The Telegraph
Since 1st March, 1999
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- The Indian myth of the superiority of foreign service providers has been exploded

Only a few years ago, Indians going abroad were armed with long shopping lists. Visitors from overseas were particularly welcome because of the things they could be asked to bring. These included liquor, chocolate, soft-drink concentrates, toys, fountain and ball-point pens, wristwatches, clothing (particularly women’s underwear and socks), and a variety of other consumer products. Even large soft-drink bottles of plastic to store water in refrigerators, school-bags, shirts, sweaters, suits, shoes were preferred from abroad. Foreigners leaving India after a posting in diplomatic missions and companies would auction everything that they had to eager Indian social climbers for hefty prices.

Some Indian women in Bombay and Delhi were not even averse to buying second-hand underwear in this way! Colleagues from overseas companies and Indian managers returning from trips would often carry in their suitcases essential spares and materials urgently required in the factories but that would have been greatly delayed if they had to wait for the necessary permissions and licenses. Every person who had ever travelled abroad kept safely and secretly (to avoid being caught and prosecuted as a criminal under the Foreign Exchange Regulation Act) a small nest-egg of dollar-notes to pay for his next overseas shopping.

Some multinational companies set up special divisions to smuggle in their products (like cigarettes) from Dubai. Some also spent on foreign advertising channels received in India like Radio Ceylon to promote demand in India. Distributors employed salesmen who would make sales calls on retailers to book orders for foreign consumer products that would be delivered within a definite period. Others took orders from well-heeled customers for expensive imported refrigerators, washing machines and so on that were also delivered within a given time. Organized selling of imported liquor, mostly whisky, was common in all major cities, and still continues.

Most such transactions were violating one or more of the many laws that our “socialism” and high taxes had imposed on us. The government wanted to use Indian resources for economic development. Consumption was ideologically incorrect since it took away resources from investment in development. Imports were banned or heavily taxed and local production was restricted so that those who got the licenses to import or produce could exploit the consumer with poor quality and high prices. Generations of Indians grew up to feel guilty about spending money on consumption.

These restrictions stimulated, in response, a labyrinth of entrepreneurs within and outside the government. They were the fixers, colluders, smugglers, arrangers, contact men, traders and many others from among politicians, customs officers and other government servants, unemployed youth, traders and others.

The ordinary citizen put multinational companies on pedestals. He regarded them as honest, producing the best quality products within the limitations of a closed economy, who tried to function without offering bribes and whose shares were better than gold because they offered good dividends and capital appreciation with safety. Given a choice, he would rather buy an imported branded product than a domestically produced one, and if made in India, by a foreign company than an Indian one.

To the large band of government created law-breakers were added a new set when Indira Gandhi nationalized banks and insurance companies, and set up the country’s only mutual fund under government guarantee, the Unit Trust of India. Vast financial resources now came under the control of politicians, bureaucrats and other fixers. These white-collar law-breakers could instruct banks and financial institutions to give large loans and even purchase equity in new and old companies. Finance ministers organized distribution of large sums that were not meant to be recovered through “loan melas” and instructed loans to be given for non-viable projects.

UTI and the FI’s were made to buy equity in such companies. The projects were many times unsound and with poor management. It was a happy time for fixers and arrangers. Top management in government-owned lending companies stopped exercising their judgment in sanctioning financing. FIs, many banks and UTI became almost “Ponzis” with book-profits not supported by inflows of interest, dividends and loan repayments. The laws protected these unreliable borrowers as against the lenders. In Rajiv Gandhi’s words, “companies became sick, but not their promoters”.

Many customers of nationalized banks continued with them only because the charges for services were low. The service was rude, the premises were dirty and badly lit, and the waiting time for most matters was inordinate. As with consumer products, the foreign banks were considered the acme of service quality. Customers would prefer to use them but the restrictions on minimum balances and the high charges kept customers with the state-owned banks.

In insurance also, the service quality was atrocious. The cost of life insurance was high. Settlement of any insurance claim was slow and often corrupt. But the customer had no choice except Life Insurance Corporation or General Insurance Corporation. UTI was, on the other hand, the most trusted of the financial companies owned by the government. It gave the government guaranteed returns.

Thus Indian consumers held in low respect Indian manufacturers, banks, insurance companies and financial institutions and other government-owned service companies like Air India, Indian Airlines and the India Tourism Development Corporation hotels. ITDC hotels lost custom rapidly. Air India lost more slowly because Indian “ethnic” traffic to the Gulf and elsewhere was more comfortable with an Indian ambience. With Indian Airlines, passengers could only curse its inefficiency, poor and rude service, terrible food and poor cleanliness, but had to keep using it.

Today the UTI has lost its glitter because of mismanagement, causing disquiet and loss to millions of savers, as have the financial institutions, the Industrial Development Bank of India and the Industrial Financial Corporation of India.

But with most of the others, the position is transformed. Products of even the most highly regarded multinational companies (like Lever, Procter & Gamble, General Foods, Colgate, Philips) are struggling to maintain market shares and profits. Nirma, Anchor, Rasna, Videocon and many other Indian names are now calling the shots in the markets. Foreign goods are legally available at competitive prices in shops, but customers no longer flock to them. There is little smuggling of consumer products unless highly taxed, like cigarettes and alcoholic beverages. No longer do Indians skimp and save on their foreign exchange allowances to hoard a few dollars to pay for something they might need from abroad. They can buy whatever they wish, made in India or abroad, of the best quality, in India. Indian Airlines is a much improved airline that is regaining share, albeit modestly. Air India is profitable at a time when most international airlines are losing money, despite competition from many foreign airlines.

The nationalized banks are now in the forefront of reform, reducing their overstaffing, improving customer service, making their offices more attractive, going in for computerization and installing ATMs galore. They have done this while keeping themselves cheaper than foreign and private banks and retaining low priced service to the smaller depositor. Customers are beginning to prefer them over foreign banks.

The myth of superiority of the foreigner — whether manufacturer, bank or other service provider — has been exploded. Even state-owned companies, given the right environment, are showing that they can be customer-oriented and profitable. When given freedom to procure materials, equipment and technology from wherever they want to, establish large and economic production capacities in locations of their business choice, Indian manufacturers have shown themselves to be nimbler than their elephantine foreign competitors. The Indian consumer no longer blindly prefers foreign to Indian. And he has begun to keep his money in rupees, not in dollars.

If only the Indian equity markets were cleaner, this would be a great time for Indian companies to raise equity. That also will happen, perhaps sooner than it has taken to demolish the myth of foreign superiority.

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