. It has another 100 per cent subsidiary in Austria.
• For two years running, General Motors has awarded Sundaram Clayton its 'Best Supplier Award'; the volumes it sources out of India are growing every year.
  
• Ford has presented the 'Gold World Excellence Award' to Cooper Tyres.
• Essel Propack is the world's largest laminated tube manufacturer. It has a manufacturing presence in 11 countries including China, a global manufacturing share of 25 per cent, and caters to all of P&G's laminated tube requirements in the US, and 40 per cent of Unilever's.
  
• Aston Martin, one of the world's most expensive car brands, has contracted prototyping its latest luxury sports car to an India-based designer. This would be the cheapest car to roll out of Aston Martin's stable.
• Maruti has been the preferred supplier of small cars under the Suzuki brand for Europe. Suzuki has now decided to make India its manufacturing, export and research hub outside Japan.
• Hyundai Motors India is about to become the parent Hyundai Motors Corporation's global small car hub. In 2003, HMC will source 25,000 Santros from HMI's plant in India. By 2010 HMI is targeted to supply half a million cars to HMC.

It was only in 1999 that HMI got its first outsourcing contract and already, in 2003, 20 per cent of its sales will be what it supplies as an outsourcing hub. It is exporting cars to Indonesia, Algeria, Morocco, Columbia, Nepal, Sri Lanka and Bangladesh.

• Ford India got its first outsourcing contract in 2000. Within 3 years outsourcing accounts for 35 per cent of its sales. Ford India supplies to Mexico, Brazil and China. The parent Ford is sourcing close to $40 million worth of components from India, and plans to increase these in the coming years.

Ford India is already the sole manufacturing and supply base for Ikon cars and components. These are being exported to Mexico, China and Africa.

• Toyota Kirloskar Motors chose India over competitive destinations like Philippines and China for setting up a new project to source transmissions as this option proved more economical.
  
• Europe's leading tractor maker, Renault, has chosen International Tractors (ITL) as its sole global sourcing hub for 40 to 85 horsepower tractors.
• Tyco Electronics India bagged its first outsourcing contract in 1998-99. So successful has it been that components and products others have contracted from it already account for 50 per cent of its total sales. It supplies to the parent, Tyco Europe.
• TISCO is today the lowest cost producer of hot-rolled steel in the world.
• TVS Motor Company has been awarded the coveted Deming Prize for Total Quality Management. Many of the largest of organizations, even American ones-like GE-have not managed that recognition yet!
  

India's pharmaceutical industry has come to be feared as much as its infotech industry. It is already worth $ 6.5 billion and it has been growing at 8-10 per cent a year. It's the fourth largest pharmaceutical industry in terms of volumes and 13th in value. Its exports have crossed $2 billion, and have increased by 30 per cent in the past five years. India is among the top five manufacturers of bulk drugs.

Even more telling is another figure. We are always being frightened, ''Multinational drug companies are about to takeover.'' In 1971 the share of these MNCs in the Indian market was 75 per cent. Today it's 35 per cent!

There's another feature we should bear in mind: India's strengths are becoming evident across the technology spectrum:

• We are among the three countries in the world that have built supercomputers on their own, the US and Japan being the other two: two months ago, the fourth generation PARAM supercomputer was inaugurated in Bangalore.
• We are among six countries in the world that launch satellites. We launch some of our own satellites of course; we have launched satellites for others too, among them such countries as Germany and Belgium. We have the largest set of remote sensing satellites. Our INSAT system is also among the world's largest domestic satellite communication systems.

At the other end:

• India is one of the world's largest diamond cutting and polishing centres. CLSA estimates nine of every 10 stones sold in the world pass through India.
• Trade of Indian medicinal plants has crossed Rs. 4,000 crore.
  

Here is proof positive that liberalization has indeed worked. ''By opening the economy before giving it a chance to become competitive, we have thrown our industry to the wolves,'' it used to be said. Quite the contrary. The success in exports, in fields such as IT in which competition is fierce, in which technological change is fast as lightning, success in auto-components, in pharmaceuticals shows that our industry has fought back, it has become competitive.

Remember all that shouting about Chinese batteries a year ago? ''Markets are closing down, thousands are being thrown out of their meagre businesses, and factory after factory has shut down.'' That was the shouting just a few months ago.

