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Sunday, June 19, 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


Anonymous said...

This are very bad and sad news for middle India.Gains made by hard work and grit by so many faceless Indians over past two decades are going down the drain.In front of our eyes.
Government has come to a complete stand still.They are all either trying to save their skins or are busy fire fighting.may be we will see a new set up in 2014.Time for these people is up.

balaji said...

Saying that the Indian public is responsible for Tata investing overseas is ridiculous in my opinion. Mr Tata invested overseas after due deliberation on the investment climate and the fact that he purchased JLR at a bargain price compared to what it was worth just a few years before. The Indian corporate is just as complicit as the Indian politicians in the 2G Scam .Being a capitalist does not mean that you should be giving bribes to get a business advantage is simply against the principles of free market and Competition.
I'm a die-hard capitalist and i believe in creating a favorable business climate with little or no govt intervention .Indians unfortunately do have a unfavorable perception about corporates . Indian public attitude is certainly preventing much needed investment in rural areas but one of the bright points is that most of it in the extraction business which means the natural resource is not going anywhere if not now maybe 10,20 or 30 years from now the resource is still available hopefully by that time Indians will have a much more favorable view on business.

Anonymous said...

Present resentment against capitalism is not sponteous and never existed in past. Ancient india had clearly demarketed role for ruler, not to indulge in buisness but confine themselves to the affair of state only. Trade and manufacturing was in hand of common people. AT present we see almost all politician having interest in buisness empire, which occupy significant space of their mind even at time when they hold ministirial post. this conflict of interest led to scandal of 2G, adarsh, lavasa etc. and apart from causing monetary loss it spoil the image of corporate too in physche of people. Given the growing merger of buisness and politics, capitalism will surely suffer. Our minister instead of working towards country benefit, seving their own business interest of else playing as agents of some or other corporate lobby. so it beacuse of them capitalsim is being targeted not because of people in buisness. It was political system intitiated , invited & offered land in singur to TATA for their ambitious nano

balaji said...

@Anonymous Can't agree with you more Economic freedom is more important than political freedom.The perception that every corporate has to go through illegal means to get profit has to be thwarted. Unless a citizen with access to cheap liquidity is able to do business without any hassles from the govt, true economic freedom is never achieved. United States and United Kingdom's economic prowess was created on such a premise.Otherwise we all would just become just employees of a political friendly corporate which is what the Indian corporate scene is now. Atleast they are efficient corporates!!!

Arun said...

The nightmare called food processing and the contamination of food supply in America are well documented.

You will Never Look at Dinner The Same Way

No Bull

Breakdown of Retail Beef Dollar

More than 85% of total capital investment to put meat on the consumer’s plate is provided by the producer.

Retailer receives 49%

Packer and retailer share less
than 15% of the capital investment
required to get product to consumer.

Approximately 1,000 cattle producers continue to go out of business every month.

Calculations based on 2009 USDA-ERS data

Four biggest packers control 88% of market

Four biggest retailers control 50.7% (FWW)

A picture of abusive market power and rural decline


Indians are being sold a bill of goods here. The Kaushik Basus and Swapan Dasguptas are totally misrepresenting facts.

Anonymous said...

What use is the growth in our economy if it is not being used for improving infrastructure, modernising farming practises, reforming judiciary, police, improving internal & external security, BUT is being used in bribing the voters by way of loan maaf's, Ghadda khodo Ghadda bharo NREGA, more pay commissions for lethargic incompetent non working Babus, funding radical Islamic & now Christian madarsaas, giving ration cards to on. What use is the economic growth to a hard working tax payer?
Let it all end.

Dr rakesh kumar said...

dear swapan,
i would rather look at the situation from a totally different perspective.. its not as if corruption is something new to our system.. remember Indira Gandhi's corruption is a global phenomenon comment??? now though the atmosphere is rather gloomy.. its actually a very good development that scams of such monumental proportions are being exposed.. such scams before would have still occurred but without the media screaming its lungs out... i would rather say we are finally stepping on the rough road of bringing accountability to the political class... besides the situation has already deteriorated to such an extent that the only thing that can happen now is that things get pls sir dont deflate and demotivate the aspiration of a new India further..we are far from doomsday...