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Since agriculture’s share in our national income has fallen from 50 per cent in the early 1950s to less than 30 per cent today, the income gap between rural India and urban India is much wider now than at the time of Independence. Extreme poverty and affluence walk side by side.
The growing pressure of population on our national resources has led to severe degradation of India’s land and water resources. Simultaneously, unplanned urbanisation has created new sources of environmental stress, leading to excessive noise, congestion and air pollution in our cities, contributing to a significant deterioration in the quality of life both in rural and urban areas.
Despite the advantage of an initial head start in several industries such as textiles, iron and steel, ship building, automobiles and even electronics, our industrial performance compares very unfavourably with a country like South Korea. Thanks to her emphasis on international competitiveness as an important test of economic efficiency, South Korea has greatly increased her share of world exports. So also has China since the early 1980s. In contrast, India’s share of world exports is abysmal and no more than 0.6 per cent. Excessive protection through tariffs and import controls has nurtured an industrial structure which lays inadequate emphasis on cost reduction, productivity improvement, quality upgradation and absorption, adaptation and assimilation of most modern technologies into production processes.
Poor Export Showing
Due to inadequate competitiveness, our exports in the 1980s financed only about 60 per cent of our imports and the country had to depend heavily on such artificial props as concessional foreign aid, despite self-reliance being a basic objective of our planning. Even inflows of foreign private investment can be sustained in the long run only if the country’s exports grow fast enough to service payments of royalties and dividends. For all these reasons, a dynamic export sector is an important element of any viable strategy of national self-reliance. Unfortunately, this task has not received the attention it deserves.
Chronic mass poverty, widespread illiteracy and ill health are inconsistent with the vision of a people-centred economy. However, it is undeniable that even today there are in India millions of people who suffer from acute poverty, ignorance and disease. These harsh realities have led to a rethinking about our basic economic strategies culminating in the economic reforms of 1991.
It is now obvious that meaningful solutions to the problems of mass poverty can be found only in the framework of a rapidly expanding economy by concerted efforts of both Government and industry. India needs sustained economic growth at the annual rate of 7 to 8 per cent. Rapid labour-intensive industrialisation, with industry growing at an annual rate of 12-15 per cent, has to be an essential element of our basic development strategy. In particular, massive investments would be required for the infrastructure sectors such as energy, transport, communications and irrigation. In addition, the pattern of industrial growth should pay particular attention not only to the growth of exports and the control of environmental degradation, but much greater attention would need to be paid to increasing productivity of resource use.
Mobilising Additional Resources
Currently, political uncertainties and the poor state of our infrastructure have an adverse effect on business confidence. In particular, investment in the infrastructure sectors which are mostly in the public sector is hampered both by the poor state of Government finance at the Centre and in the States as well as by non-economic tariff policies and non-transparent regulatory regimes. Restructuring of public finances and reform of tariff policies and regulatory mechanisms are of critical importance for mobilising additional resources for investment in the vital infrastructure sectors. Determined measures to remove the various administrative bottlenecks and policy induced barriers to private investment in infrastructure sectors can give some additional elbow room and may also improve the state of business confidence. Overall, we need a concerted plan of action, devised by Government and industry acting in partnership to project a clear national vision and a sense of purpose.
Science and technology have brought about revolutionary changes in the functioning of money and capital markets all over the world. Both capital and technology are now much more mobile than ever before. Adjustment and reform are unavoidable if India has to grow fast enough in the increasingly interdependent world we live in. Rapid change imposes a greater burden on us to learn, absorb and adapt our thoughts and actions. Wisdom lies in learning both from our past mistakes and from the successes of others, particularly countries like China and South Korea. The overall story is one of missed opportunities. We have to make up for lost time and our entrepreneurs have to play a critical role in this regard.
Updating Technology, Improving Productivity
Measures designed to improve productivity and reduce the technological distance between India and the developed world could provide a major stimulus to the processes of industrial growth. We have not kept pace with the new technological developments, particularly the new energy-efficient and environment-friendly technologies which came into existence after the energy crisis of the 1970s. Our inability to make significant headway in the export of capital goods, despite the relative cheapness of our skilled labour, is very largely due to the technological lag from which Indian industry suffers vis-a-vis competitors.
