Indians are not prone to plain speaking. Many of them take refuge in the old Sanskrit injunction that unpleasant truths are best left unsaid. Ratan Tata, in the twilight of his working life, has decided to be the exception to this general tendency. In an outspoken interview, Mr Tata said that government inactivity is forcing capital to flee from India and to seek profits in overseas markets. Mr Tata, as the head of his company, took the decision to spend $20 billion to acquire Corus and Jaguar Land Rover. It is easy to see this decision as a sign of India’s globalizing economy. The flip side is the unpalatable truth that Mr Tata took the decision to escape from the stifling investment climate prevailing in India then and even more so, now. Those who glibly project an optimistic prospect for India’s economy should take cognizance of Mr Tata’s observations. It is clear that at both ends of the economic pyramid, the government is failing to meet expectations and promises.
According to Mr Tata, this failure is related to the bizarre phenomenon of the government’s right hand not knowing what the left hand was doing. He said that a nod from the prime minister or his office did not guarantee that other ministers or other government agencies had the same view of and enthusiasm for the matter or the project. These varying interpretations and perspectives were principle reasons for making investors shy of India. The government’s lack of focus leading to inactivity made it difficult for large businesses to grow. In spite of the disappearance of the licence raj, investors have to seek too many government permissions and sanctions to start or grow a business. These delay decisions and entail very high opportunity costs. Mr Tata was careful to point out that this prevailing situation was independent of the intentions of the prime minister. His observations would suggest that this is a systemic thing. It is impossible to find fault with Mr Tata’s observations. There is one implication of what he said that needs to be emphasized. The Indian economy was opened up two decades ago and a new climate favourable to investment and economic growth was inaugurated. But this climate did not quite capture the imagination of the people and their representatives (a handful of people excepted) and did not affect the workings of the government. Liberalization thus proceeds in India in fits and starts. An entrepreneur like Mr Tata cannot be expected to be patient with such an unpredictable process.