Commentary/Yazad Darasha

Is it curtains for Indian industry?

In the midst of momentous changes, nothing really changes. This could have been meant exclusively for Indian industry and business.

For all his public posturing in favour of liberalisation and reform, the Indian businessman seems to have realised in no uncertain terms that the process of reform will sound the death knell for him. He will be gobbled up without a trace by multinationals and their raw money and managerial power.

This is no Cassandra-like forecasting. This is hard fact. If Indian industry does not develop its own legs to stand on -- in terms of R&D investment and global presence -- its public, pro-reform face will be exposed for what it is: merely a facade.

Last week, the Reserve Bank of India made a move that exposed a corner of the facade. The RBI decided to stay away from the foreign exchange market, and stopped mopping up dollars. The rupee appreciated almost half a percentage point.

I am sure the RBI did not stop its intervention because it took industry's public posturings for real and gave it a truly open market where the rupee can either hold its own or sink. The central bank's compulsions were probably different -- driven by the fact that the more dollars it bought, the more rupees were being pumped into the system, thereby fuelling inflationary tendencies.

But the clamour that followed the decision exposed the hollowness of industry's claim that it is for a truly open and free market, liberalisation, etc, etc. Simply because the Indian exporting companies were suddenly made aware of the fact that if they got what they wanted, their exports would cease to be as remunerable as in the past. No exporter wants a strong rupee. And the longer the Reserve Bank intervenes to keep it down, the better off they are.

Another pointer: The entire country is happy with the budget proposals put forward by Finance-Minister-in-limbo Palaniappan Chidambaram -- or so they claim. But the Bharatiya Janata Party -- which is considered to be in closest contact with business -- let the cat out of the bag when it decided that it was happy with the proposals dealing with direct taxation. But it wanted the reductions in import duties on finished goods scrapped.

If we assume that the BJP has its pulse on Indian industry's needs, the message we are receiving is: Yes, certainly tax us less, enrich us, but do not expose us to global competition. Protect us just a while longer.

When the P V Narasimha Rao government put the process of reform into overdrive five years ago, it did so after 45 years of protection for Indian industry. Within a short span of five years, it exposed the hitherto cosseted Indian businessman to the cut-throat world of global competition. Competition against megaliths that had already perfected the art of creating monopolies by pumping in massive investments and being ready to wait several years before tasting the first profits.

But then, these global giants had the money muscle to do just that. They had created enough wealth to add to the muscle of their products, which were researched and developed to provide exactly what the customer wanted.

On the other hand, in 45 years of protection, Indian industry had no opportunity or need to either create wealth on a global scale, or develop any enduring or generic brands. Either the most profitable sectors were virtually closed to them, or they did not have enough competition to spur them. A little of both actually. With a dose of inward looking economic policies thrown in to sweeten the pot.

The result is plain to see. Wherever we turn and look, there is an Indian businessman selling out to a multinational. The most celebrated sellout was Ramesh Chauhan's in the soft drinks market. Even after making Thums Up India's largest selling soft drink, Chauhan realised he could not compete against the sheer money muscle that Coca-Cola would bring to bear on its marketing, and sold out.

Pepsi did the same with Duke's. Outright buyout. Both Pepsi and Coke have drawn up long-range plans for India, where they will take losses for ten years if need be, but ultimately sew up the soft drink market so tight that the entry level barriers would be daunting for any wannabe.

But that is a very visible example. The less visible instances of sellout are happening everyday right before our eyes and we are too blind to see. Almost every hour, there is an Indian company offering a multinational competitor an equity stake -- usually a majority one because no multinational is going to be satisfied with a stake without management control as well. And they have the money to buy a majority stake, so why settle for less?

Already, the only cars on the roads are foreign brands. Some of them are 'made in India' (meaning simply assembled here by screwdriver wielding tecnicians supervised by a foreigner), but by a company fully controlled by a multinational. Even the earliest cars on Indian roads were not indigenously developed. Amazing, but Indian industry has not developed a single automobile brand on its own. Is it any wonder that our automobiles industry is now totally gobbled up by the multinationals?

Another segment where Indian industry is surely going to lose out is infrastructure development. The bottom line is that there is simply not enough wealth at Indian industry's disposal to invest in infrastructure projects like road-building or power generation or telecommunications. Sadly, that is the sector in which there are going to be tremendous returns some seven years down the line.

That is again why the latest telecommunications technology we have in the country today is controlled by multinationals. Why the largest power projects have been promoted by multinationals.

Is it then curtains for Indian industry? The facile answer is yes, we have reached the end of our road. But look a little further afield -- in sectors like pharmaceuticals and textiles -- and the horizon looks uncluttered and reachable.

Our pharma and textile companies have taken on some of the toughest in the world and have not folded tamely like the automobiles and soft-drink makers have. Even in automobiles, companies like Bajaj Auto are globally well positioned, although they manufacture variations on a technology developed by a multinational decades ago.

Indian industry should build on its strengths. It is okay if certain sectors are lost to multinational predators. Only the hopelessly jingoistic would object to such globalisation. But wherever possible, with whatever limited means at its disposal, Indian industry needs to look and plan ahead, invest with global competition in view. And do so without expecting the government to fight its international trade battles in the form of protective tariffs forever. Because if it does so, the end user of its products -- the hitherto neglected customer -- is going to turn against Indian products with a vengeance, just as he did at the time the multinational brands were allowed to enter.

And finally, the Indian businessman may have been suppressed for 45 years, but given the freedom to operate, he can still wipe the floor with any multinational. For example, let's go back to Ramesh Chauhan and Parle. In a market flooded and fragmented with every conceivable brand, Parle has produced a bottled water that is now number one. From scratch. So much so that if you ask for bottled water by its generic name -- Bisleri -- you will probably get not Bisleri but Parle's Bailley! That is the power of marketing. That is the strength of Indian industry -- the ability to bounce back.

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