| Surprising revivals
A Kumbhakarna waking in India after sleeping since 1991, would have rubbed his eyes in disbelief. In the shops are apples from Fiji and China, Swiss chocolates, almost all the latest models of cars, cell phones, television, hi-fi equipment, and many consumer products including designer clothes, bags and other such luxuries. Most urban middle-class young men and women go to work, earning good salaries. So do the young from lower socio-economic strata with little education, in malls, multiplexes, fast food restaurants, supermarkets and hotels.
Housing loans at 10 per cent interest, the Sensex at 15,000 and rising, over $200 billion of foreign exchange reserves, the rupee rising every day in relation to the dollar and even other currencies, Indians welcomed as immigrants in most developed countries, India labelled as the new superpower of this century and sharply declining poverty levels make India a different country from what it was in 1991.
The rich and the middle classes are very much better off. But the over-fifty-fives of 1991 are now dependent on the generosity of their prosperous children because their savings are too small for the new higher prices of almost everything. The unorganized sector has more employment than before, but incomes remain low while agriculture has become an uncertain occupation for the many small land-owners.
Many industrialists in 1991 did not recognize that India had joined the world and would never again be an insular economy. Our opening the economy coincided with the revolution in telecommunications, information technology, travel and the growing shortage in the developed countries of people and of skills at affordable costs. Those Indian businesses that did not seize the new opportunities died or disappeared. There were many who did change and developed significant businesses. Some of them became the new barons of the Indian and the world economies.
Most knights of the ‘level playing field’ led by Rahul Bajaj later joined the race to take advantage of the new situation. Bajaj, for example, handed over to his sons, who spent some of the large cash reserves on brand building, research and development, new production facilities and new professional managers. Fortunate ones like the Parle soft-drink clan, Balsara, MTR and many others found buyers and sold out. The ‘swadeshi-ites’ led by the physicist-politician, Murli Manohar Joshi, had demanded preference to the indigenous over the foreign and coined the memorable phrase, “Yes to computer chips but no to potato chips”, shorthand for foreign investment only in high-technology areas. He and his supporters were silenced by India’s leadership in the IT revolution, the businesses it spawned and the new global reach of Indian business and human talent. Joshi’s disciples remain in government and outside and oppose foreign investment in, say, telecom and retailing. The sleazy underbelly of government, by innovating shady schemes that are mostly real estate scams like the special economic zones, give the Joshi disciples more ammunition.
The state-owned enterprises are the missing guests at this prosperous table. Their control by government bureaucrats, appointment of CEOs who are government officers, interference in investment decisions and limits on pricing freedom are some ways in which their prosperity has been hindered. An example of control was in the recent ONGC saga, first with the attempt to put the regulator of exploration, the director-general, Hydrocarbons, on the board, and then the humiliating treatment of the succeeding chairman selected by a neutral panel, initially giving him ‘acting’ charge and then confirming him after a year. The appointment of IAS officers to run the newly merged national carriers is a guarantee (from past experience) that this sensible move and its long-awaited investment in new planes will fail. The bold investment plans of BSNL have been stymied by a new minister who overruled his knowledgeable predecessor for unknown reasons. The oil-marketing companies have lost large sums because government does not want to allow higher prices for petroleum products so as to counter inflation, nor to add to its deficits by directly meeting the shortfall.
However, the nationalized banks have so improved that they now pose real competition to foreign and private banks. So have the insurance companies. BSNL has retained its No. 1 position despite intense competition. BHEL has shown good profits, but government ownership has induced a timidity that is now leading to shortages of power plants. Single-product companies like NTPC or Power Grid cannot, because of government ownership, get into related diversification.
There have been many surprising revivals. In the late Eighties, the UB group was a conglomerate with control over its original and successful liquor business, Best & Crompton, a dying engineering company, an unprofitable Hindustan Polymer, a polyester-maker, poorly run Mangalore Refinery, Berger Paints, and a pharmaceutical company. Today it is highly focused; the second largest liquor company in the world with foreign brands owned by it, and No. 2 in the airline business in India. The rest were divested. So has Parry developed a narrow focus and become very successful in fertilizers and houseware. Sanmar, a Madras group, has similarly focused its business much more on its core chemicals and plastics. TATA has become a global company, as have the Aditya Birla group, Bharat Forge and many others. Even a small company like RAIN Calcining is now the largest in the world in calcined petroleum coke through organic growth and overseas acquisition. Indian companies have displaced multinationals in India in the pharmaceutical industry.
Stories in foreign business magazines and books about strategies, buyouts, compensation and so on are no longer merely interesting reading. They are also about our companies as they grow, globalize and become more competitive. Where the maximum salary allowed by the registrar of companies for a CEO was Rs 90,000 a year, now the same company pays in crores apart from stock options and commissions, not only to the MD but also to the other top executives. But not in public sector enterprises.
Before 1991, the circumstances and challenges were different. The economy was protected and licensing ruled all management decisions. Foreign partners, imported technology and legal consumer-goods imports were all ruled by government. Smuggled products were therefore common. A departing embassy official in Delhi could sell all his belongings, even used garments, for good prices, such was the craze for foreign goods. This craze is not there now because everything is made or imported into India. Management was about small markets, small production capacities, premium prices, poor quality and relative neglect of the consumer. Most successful enterprises of past years had bought into the political system— like the Goenkas, Apollo under Raunaq Singh, the Modis, Birlas and others.
Dhirubhai Ambani also ably played the system. But he was a great visionary, a tremendous manager who was good at spotting and rewarding talented people and a genius at innovative ways of raising finance. His visions in deciding to integrate vertically, from oil well to wall socket, planning for long-distance phone calls in India to cost as much as a postcard, for fantastic volumes in a variety of products and then creating markets for them, would have assured his success in any environment.
Hindustan Lever used government policies to keep its business growing under majority foreign shareholding. After 1991, though first off the mark in acquiring new businesses, it could not integrate them successfully. The world is different today for urban, industrial and commercial India. We need the government to be more fixated on improving it for all.