For all these reasons, I suggest that Government and industry draw up a bold national plan to improve productivity and update the technological capabilities of our industry. The modernisation of export-oriented industries should be a top national priority. In addition, special efforts ought to be made to assist small- and medium-scale firms to improve their technology and productivity so that they can flourish under fast changing market conditions of demand and technology. I would further suggest that the top 100 firms in Indian industry should take a lead and project the national vision of India emerging as a major global player in the 21st century.
A sustained increase in India’s exports at an annual rate of 15-20 per cent is essential to achieve the growth target of 7-8 per cent. India’s export performance in the post-Independence years has been rather poor. In 1950, India’s share of world exports was 2 per cent. By the late 1980s, this share had been reduced to 0.4 per cent. There has been some improvement in the post-reform years and our share currently stands at 0.6 per cent. This is far lower than the potential of our economy. A recent World Bank report has argued that it is feasible for India to raise her share of world exports to 3.9 per cent by 2020.
Aggressive Export Culture
It is often not recognised that on a per capita basis India is not particularly well endowed with national resources. We have to become, like Korea and Japan, a major trading nation if our future development is not to be constrained by a continuing shortage of commercial energy, important industrial raw materials and more sophisticated machinery and capital goods. Unfortunately, our economic policies until 1991 had a strong built-in bias against exports. Excessive emphasis on import substitution at whatever cost led to a neglect of important export opportunities even in product goods like textiles, leather goods and engineering goods in which we had an intrinsic comparative advantage. Now that trade and exchange rate reforms have substantially corrected the bias against exports, it is the duty of our entrepreneurs to develop an aggressive export culture.
Due to larger transfer receipts and capital inflows, the overall balance of payments situation still remains comfortable. However, there will be a serious question mark about the viability of our external payments position if our exports do not recapture the dynamism they displayed from 1993-94 to 1995-96 when they increased in U.S. dollar value terms at the rate of 20 per cent. It must be clearly understood that India’s ability to sustain substantial inflows of foreign private investment crucially depends on the growth of our exports. If exports do not increase, the creditworthiness of the country to service her external debt payments will become doubtful.
Learning From China
In mounting an aggressive export drive, India could learn a great deal from the experience of China. China today dominates the world markets for unsophisticated labour-intensive industrial products. Direct foreign investment and intelligent marketing networks entered into by Chinese enterprises with overseas concerns have played a major role in boosting China’s exports. Unlike India, the Chinese have not been obsessed with not allowing foreign investment in consumer goods or allowing only those foreign investments which have a high value added and are a product of sophisticated technology. The Chinese have laid emphasis on the employment and export effects of foreign direct investment and thereby have emerged as a major global player in less than a decade.
A persistent export pessimism has been a dominant element of Indian thinking on development policies and prospects. The recent experience of China is a clear refutation of the view that world market conditions are not favourable for a rapid growth of our exports. There are immense opportunities for India to improve its share of world markets. However, to realise this potential, we need a competitive industrial structure and a new mindset among our entrepreneurs. Indian industry must shed the inferiority complex that it cannot compete in the global market or that import substitution by itself will be able to make India a front-ranking industrial economy. The sooner we get out of this mindset, the better for our country.
It would be tragic if the recent economic difficulties of East and South-East Asian countries strengthen export pessimism in India. It must also be recognised that if we seek improved market access for our exports then we should also be willing to open our own markets to competition from abroad. In the past, large industry in India has made very little contribution to India’s exports. It is largely the dynamism of small and medium firms which has led to whatever export growth has actually taken place. This situation is no longer sustainable. Large industry must own up to its dynamic role in the expansion and diversification of India’s exports.
Yet another challenging task before our country is to work assiduously for the protection of our environment. Reckless deforestation, land and water degradation, shortage of drinking water and firewood and pollution of air constitute a serious threat to the livelihood and health of millions of people in our country. Our environment has visibly, seriously and irreversibly changed for the worse in our lifetime. It is we who are the victims. If we do not act today, our children will live in a worse environment, they will suffer for our errors and omissions.
