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February 27, 1998


Issues '98/Anand Mahindra

'India needs a goal to aim for'

Before any new government gets down to shaping any new agenda, my belief is that they need to articulate some kind of a vision for the country. Most corporations have been framing visions statements and missions for themselves: all these are just fancy ways to give oneself a direction.

I am not talking about creating a kind of India Inc -- that phrase has become quite trite -- but if at the micro level, organisations feel the need to frame visions for themselves, clearly the same obligation rests with the government.

My major gripe with the governments that have ruled us and with political parties of all hues is that not one of them has come out with a clear, transcending goal for the country. I am not talking simply about saying that we need an eight per cent GDP growth rate or need to improve the quality of life, but a goal which grabs people and makes them all feel we are in it together.

We constantly offer the excuse that we are ethnically heterogeneous and that it is difficult to frame a concept for India unlike some Asian countries that are homogeneous and therefore gathered round their flag. Getting people to gather round a flag or more cohesive does not simply start from ethnic homogeneity; it is a question of getting people to believe in an idea.

In independent India, we have never been really sold on the power of any idea. After Independence, how come no politician or leader ever declare: 'My dream is that by the 50th anniversary of our Independence, we will surpass the GDP of England'. That is the kind of statement people would have liked to hear from someone who has just freed the country from imperialism; to make an economic goal subservient to some dream. And whether or not that dream at that point seems achievable or we miss it by a few thousands dollars, I think it would have galvanised the people and forced practicality onto most policies.

Such goals was set and articulated in both Japan and South Korea. Now it is almost an old bromide to say that the Japanese had lost the war, but wanted to win the economic war, which is another way of saying that they set themselves a goal. South Korea is the same: it wanted to surpass Japan, and their current problems notwithstanding, they have made great strides.

It is easy for us to be condescending about the problems in South Korea, and piously proclaim how we managed to avoid it. But we forget that even if the South Korean economy collapses or stagnates for a while, the fact is that today South Korea's per capita GDP is $10,000 while about 50 to 60 years ago, Korean and Indian per capita incomes were at the same level. So, who is better off? A country that has managed over time to raise the quality of life of its people and is suffering a temporary restructuring crisis; or a country, or a country which still has a huge population below the poverty line.

A lot of this has to do with setting a goal, which is to belabour the point. But in my personal opinion, you cannot belabour this enough because we need someone to say that this is where we would like India to be on the economic map in 50 years time.

Coming down to economic priorities, clearly any kind of goal would require achieving a much, much higher growth rate than the one we have been experiencing so far. No matter how one expresses the goal: whether in terms of a GDP per capita higher than England, or saying that we want to be a recognised global power, a rapid economic growth rate in GDP is a sine qua non.

Such rapid growth rate in a Western capitalist system is the only way to improve the quality of life and remove inequality. Clearly in a socialist system, inequality is removed in other ways, but we have to recognise that India and others have burnt our bridges as far as going down that road is concerned.

We must also realise that for a country as vast as India, the goal is not just GDP growth, but a growth rate which will remove inequality as fast as possible, such as 7 to 8 per cent. Otherwise, the social pressures that will come to bear will be too large for this country to hold. Look at Indonesia, which is similar to India in terms of density. We have seen ethnic trouble break out, and one can see that there is little time before an economic crisis turns into social unrest. That kind of a nightmare scenario is perfectly possible in India.

For such growth, we have to clear the roadway. It is like building a Ferrari, only to find it lying in the middle of the Amazon jungles, with no tar road to drive it on. The analogy is for infrastructure. If it is not dealt with in a ruthlessly efficient manner, then ultimately any other policy you make for super growth is useless. What I am saying on infrastructure is not new.

What we need is the right mindset, shared by the political constituents and the bureaucrats. Since the government depends to a large extent on the different sections of the bureaucracy, it is very, very essential that all bureaucrats who have anything to do with infrastructure must share the right mindset.

That can be done through strong leadership, just as you would tend to achieve shared mindset in a corporation. Therefore, any leader who at the top has to constantly repeat the message that infrastructure is his priority, and that it is the major bottleneck. And then he must walk the talk. That is to say that if any particular department is holding up a particular project, then we need a prime minister who is not afraid of picking up the phone and talk to the department concerned.

We also need to understand the role of the private sector infrastructure. The government keeps saying that it lacks funds and the private sector will have to play a role. That statement is partially true; the government cannot abdicate its role in infrastructure.

Some projects will simply have to be in the public domain because returns come in through externalities. And externalities are not something which can be listed on a balance sheet; they accrue to society at large. Only the government can implement certain projects through tax collections. This must be understood.

But having said that, we need a model for private infrastructure -- whether it is the build, operate, transfer, or build, operate, own, transfer. One reason why infrastructure has not taken off in the last few years is because of the lack of a model; we still don't know how to manage the various elements of mega projects, right from the concept to calling for tenders to finally setting them up. In that sense, Enron has been a good lesson. So I am not too disheartened; I think India has gone through a steep learning curve in the last few years.

What we really need is to get one mega project off the ground in a seamless manner. Then people will say: 'That is the way to get a project done, from start to end'. Once the process has been learnt, Indians are pretty good at replicating and I am sure then, to quote Mao in a different context, a thousand flowers will bloom.

Another economic concern is the interest rates. The Southeast Asian crisis has shown that economies slow down if interest rates are too high. We kept interest rates high to control inflation. To bring down inflation to single digits is truly a success of the Reserve Bank of India. But if inflation is low for a fairly long time, then unless the interest rates come down, you end up with a very high real interest rate which, in a short time, will cripple industry.

And that is what we are feeling right now, the effect of having had a high interest rates for too long. We have to reduce interest rates otherwise, the recent recovery of the economy will be jeopardised.

One lesson from the Asian crises is that a country is more immune to international volatility if it has a large economy and high level of consumption. For example, China, which is safe from the recent crises because it is not too dependent on imports and so can insulate itself. Also, a large and rapidly growing consumer class is important because then it cannot be ignored. We must remember that the USA jumped into the Asian crises only when South Korea was affected. Reason: South Korea is too large a market for the US to ignore.

Therefore, to stay insulated from worldwide volatility, our market has to be large and consumption levels high. This means that our policies should be geared towards increasing consumer consumption, and this in turn calls for a change of mindset. We need a mindset that says consumerism is fine and stops complaining about Indians becoming too materialistic. Materialism, after all, reflects the quality of life.

It might be all right for a philosopher to say spiritualism is great, but ask any person in the slums and he will categorically say that a television set is more satisfying for his needs than philosophical arguments.

Anand Mahindra, managing director of Mahindra and Mahindra, spoke to A K Diwanji.

Issues '98

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