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December 2, 1997


Business Commentary/Mahesh Nair

What has political turmoil got to do with economic reforms?

I am a great fan of Lee Falk's Phantom comic strip. When I first started reading it in my childhood I was fascinated by the adventures of the Ghost Who Walks. But I was terribly worried too. What would happen if one day the Phantom died? Would the adventures continue? Who would look after Hero the horse, Devil who was not a dog, the pygmies, Eden, and Diana Walker?

Until I came across this regular feature in the comic strip -- the old Phantom dying, his son stepping out of the cave, and the jungle woods chanting `The Phantom is Dead! Long Live the Phantom'.

If one generation of Phantom died, another carried on.

The process of liberalisation and economic reforms in India is much the same story. All those investors and Doubting Thomases who are are crying hoarse that the current political imbroglio is going to be a setback to reforms should be sent to Denkali.

And all those who think that liberalisation and globalisation will go if Palaniappan Chidambaram and the United Front government goes, need to look around. Whoever forms the government -- be it the Bharatiya Janata Party, the Congress, or even the Left -- there will be no turning back for business on the whole.

Consider this: Till September, the actual inflow (not approvals) from foreign direct investment has been $ 2.68 billion in 1997. Estimates are that by the end of the year this figure will touch $ 4.8 billion (thanks largely to financial closures in the telecom and power sector). This would make it the biggest annual inflow since the reforms era began -- double the inflow last year, and half of the total since 1991. If you remember, between January to September 1997, we've had two prime ministers. So what's all this talk about the perils of a minority/coalition government?

FDI, after all, is not hot money like portfolio investment which foreign investors can abruptly withdraw if George Soros sneezes. It's put in after much thought, and a thorough check-up of the economic fundamentals. So when foreign investors have so much faith in the Indian economy, why don't we?

Let's examine the other claim that the economy will suffer if some other party comes to power.

* The BJP was in power for just 13 days at the Centre. On the last day of holding office, minutes before Prime Minister Atal Behari Vajpayee walked into Parliament to announce his resignation, what did he do? Clear the Dhabol Power Company's billion dollar power project which his party had been staunchly fighting against before coming to power in Maharashtra.

* Look at Gujarat, Maharashtra and Rajasthan. Three states ruled by the BJP (Gujarat under a breakaway faction). Gujarat and Maharashtra figure in the top three states in terms of actual inflows from foreign direct investment. Rajasthan is in the top six. Domestic industrialists too find these states amongst the best to put up their projects -- the states have an investor-friendly industrial policy and the bureaucracy is pro-industry.

* Now check out the Congress-ruled states, Orissa and Madhya Pradesh. J B Patnaiks' government has become the first in the country to privatise distribution of power throughout the state. It also has some of the biggest megaprojects coming up in the steel and power sector. In Madhya Pradesh, Chief Minister Digvijay Singh too wants to catch up with his neighbours.

* Andhra Pradesh, where the Telugu Desam Party is in power is trying to snatch the title of the numero uno IT state from Karnataka. By March, it plans to connect all its districts with a fibre optic network so to enable data, video, and voice transmission for electronic governance, education, industry and entertainment. Bill Gates has gone on record saying that if ever Microsoft will set up a unit outside the US, it will be in Chandra Babu Naidu's Andhra Pradesh.

* The DMK-led Tamil Nadu government is fast emerging as a favourite destination for MNCs to set up their plants -- Du Pont, Ford, Hyundai are all in business here. Neighbouring Karnataka, which has a Janata Dal government, is not only trying hard to maintain its leadership in the IT industry, but is also concentrating on automobiles (Volvo, Toyota) and much needed power (Cogentrix).

* Finally, before this sounds like a lesson on geography and foreign investment, check out what the Reds are doing in West Bengal. Chief Minister Jyoti Basu, despite his vehement criticism of Chidambaram, is leaving no stone unturned to woo private investment.

So what is it that we are complaining about political uncertainty and economic reforms? When Jnan Dash, vice-president, Advanced Technology and Strategy, Oracle Corporation (he is considered one of the best brains in the business) was recently in India, I asked him what he thought of investing in India. "Political uncertainty is the biggest myth about India," he said, adding, "If you have a good idea, and are able to raise the resources, then you will always be in business. It doesn't matter who is the prime minister or chief minister.''

What an unstable government does is go slow on taking critical decisions. But even this has its ups and downs. For instance, just before the United Front government became "critical" it took a bunch of major economic decisions. It has removed the administered price mechanism in petroleum products, announced a new automobile policy, given greater autonomy powers to the public sector insurance companies, and appointed an autonomous board for the public broadcasters, Doordarshan and All India Radio. All this just 48 hours before the Congress officially withdrew its support.

However, there are certain economic decisions now hanging fire and waiting for Parliament to resume its usual business. These include the amended Companies Act Bill, the Income Tax Bill, the Foreign Exchange Management Act, the Insurance Regulatory Bill, and the Money Laundering Bill.

Do you think these bills will all be buried once a new government comes to power in New Delhi? I do not. And I am willing to bet a beer and lunch over it. Any takers?

Mahesh Nair

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