Ever since the Earth Summit, an illusion has been created that solutions to environmental problems can be imported. A belief has gained currency that the developed countries are primarily responsible for global environment problems and that they must pay the developing countries for undertaking environment improvement measures. This may be a correct stance to adopt in international negotiations. Nevertheless, while there are problems that are largely due to the acts of developed countries, many of the problems are as much ours as theirs, and will continue to be ours whether they pay for the solutions or not.
Then there are problems that are our own ?the degradation of our land and water resources, increased severity and frequency of both floods and droughts, noise and pollution of air in our metropolitan areas ?for whose removal no one is going to pay. Whatever happens in the international negotiations, let us not shirk our responsibility to develop a credible action programme to save the environment. We owe it to ourselves to evolve a viable national strategy for the control of environmental degradation. If help comes from abroad, let us treat it as a nice surprise.
Indian industry has a major responsibility to assist in the national drive to combat pollution and improve the environment. The production technologies and product mix should be environment friendly. Special emphasis ought to be laid on the use of technologies which help to control industrial point source emission of pollutants as well as pollution from agriculture, transport, municipal run-off and sewerage systems.
Since energy use, particularly the use of low-grade coal, is a major source for the emission of pollutants, the adoption of environment-friendly energy systems ought to be high on the list of national priorities.
There must be greater willingness to abide by the nationally laid down environmental standards. Environmental accounting, environment auditing, environment impact analysis should get built into our industrial projects and processes. If the concern for the environment is not to lead to reintroduction of a variant of the old Licence-Permit Raj, industry must willingly accept a greater measure of self-discipline. Environment audit should become a regular feature and there must also be willing acceptance of the principle that the polluter must pay for the degradation of the environment.
Industrial relations have assumed a central role in corporate strategies all over the world. There is a growing recognition that efficiency in production depends ultimately on the effective mobilisation of human capacities represented jointly by the management and the workforce. Industry is increasingly becoming a cooperative endeavour and, therefore, it is necessary to create a proper social environment in which all agents of production work in harmony to achieve the full production potential. The morale of workers is an important determinant of efficiency, and systems which seek to enhance workers?morale by giving them a sense of involvement make a major contribution to the removal of psychological barriers to efficiency.
It is therefore essential that our entrepreneurs should develop an effective long-term perspective with regard to industrial relations. Any such perspective must recognise that workers wish to be involved and consulted. We have to evolve appropriate institutional structures, inter-personal relations, personnel policies and work practices consistent with this design of industrial relations. Instead of large-scale interference by the State, the emphasis must be on bilateral consultations between workers and employers. There must be greater willingness to accept a more democratic and participatory approach to the solution of labour problems on the part of managements.
A management which is conscious of its obligations to its workers and consumers at large and believes in effective consultation and fairplay is likely to be on a much stronger wicket in dealing firmly with unreasonable demands from whatever quarter they may originate. For, in all such cases, it can rely on the firm support of public opinion which constitutes a powerful sanction in a democratic polity. The experience of both Japan and Germany is a powerful indicator of the potentialities of a participatory system of industrial relations for mobilising latent human capacities in the cause of higher productivity.
There are obviously no viable substitutes for the profit motive and financial incentives to influence business behaviour. From all accounts, the Maoist vision of substituting the pecuniary motive by non-incentive systems has turned out to be a utopian dream. Even the Chinese now increasingly rely on the financial incentive systems in their drive for modernisation. However, enterprise would not have been such an exciting adventure if monetary gain was its sole motivating force.
A New Vision Needed
There are several instances in the economic history of Europe since the industrial revolution of the 19th century which suggest that capitalism could not have been such a dynamic system if its principal actors were guided only by the narrow calculus of profit and loss. Professor Morishima has forcefully brought out the predominant role of non-economic factors, which he calls "the Japanese ethos" in the great economic success story that post-war Japan has been. As I see it, the task before us in India is to ensure that our entrepreneurs are inspired by a value system which seeks to maintain the highest standards of professional service and at the same time are free from the vulgar subordination of moral standards to narrow financial interests.
