Saturday, June 18, 2011

New India story is about flight of capital

By Swapan Dasgupta

Of late, the otherwise taciturn Ratan Tata has acquired a reputation for bluntness. His interview, published last month in The Times (London) was an example of needless candour. He lamented the lack of a "work ethic" in the UK and regretted that "nobody is willing to go the extra mile…"

The Tata Group Chairman wasn't saying anything awfully original. Indians of a particular class find the British obsession with weekends, holidays, privacy ('no work-related calls on the mobile, please') and health and safety standards quite exasperating. These make for amusing anecdotal asides during lazy afternoons of the obligatory summer holiday in London.

The curious thing is that this sharp indictment of the British work ethic by one of the largest investors in UK didn't elicit a hysterical reaction. There were no agitated MPs waving copies of The Times demanding the revocation of Tata's visa; the workers of Tata-owned JLR and Corus didn't come out on strike and Joe Bloggs didn't scream 'bloody foreigner'. In fact, there was dead silence.

Why? The answer lies in the old Clinton slogan: "It's the economy, stupid." At a time of grave economic difficulties, Tata companies employ as many as 42,000 people in the UK. Tata is also one of the rare creatures with faith in British manufacturing. This month some of that faith was rewarded when the ailing JLR made a dramatic turnaround, yielding a £1billion profit, courtesy better marketing and management.

During the War, American GIs were indulged by Brits despite gripes of being "overpaid, oversexed and over her." The alternative was an exhausted Britain left to fight alone. Today, the British attitude to capitalism is similarly pragmatic. If Tata has put his money into UK, buying up British brands with the enthusiasm of a Dubai socialite, he has earned the right to preach without fear of recriminations.

It is such a contrast from India. After a sustained spell of high GDP growth, a section of India has turned bloody-minded. Frustrated by the growing levels of corruption and the gleeful encouragement of self-serving venality by the political class, an important section of opinion makers have become viscerally anti-corporate. In the language of sloganeering that seems to dominate the discourse of civil society, the responsibility for the country's moral collapse has been laid at the door of the despicable capitalist. From sweetheart deals in telecom and offshore exploration to the ouster of reluctant farmers from their lands, Corporate India is being painted the root of all evil. It has become the new juju man—the puppeteer controlling a range of subordinate players ranging from bent bureaucrats to pliant politicians.

The result has been an attitudinal change towards business. Politicians, who are naturally inclined to control the "commanding heights" of the economy, have seized on this mood to put all further reforms on hold. Chief Economic Adviser Kaushik Basu has offered reasoned arguments to tackle the unacceptably high difference between the price received by the farmer for his produce and that paid by the consumer. Among other things he has suggested allowing foreign investment in retail trade as a pragmatic, anti-inflationary step. Yet, the Cabinet is afraid of doing its bit lest it is accused of "selling out" a few for the many. Nationalist inefficiency is clearly preferable to good economics.

A fear of decision-making has gripped the system. Since no one wants to be dubbed a corporate dalal, have charges pressed on him by ombudsmen who can't distinguish between plodding and innovation, and be jailed by a judge fearful of public opprobrium, non-decision has become a hallmark of wisdom. The Cairns sale of its equity to Vedanta is hanging fire for nearly a year because no one wants to risk admitting that the Government is being cussed and shifting goal post in mid-play. The POSCO project is being derailed by politics. And Lavasa is being harassed because no one wants to earn the ire of 'green' activists chasing abstract principles. Between a NAC that wants to outlaw land sales to corporates and a 'civil society' that wants business to be regulated by a kangaroo court, India is entering a phase of despondency and decline.

The India story is facing a guillotine. Foreign investment is down 25 per cent, interest rates have risen 10 times in 27 months, inflation is 9 per cent, consumer demand is falling, the capital markets are in panic and GDP estimates have been lowered.

Meanwhile, Indian business is doing the next best thing: investing overseas. Tata has shown the way: 65 per cent of his Group revenues now come from outside India. Some describe the geographical shift as chasing opportunities. The wise may see it as a flight of capital.

The 21st century could still be Asia's. But the resurgence could yet bypass India.

Sunday Times of India, June 19, 2011

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