Where are those batteries from China? Yes, trade with China has grown-by 104% in the past year. But according to figures of the Chinese Government, in the first five months of 2003, India has amassed a surplus in its trade with China, a surplus of close to half a billion dollars.

And China is just an instance. Exports as a whole, and in the face of an unrelenting recession in the West, have grown by 19 per cent in the year. In a word, what committees upon committees with their piles of recommendations would not have achieved, being actually exposed to actual competition has.

Our foreign exchange reserves are at an all-time high-$82 billion. We have announced that we will not be taking aid from a string of countries.

• We are giving aid to 10 or 11 countries
• We are pre-paying our debt.
• We have just ''loaned'' $300 million to the IMF!
  

How distant the days when we used to wait anxiously for the announcement about what the Aid India Club meeting in Paris had decided to give us.

But there is the other side-equally telling. Why is it that so few among us know even the elementary facts about these successes? Why is it that so much of public, specifically political, discourse, when it is not whining is just wailing?

PART II

India's new world, of unlimited opportunities
Dated August 19, 2003

The problems that have bedeviled Japanese banks are well known - the quicksand of ''directed lending'', NPAs, and the rest - as is the way these problems have been at the heart of Japan's inability to pull itself out of the trough for over a decade. The Long Term Credit Bank of Japan, the giant LTCB, followed the same trajectory as other banks, except that it has suddenly, in just two years, shot out of the pack.

LTCB was established in 1952. It was one of the principal financiers of Japan's phenomenal industrialization after World War II. As the 1990s rolled on, its troubles became deeper and deeper. It went bankrupt. To prevent the collapse from bringing down other parts of the banking sector, the Government had no alternative but to nationalize the bank. That was in 1998.

The bank continued to hemorrhage. Soon, in June 2000, it had to be sold to a consortium of international investors. That was a thunderclap for Japan - this was the largest organization that had to be sold to foreigners. The bank was renamed the Shinsei Bank.

In just two years, it has turned around, even as others are still in the morass of old problems. It turns out that Indian professionals - a thousand of them from Nucleus Software Exports, Mphasis, Polaris, i-Flex Solutions and Wipro - have played a crucial role in transforming the bank: they are the ones who have completely re-engineered the bank's processes, they are the ones who have reorganized the bank's operations around a completely new, modern business model.

And they have done it all in record time, and with record economy: the new, transformed retail bank has been launched within one year instead of the anticipated three; implementation costs have been 90 per cent less than estimated; a range of new financial products has been launched that are better than what competitors are giving; hardware too has been drastically downsized. When I was in Tokyo a few weeks ago to open Indian IT fair, the success of these professionals in rehabilitating the Shinsei Bank was the talk of the banking and IT community in Japan.

What is it that Indians could bring to this task that, say, Chinese software firms could not? The Indians could not just write software for different functions and transactions that the staff of the bank had to perform - the Chinese too could have done this: China also has a very large software industry that today caters to its domestic IT market, a market which is many times that in India.

The Indians could bring to bear on the task expertise in a host of other domains - for instance, knowledge of financial markets, of modern commercial banking, of accountancy - and thereby provide not just software but complete solutions, from software to hardware to completely new business models.

Similarly, high-end Indian garment industry can avail of not just cheaper labour. In addition it can tap into our fashion designers. Is it any surprise then that Wal-Mart sources $1 billion worth of goods - that is, half of its apparel - from India? That GAP sources $500-600 million from India? That Hilfiger sources $100 million?

The point is the successes we have encountered above are not fortuitous. India has a score of strengths that others do not.

Cost is one of them. Nor is it a marginal advantage. Indeed, the difference between the cost at which we can provide services and many commodities of comparable quality and what those cost in the developed world is so vast that, should those firms and economies shut themselves out from our supplies, they are the ones who will be severely disadvantaged, they are the ones who will be making themselves un-competitive.