The liberalisation and deregulation of the past six years have greatly expanded the degrees of freedom available to our enterprises in managing their affairs. They will no longer be able to put all the blame for low productivity and uncompetitiveness of Indian industry on the shoulders of the Government. However, if liberalisation is to succeed in creating a dynamic competitive economy, we need a new vision and a new mindset on the part of our entrepreneurs, managers and other professionals. They have to be intellectually alert and inspired by an intense patriotic fervour to make India a front-ranking nation of the world in the 21st century.
Writing about the growth of European capitalism in the 19th century Lord Keynes characterised the pioneer entrepreneurs in the following words: "Europe was so organised socially and economically as to secure the maximum accumulation of capital. While there was some continuous improvement in the daily conditions of life of the mass of the population, Society was so framed as to throw a greater part of the increased income into the control of the class least likely to consume it. The new rich of the 19th century were not brought up to large expenditure, and preferred the power which investment gave them to the pleasure of immediate consumption. In fact, it was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others.
"Herein lay, in fact, the main justification of the capitalist system. If the rich had spent their new wealth on their own enjoyments, the world would long ago have found such a regime intolerable. But like bees they saved and accumulated not less to the advantage of the whole community because they themselves held narrower ends in prospect."
India needs a similar vision of pioneering zeal and commitment to the process of capital accumulation among her entrepreneurs to make a success of our own industrial revolution. There is no dearth of entrepreneurial talent in India. Sir Jamsetji Tata, G.D. Birla, J.R.D. Tata, Sir Siri Ram and members of the Godrej family built up sizeable industrial empires even under highly unfavourable conditions prevailing during the colonial rule. We have to recapture their spirit of idealism, adventure and enterprise.
Instead of seeking easy and quick profits, Indian industry should undertake strategic planning which often requires years of hard work in building brand and product loyalty and patient market development. Indian industry must learn to face up to the challenge of global competition. Any attempt to resurrect an unsustainable past characterised by excessive protection is bound to be counterproductive.
The important thing is to learn to leapfrog in the race of development. This is possible, if our entrepreneurs pay adequate attention to the interests of all the stakeholders ?shareholders, workers, consumers and even unborn generations. I lay particular emphasis on protecting the interests of future generations because that would involve emphasis not only on R&D efforts so as to operate on the frontiers of technological knowledge but also an abiding concern about environment protection measures.
Liberalisation and deregulation do not mean complete freedom to do whatever one likes in pursuit of one’s self-interest or the profit motive. It is well known that deregulation itself requires a regulatory framework which derives its significance from the basic societal values. Concern with efficiency, profitability and competitiveness must be accompanied by an equal concern for ethical conduct, honesty and integrity. We need to create an environment in which businessmen consider that it is not enough to make profit but also to comply with the legal regulations and society’s moral values.
One needs emphasis on maximum possible commitment to self regulation, efficient and fair corporate governance, utmost transparency in the functioning of an enterprise and strict regard for professional standards. If our entrepreneurs and all other professional workers (be they lawyers, chartered accountants, company secretaries, managers, engineers and bankers) follow a healthy and vigorous work ethic, it will lead to both improved efficiency and greater equity in the functioning of our economic system.
Efficiency With Equity
The twin concerns for efficiency and equity are essential to the building up of a new India which accepts the challenge of global competition and also seeks to develop an inclusive and integrated society imbued with ethical concerns. When it comes to productive efficiency, we should learn all that we can from the rest of the world. We should create an environment which nurtures efficiency, productivity and team work. Yet we ought to resist the temptation to copy the lifestyles of the post-industrial societies of the West. These lifestyles have done irreparable damage to the earth’s environment. In any case, our resource endowment is such that only a small minority can enjoy such lifestyles and thus copying them would further widen social disparities and the gulf between the haves and have-nots. Austerity should therefore be the watchword for leaders of public opinion, be they political personalities, entrepreneurs or professional workers.
Our country needs disciplined high-quality entrepreneurs who are filled with an intense national pride and are committed to the pursuit of excellence and consider themselves accountable to society at large. In Gandhiji’s words, the owners of wealth have to consider themselves as trustees for the well-being of our society. This is the only way we can build a new India free from the fear of want and exploitation and in which all our citizens can lead a life of dignity and self-respect.
The Godrej Centenary Lecture in memory of Soonabai Pirojsha Godrej was delivered on 16 December, 1997 in Mumbai.