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Of ground realities and shared outcomes
Arvind Singhal
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February 28, 2008

The India economy has gone through a sea change in the last 15 years. The pre-Budget frenzy of yesteryear has given way to a more life-as-usual attitude among private enterprise as well as millions of average citizens, with the only interest largely centered on any possible tinkering with direct corporate as well as personal taxation rates.

In that context, while the Indian political leadership is still coming to grips with getting its ideology aligned with the realities of the 21st century, the fact is that it is the market forces that are already determining the direction and the pace of activity.

At the social level, while select politicians may try to create vote banks for themselves by raising bogeys such as defining who the sons (and daughters) of the soil are, and try to usurp the role of being the moral custodians of the nation raising a protest against the most ridiculous of issues such as the controversy against a recently released period film, the fact is that Indians as a whole will be much more mobile in the coming years not only within India but on a global level and in that sense, any debate on who is local and who is "foreign" is a meaningless one.

In a similar way, the politicians may endlessly debate on the dangers of foreign investment in various sectors but the reality is that in just about every sector, investment is already happening from sources that are both Indian as well as foreign.

For example, there are stringent restrictions on opening up the banking sector to foreign banks. Yet, the foreign institutional holding in some of the largest "Indian" banks such as ICICI Bank [Get Quote] already exceeds 51% and for all practical purposes, therefore, there is no real difference between such Indian banks and the likes of Citi or HSBC.

Most major international insurance companies are already present in India through a host of partnerships. Many of them, for all practical purposes, operationally control and manage such businesses, even though on paper they may be minority shareholders.

In the retail sector, just about every political party publicly expresses its concern for the millions of mom-and-pop store owners and has eschewed any public debate on opening up the sector to large investment, whether from within India or overseas. Yet, it is a reality that the Indian landscape is already dotted with retail storefronts, carrying both national as well as international names prominently on their fascia. Many more will be operational in the next 12-18 months, including those belonging to the largest of the global players.

Despite no movement in making the labour laws more balanced at least on paper, the fact is that thousands of large and medium enterprises engaged both in manufacturing as well as services industries have been able to shut shop across India and lay off hundreds of thousands of workers in the process, and continue to do so as per the dictates of market forces.

Industry after industry, and sector after sector, the focus has already shifted from "what to do" in yesteryear to "how to do" in the 90s to now "how to do it better". The most successful private enterprises in India have already started focusing on improving efficiencies, productivity, and innovation rather than merely creating or expanding new capacities.

Even when starting new businesses, the planning process starts with a desire to innovate both at the business process level as well as the product level. Indeed, in the coming years, India should see the emergence of many more world-class businesses straddling a wide gamut of industrial and services sectors.

The political and bureaucratic inertia remains the only serious drag on this momentum. As the private enterprise has begun to show, the governments - both at the Centre as well as well as the state levels - must also shift its attention to doing things better rather than still trying to believe that they can set and control the direction of the social and economic change.

To start with, at the earliest possible, they must get the cobwebs of antediluvian ideology dusted off immediately and legitimise - through a modern and equitable policy framework - what is already a reality or is a clear present need. Therefore, reforms in the labour, financial services, retail and education sectors are absolutely a must and cannot be deferred anymore.

This must be followed up by a concerted move from the government to improve its own executional and operational performance through the induction of the best talent it can find beyond its own ranks so that the overall quality and the strength of both the political as well as bureaucratic backbone is improved.

Merely establishing prime ministerial or chief ministerial industry advisory councils will not help. Short-term (4-5 years) tenures of senior civil servants in the private sector, and vice versa may help in getting the bureaucracy aligned with the ground realities of present-day Indian civil and economic society.

And finally, the government's annual financial Budget presentation must also become an annual "outcomes" presentation, one wherein the quality and efficiency of performance must also be shared with the citizens of India.

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