• Indian IT firms provide world-class services at one-tenth what the same services would cost in the United States.
• An MBA costs about $5,000 in India. In the US, an MBA costs around $120,000.
• Developing a new automobile model in the US costs about $1 billion. Indica and Scorpio have been designed, developed and produced totally in India. They have been acclaimed abroad, and found to be up to international standards. The cost of designing them? Less than half what the design would cost in the US.
• In an important address - you will find it in FICCI's publication, Unleashing India's True Potential: CEO's Vision of the Future - M.S. Banga, Chairman, Hindustan Lever, and reports results of inquiries that the company made. In spite of high power costs, high interest rates, it found that the capital costs of setting up plants in India to produce an item like toothpaste for Levers worldwide were just 35 per cent of what its sister companies in the US and Europe would have to spend. And the conversion costs were just 15 per cent. In tea bags they were just a quarter of what they would be in the US.

Sourcing already accounts for about half of Hindustan Lever's exports of Rs. 1,500 crore a year. But Banga surmised, by being just the hub from which Levers' units worldwide would source their requirements of such goods, Hindustan Lever could build up a business of $1 billion a year - that is Rs. 5,000 thousand crore a year. Moreover, as it would be marketing directly to these companies, it would save on the costs of reaching, winning, retaining the individual customer.

• Surgery: Arvind Netralaya performs a cataract operation, including the cost of the lens, for $12; that very operation costs about $1,500 in the US. A bypass surgery in India costs around Rs. 40,000; in the US it can cost anything upwards of Rs. 6 lakhs. The cost of open-heart surgery in the UK or the US can be anywhere between Rs. 15 lakhs and Rs. 35 lakhs as against Rs. 1.5 lakh to Rs.5 lakhs in the best of hospitals in India. The cost differentials in more complicated surgeries - liver and kidney transplants, etc - are even higher.
  

Brains are another strength - far, far more important than material resources in several sunrise activities. Most would have been surprised to read recent accounts in magazines such as Business World of India being looked upon as a research hub by company after choosy company. FICCI's list includes:

• Over 70 MNCs, including Delphi, Eli Lilly, General Electric, Hewlett Packard, Heinz and DaimlerChrysler, have set up R&D facilities in India in the past five years. Together with laboratories set up before 1997, 100 of the Fortune 500 have set up R&D facilities in India. By contrast, only 33 of the Business Week 1000 companies have R&D centres in China.
• The scale of these operations also tells the tale. Just four years ago, Intel had a mere 10 persons working in India; today it has over 1,000. GE's John F Welch Technology Center in Bangalore is the company's largest outside the US. With an investment of $60 million, it employs 1,600 researchers. GE's R&D centre in China by contrast employs only 100.

The Indian centre devotes 20 per cent of its resources to fundamental research having a five to 10 year horizon in areas like nanotechnology, hydrogen energy, photonics and advanced propulsion. With 17 clinical trials (10 of them global), the Eli Lilly research facility at Gurgaon is its largest in Asia and the third largest in the world.

• GE Medical in Bangalore has developed a high resolution-imaging machine for angiography to meet GE's entire global requirement. It has also developed a portable ultrasound scanner that is exported around the world from Bangalore.
• Two-thirds of GE Plastics' 300-member research team in India is doing fundamental research on molecules. GE Plastics has contributed to the development of a family of polycarbonates of engineering plastics that are being used in auto headlamps and CDs. It has also developed heat resistant monomers for applications in aircraft bodies and high-end medical equipment.
• GE Motors India has developed an almost noiseless motor for GE's most sophisticated washing machine lines in the US; it is the sole sourcing point for a million of these motors every year.
• Monsanto has been in India for over 50 years. After examining China and India, it set up its first non-US research facility in Bangalore in 1998. This facility is responsible for Monsanto's R&D for Asia. The company is researching ''promoters'' - accelerators that improve crop productivity.
• Whirlpool's Pune Research Lab develops refrigerators and air conditioners for Asia (including China) and Australia. Forty per cent of this facility's resources are devoted to its core research on global projects.
• The DaimlerChrysler Research Centre in Bangalore is engaged in fundamental and applied research in avionics, simulation and software development.
• HP Labs India has built a prototype that can scan handwritten mail through a small handheld device instead of a scanner. It has also built the prototype of a computer for unsophisticated users.

You can extend the list many times over by just following our business newspapers and magazines for a week. Moreover, while youthful professionals and entrepreneurs have been adding these sinews, the most far-reaching structural change has taken place:

• The proportion living below the poverty line has fallen from 36 per cent to 27 per cent.
• The balance of power between state and society in the economic sphere has been overturned: the dismantling of the license-quota raj, the transfer of power to regulators in one sector after another.
  

