The Hindu Business Line : Country to economy, CFO to CEO

From a country in 1991 to an economy in 1996, the leap was made possible by the then CEO, Mr P. V. Narasimha Rao, and his CFO, Dr Manmohan Singh. It is most apt that the CFO should begin a new journey in 2004 as the CEO of the economy, where E could well represent the whole economy. G. Ramachandran marvels at the leap.

INDIA WAS a country until 1991. It was a developing country — it still is, but with hope — struggling to meet its external financial commitments. It was on the edge, and edges are inhospitable and unfriendly. They do not offer any breadth to feet that struggle to find a foothold. Edges cut into palms that grope for a life-saving grip. India had to leap off the edge or fall off it. It chose to do the first. India leapt off the edge to become an economy.

`Economy' is typically used to refer to a rich country. Rich countries have economies that make them prosperous. Poor countries have no economies. Thus, the world has prosperous economies and poor countries. Prosperity remains a distant goal but the leap signalled the beginning of India's journey.

It shed its descriptive characteristics as a dour developing country that made a mess of its limited opportunities for survival. It chose to pursue the unlimited opportunities that other economies — including the Asian tigers — had been pursuing for more than a decade.

The developing country leapt to become an emerging economy in 1991. The rest is not history alone as is in most turnaround stories. The rest serves as India's future too because the leap was definitive. It befitted the gloomy circumstances, on the one hand, and the country's self-belief, on the other. The gloom has lifted, but the leap has remained definitive.

The country-to-economy leap was made possible by a set of actors that included Dr Manmohan Singh, the Finance Minister who served in the government of Mr P. V. Narasimha Rao between 1991 and 1996. As Prime Minister, Mr Rao was India's chief executive officer (CEO).

Quite aptly, Dr Manmohan Singh was the chief financial officer (CFO). It is, therefore, most apt that the CFO who made the leap possible in 1991 should begin a new journey in 2004 as the CEO of the economy, where E could well represent the whole economy. What a leap!

Fabulous first leap

Seventy years ago, Will Durant commented that economically India was passing, for better and for worse, out of medievalism into modern industry. He predicted that its wealth and trade will grow, and that before the end of the 20th century it will doubtless be among the powers of the earth.

India's genius and labour, and its accomplishments in economic organisation and government overwhelmed Durant.

He was particularly awed by India's contributions such as grammar and logic, chess and efficient iterations, and numerals and the decimal system. These contributions are indeed the founding ingredients of the modern digital age and digital economy.

Well, India may not have been included among the powers of the earth in 1991. But the set of actions taken since then had set the course. The leap and the turnaround have been for better and not for worse.

All CEOs and CFOs have since 1996 stuck assiduously and enthusiastically to the course set by Mr Narasimha Rao and Dr Manmohan Singh. The consistency that India has demonstrated in the ideation and implementation of economic reforms is testimony to the enduring quality of the first leap.

Will Durant's optimism was not belied at the turn of the last century. India's information technology companies had by then made a deep and, perhaps, enduring impact on the leading corporate organisations of the world. These innovative companies had within a few years of their establishment demonstrated a keen understanding of the nuances of the modern economy.

Their human resource is now actively involved in technology and telecommunications, manufacturing, process design, logistics, corporate finance, chip design, transportation, storage, marketing, education, consulting and research.

Discerning practitioners around the world depend on the insights of India's companies into customer services and satisfaction, processes and technologies, networks and communications, and optimisation and productivity.

At home, India's human resource has built world-class manufacturing facilities for the production of advanced chemicals, pharmaceuticals, automotive components, consumer goods and appliances, engineering plastics and textiles.

Farming resourcefulness

Though India has earned a formidable reputation for its awesome technological capabilities, it has yet to come to terms with the crushing poverty that affects many households that derive their incomes from the farm sector.

If the interests of the domestic farm economy are promoted, the interests of producers of consumer and industrial goods will be promoted. The interests of providers of consumer and commercial services will also be promoted. If India's farm economy is hollowed out, there would be fewer customers for consumer and industrial goods and consumer and commercial services.

The promotion of the interests of the domestic farm economy does not require more subsidies. It does not require subsidies at all. The farm sector needs more freedom, more opportunities to reach out to the national market, and more trade and financial instruments to manage risk.

The farm sector needs mutuality and free market that enable it to demonstrate its enormous appetite for productivity improvement. Farmers are India's foremost capitalists, and they can be counted upon to make a vital difference to the total economy. But it is important to eliminate obstacles to their economic growth. It is more important to reinforce policies that promote economic confidence and growth. The minimum support price (MSP) policy is an example. It is a critical policy component of the Indian economy and can promote confidence and strong economic growth.

The extension of the MSP to all crops and agriculture produce and across the nation can generate broadly diffused purchasing power, health and wealth. But the MSP need not involve any subsidy at all. It can be operated by the private sector.

Universal MSP can be put to use by the government, the private sector, small farmers, big farmers and the wholesale trade to unleash new forces that serve the economy. It would bring about the hearty involvement of people who have been excluded from nation building.

The payoffs of such hearty involvement will be handsome. It will improve farm incomes. It will eliminate the riskiness of farm incomes. It will then justify India's policies aimed at establishing a large base for manufacturing and services.

Taking the leap forward

Government as a social organisation is primarily the result of private property, money, income and profits. There was little government when property rights did not exist. Government can be regarded as society's response to opportunities related to incomes, profits and wealth.

It is not surprising that the success of governments has always been measured in economic terms. It is also not surprising that countries become economies when their governments begin to excel in creating wealth.

Reforms are a continuous process when prosperity and wealth become central to a society. The first wave of reforms was launched 13 years ago. But the sense of fulfilment remains incomplete. To be sure, there have been many success stories. But a frontal assault on waste, inefficiency, irresponsiveness and indifference in government has yet to be launched. When government is irresponsive to businesses and households, profits from businesses are small. Taxes are small too.

Waste, irresponsiveness and indifference in government sustain a vicious circle of poverty and diffidence. They destroy the resourcefulness of the nation. Hence, India should boldly slash away irresponsiveness and indifference in government. It should predicate these efforts on the self-interest of households and businesses to earn higher incomes and on the interest of government to earn larger and sustainable tax revenues.

A set of reforms aimed at slashing away irresponsiveness and indifference has become a must. Quiet clearly, downsizing is not a solution. What India needs is a new benchmark for responsive governance that touches the lives of ordinary people. Else, it would not make the full leap towards becoming an economy.

(The author is a financial analyst. Feedback may be sent to indiagrow@sify.com)