Indeed, not a week passes and there is yet another advance in economic management. One reason these changes do not get adequate notice is that, many of the structures having been set up, the improvements are now in the details. Those who are acquainted with economic policy and administration know that each of these improvements will have far-reaching consequences as the years go by. But as the improvements are in the details, most of us miss their significance.

As a result of such steps, many of the handicaps that hobbled our entrepreneurs have been eased in the past few years. Initiatives in different, seemingly distant fields have reached fruition. And the effect is not additive, it is multiplicative:

• The turnaround time in our ports used to be eight to 10 days; it is now four-and-a-half days.
• As recently as 1999, our telecom infrastructure could provide a bandwidth of only 155 Mbps; today it is able to provide terabit capacity, that is, 75,000 times what could be provided just four years ago. Within a year or so, as the fibre optic network being laid by various enterprises gets in place, it will not matter whether your office is in San Jose, California or in any of 300 cities in India.
• Till the other day we used to be in awe of the rate of expansion of mobile phones in China - a million a month. In the past two months these have increased in India by almost 1.5 million a month.
• Long distance telephone tariffs have fallen by two-thirds in five years.
• Tariffs for data transmission have fallen by 80 per cent in three years.
• The work done by the far-sighted people who set up what seemed at that time such an esoteric institution, one oriented to the rich elite, the National Institute of Design has borne fruit. Today graduates of that fine institution help design cell phones, CAT-scan and MRI machines ...

Other handicaps too have been eased. Interest rates have come down drastically, foreign exchange restrictions for business purposes are as good as non-existent...

On the other side is the fact that the developed world will increasingly require services and personnel from a country such as India. We are the ones who have to be swift enough to prepare for and grab the opportunities:

• Various studies conclude (you will find them summarized in the All India Management Association's India's New Opportunity - 2020) that the workforce of developed countries will fall short by 32 to 39 million by 2020. In the US alone the shortfall is expected to be between 8.2 and 14.3 million.
• The proportion of the aged to persons in working age is shooting up precipitously in developed countries from Germany to Japan.

Such developments provide excellent opportunities for India - for services that have to be provided in situ such as nursing and care for the elderly, for services such as surgery that can be provided to residents of those countries upon their coming here. In fact, there are opportunities in a host of new services of an even higher order, and ones that exist not in the future but right now:

• Higher, specially medical and engineering education: educating an MBA to world standards costs $9000 in India; in the US that degree of education costs $30,000.
• Editing, composing, formatting text, from books to newspapers: a sub-editor costs an American paper $25,000; in India an excellent substitute can be employed for $5,200. The editor of an Indian paper told the proprietor of a leading British paper the other day he could edit the latter's paper for merely the amount that the latter's publication spent on renting the space occupied by sub-editors in the publication.
• Printing and binding books: Hong Kong and Singapore, which had taken a leap in this regard, have become high-cost centres.
• India has exactly the same order of cost-cum-competence advantage in professions like law, accountancy, design, engineering, tax consultancy, financial services of all kinds.
• In software itself, though there have been the most conspicuous successes, the field is limited only by our imagination - in that IT fair in Tokyo that I mentioned, I saw fine text-to-voice software that has been developed by a small software unit in Lucknow. It was receiving excellent reception in Japan. It can be used to quickly produce audio versions of books upon books for the visually impaired.
  

Thus, on the one side the opportunities are unlimited; on the other we have incomparable advantages for grasping them. But as has been said, ''When opportunity knocks, some complain about the noise.''

Software engineers or cyber coolies? runs the headline of a newspaper feature. In the US a software engineer earns $21 an hour, in India even the leading companies pay him only $2, runs the text. Is this not exploitation? it asks.

Now a salary of Rs. 100 an hour is excellent for someone living and working in India. Why throw away the advantage? Look at it the other way. China has accumulated its huge pile of foreign exchange reserves - over $280 billion - not by high-technology exports. It has accumulated them by flooding the world with low-technology items - leather, leather products, garments, toys ... And it has used the advantage of lower cost - and perfectly disciplined labour - to the hilt.

China's achievement we gape at: ''How have they become the manufacturing hub of the world?'' we ask. But our advantage - in some senses the very same advantage China has put to such good use - we want to throw away.

Keep these foreign accounting firms out, proclaim our accountants at a high-profile function. They have been involved in frauds abroad. On that reasoning, shouldn't we bar our own accounting firms also? After all, frauds in our banks, in our stock markets, the way so many of our firms that have run up NPAs are then able to extract bail-out packages from financial institutions, could such things have happened if our accounting firms had been doing their job?

And there is the other point: we want their accountants and lawyers to be kept out, but they must open their doors to our IT professionals! As the title of one of Jairam Ramesh's monographs ran, Yankee Go Home - But Take Me with You!

Why not look upon the opportunities positively? Why not institute courses in our law colleges on Germany's legal system, in the accounting systems of the US and thereby capture the markets there? Why not multiply the number of nurses we train, and have them learn Japanese? Why not enable private firms to open world-class universities in India, and thereby become educators to the world?

Part III

This is India's moment, can we grasp it?
Dated August 17, 2003

On the one hand, we have unbounded opportunities and incomparable advantages to seize them. On the other, there is the fate that will surely befall us if we falter. Unemployment will reach such proportions that social unrest will become unmanageable. Similarly, if the rates of growth of India and China continue to differ by the margins of the past 15 years, within the next 15 years the Chinese economy will be six times that of India. And the consequences will be worse than we can imagine.

Economic strength is itself power. To take one instance, because China has been able to attract so many more to invest than we have, China today is able to mobilize so many more-American firms, for instance-as lobbyists to advance its interests.

Moreover, economic strength gives China the wherewithal to go in for comprehensive modernization of its armed forces. Indeed, that there is so much talk of China's economic transformation obscures what China is already doing, what its economic modernization already enables it to do in the military sphere.

Will a China six times stronger than India not administer another slap at us? Indeed, will it have to administer a slap? Will an India dwarfed to that extent not learn to pay heed to China's interests subliminally?

Now it is nobody's case that China is free of problems. Quite the contrary. The achievements-the incredible infrastructure built in Shanghai, for instance-themselves remind us of problems it may be storing up: this infrastructure has been built by getting the country's banks to lend money to the special purpose vehicles that were created for building the projects. But everything has to be paid for in economics: what is the rate of return of these projects today, and how does it compare with what is needed to repay the investments?

There is moreover a fundamental issue. The 21st century is going to be the century of knowledge-of its continuous unraveling and of its continuous application. One of the central lessons of the 20th century is that where the state is pervasive, creativity does not flourish. The Chinese have indeed transformed their state. But it remains pervasive. How will they ensure creativity-of the kind, say, youngsters in our IT firms have displayed?

So we have many things working for us. In many ways, this is India's moment, even vis a vis China. For the first time, observers have begun to voice questions in public about China-its statistics; the fact, for instance, as a German investor said recently at a conference I was deputed to attend, that, ''If you want your factory to come up quickly, go to China; if you want to make money, go to India.'' On the other side, everyone's noticing Indians make a mark in every sphere: writers, scientists, doctors, IT, cricket, beauty pageants, chess...

So it is the moment for India. It is a moment. But, it is only a moment. What should we do to ensure we grasp it?

First, we should begin to notice what is happening around us. We have become what an American author calls ''Negaholics''-addicted to the negative, as an alcoholic is to drink. Ever so many of us are unaware of even the elementary examples that have been listed above.

Nor is that the result merely of inattention. We look for, we latch on to the negative; even if some achievement breaks on to our mental screen it does not percolate into our awareness, we do not see that it is part of a pattern, that it is not an isolated fluke. Indeed, our instinct is not to believe evidence of that accomplishment.

Remember how eager many commentators were to find fault with NSS data that established a steep decline in proportions living below the poverty line? These are symptoms of a habit. Remember the exercise that books on creative thinking recommend? Is there much blue around you? You would not have noticed much. Now make an effort to look only for blue things around you. You will notice so many that, though they were lying around, had not registered.

It is especially important that those who are in public life-who hold public office, who participate in public discourse-break out of this addiction to the negative. Because of my work, I have had occasion to travel abroad several times in the past two-three years. Each time I have been struck by the contrast between the way India is looked upon abroad, and the way we look upon it here. There is an equally telling symptom here at home-there is much greater confidence in the Indian industrial class than there is in the rhetoric of politicians who ostensibly are shouting on behalf of and to save that industry!

The result is our discourse continues to be mired in fear, so many of us just keep repeating slogans of 30 years ago. We should listen to the new India.

Next we should be alert to what the critics of reform are doing where they are in power. In New Delhi, the CPI(M) shouts against even the slightest attempt to reform-for instance, privatize - a public sector unit, they bring woe upon anyone who may say that repeated revival attempts having failed, such and such firm has to be shut down.

But in West Bengal the state government has already shut down two state-owned units, it is disinvesting 10 more. It's just that the state government does not talk of ''disinvestment''; it says it is just turning the firm over to a joint venture partner!

Remember Ajit Jogi's hysterics over Balco? Remember his threat ''Should anyone from Sterlite enter Chattisgarh, we will break his legs''? Since then his refrain is ''Sterlite is scripting the success-story of Chattisgarh''! More important, he is today the leader in public sector reform! Including privatization! The Indian Express reports he has already closed thirty-seven public sector units.

Remember all that shouting, ''Why are you selling profit-making companies?'' The Housing Board-HUDAC-Jogi has just closed down has been a profitable concern, reports The Indian Express. Remember all that shouting ''But the land of Balco is itself worth Rs. 1,000 crores''? Reporting about that Housing Board, the Express correspondent writes from Raipur, ''The assets ... also include some prime properties and a land bank of approximately 600 acres of land. In Raipur itself, HUDAC owns 300 acres of prime land near Tatibandha-an upcoming commercial area. Bhilai and Durg towns are also key urban towns where HUDAC had purchased land ... Other assets, according to the HUDAC balance sheet, include hundreds of unsold HIG, MIG, LIG and EWS houses, shops in urban complexes and other properties...''

A simple rule of self-denial among political parties would help: ''Do not block another party from doing what your own party is doing where it is in power.'' As parties are unlikely to deny themselves even this much, journalists and others should bring the rule into being in effect: keep an eye on what the party is doing where it is in power, recall what it was doing when it was in power and, each time the party tries to stop a rival from prosecuting a reform, broadcast those facts, grill its leaders on them.

There is a more intractable problem-a central dissociation between democracy as we know it in India and what is needed for rapid growth.

All change involves dislocation. And this is where the strengths of yesterday become the handicaps of today. BSNL has one of the world's most extensive networks of copper-wire. But people are switching to wireless telephony. Every time there is a proposal for new technology, our first thought is, ''But what will happen to the thousands of crores that have been sunk into that network?''

Nor is the drag confined to governments. As BSNL has been purchasing copper wire worth Rs. 2,000 to 4,000 crore every year, 30 or more companies have come up that can survive only if BSNL continues to purchase copper wire! Their owners and the workers employed in them too would rather that the switchover to new technologies is slower.

That is how over the decades the Civil Aviation Policy becomes the policy for Air India rather than for India. That is how our finances get sucked into quicksand-that is how we continue to ''protect'' existing producers of wheat and rice with ever higher minimum support prices even as government godowns overflow with stocks, and even though we know that these support prices are in fact preventing the crop diversification that other programs of government are trying to promote; that is how a state like Maharashtra brings its finances to the brink by continuing subsidies to sugar growers; that is how over the years we squander Rs. 10,000 or 15,000 crores keeping obsolete mills of the National Textile Corporation (NTC) on artificial respirators rather than using the money to modernize the textile industry; that is how we continue to guarantee procurement of tobacco, of all things, even as we spend crores admonishing people to abjure it; that is how, ostensibly to protect existing tenants, we continue rent control laws, thereby discourage investment in housing and thus ensure both housing shortage and urban decay.

We block voice-over-internet for long, we set the police upon youngsters who have begun using the technology; for years we won't allow personnel of IT firms to avail of the Closed User Group facility-lest the revenues of BSNL get affected ... It is as if we were to block the introduction of the automobile to protect carpenters who are making tongas. Without doubt, one of the reasons West Germany and Japan forged ahead of the United Kingdom after World War II was that the entire industrial stock of those two countries had been bombed out of existence while that of the latter had survived.

In the end, all such efforts fail. One cannot block technology any more than one can block time: in the end Bangladesh has had to close down the largest jute mill in the world, in the end we are having to close down NTC mills ... But over the years we ensure our country's progress is slowed down, and our governmental finances are brought to the brink.

The problem becomes all the more acute in a democracy, all the more so in what we have made of democracy. The electorate has been so fractured by caste and the rest that it does not respond to national issues. To attain office and retain it, therefore, parties have to aggregate votes, section by section. Each section liable to be dislocated by change-the tobacco farmer no less than the textile mill owner and the powerloom operator-is able to suborn parties and politicians to block that change.

Of course, in due time a constituency will arise of those who have benefited from the change-the IT professionals, the ones who will prosper if only we were to allow our entrepreneurs to set up institutions of higher learning ... But they are in the womb of the future. And the ones who will be dislocated are ones who will defeat the party today. As the horizon of political parties seldom extends beyond the forthcoming election, even a bit of aggressive shouting can ensure that reform is deferred.

There is another factor that confounds everyone into submission. All politicians are nervous-witness our nerves before every reshuffle! Politicians faced with elections are more so. And no one quite knows what issues are on the people's mind. So the moment a step is mooted, everyone can, and does, proclaim, ''Not just now, elections are round the corner. People will turn against us.''

Was disinvestment an issue in any of the elections during the past five years? If free power could have won elections, how come the Akalis in Punjab, the DMK in Tamil Nadu were swept away? I well remember a meeting in a state on the eve of elections there, and what was being said ''on the sidelines', ''Please get (the chief minister) to abolish (a local tax) ... If only it is removed, we will sweep the urban areas.'' It was abolished. The urban areas swept away the alliance.

There isn't much that can be done about the politicians' nervousness, except to go on pointing out reforms are not the issue they are made out to be: internal bickering has brought defeat to parties not issues like disinvestment or tariffs.

But the problem-the dislocations that change will cause-is real and we have to attend to it. Four things can help.

We should multiply outlays on activities that will engage large numbers, and are things that we should be doing in any case. The Planning Commission has prepared three first-rate reports, for instance-on biofuels, on bamboo cultivation and products, and on medicinal plants. Each of these can engage millions. As can organic farming, diversification into vegetables and fruit and floriculture. As can water harvesting.

When activities like these flourish, incomes will multiply, nutrition will improve, fewer will flock to urban slums. Indeed, through them the country would register gains even in foreign exchange-outlays on biofuels would save on imported crude; organic farming, medicinal plants would bring foreign exchange.

Similarly, projects that entail huge earthworks-the Prime Minister's Quadrilateral and gram sadak projects, the linking of rivers-can absorb millions who may be dislocated and at the same time unleash the country's productive potential. They are the real social security that will cushion our people.

But the main solutions lie, as usual, not in the economic realm. They lie in political arrangements, in discourse. We must reduce the frequency of elections: schedule elections, as the vice-president and the deputy prime minister have proposed, to state assemblies and to the Lok Sabha simultaneously; fixed terms for legislatures even as individual ministers can be voted away for dereliction.

Even before such changes are put into effect, and even after they have been instituted, we have to make everyone see that change cannot be blocked. The more we succeed within India in delaying it, the greater the lead that others will get over us. Schemes to rehabilitate and reposition workers or farmers who may be dislocated must, of course, be devised and executed. But the project or technology must not be blocked.

Soon enough that project will have to be executed in any case; soon that technology will come to be adopted. Time will have been lost. Resources that could have been used for modernization of that enterprise, that industry, for the prosperity of that very region would have been wasted in keeping that obsolete technology or enterprise ''alive''.

And we must with evidence induce everyone to see that more often than not the resources needed to take care of and re-equip those who will be dislocated are embedded in the obsolete enterprises themselves. Look at the land NTC's mills have in Mumbai. If only the government would be allowed to sell it, more than enough would be available to retrain and re-equip every single worker in those mills, as well as to modernize the mills that are to survive.

Not the details of economic policy-that is not where the impediments lie. The way we look at things, our discourse, the drag of interests that are vested in the way things are-these are what we need to change.

By: Shri. Arun Shourie