The Hindu Business Line : Unleashing Indian entrepreneurship

An entrepreneurial mindset is re-emerging in India. Unlike the generations before them, young Indians are no longer obsessed with poverty, but with the country's future. This gives India a fighting chance. R. Gopalakrishnan presents the devel opments in India from a professional manager's perspective and illustrates how the mindset of a nation gets shaped by its experiences and images.

MOST of us try to understand a country through economists, historians and tour guides. I wish to present developments in India from a professional manager's perspective, which concerns itself greatly with the context of issues and its influence on the decision-making and strategic mindset.

In management-speak, the word strategic intent is used to connote three dimensions — a sense of destiny, direction and discovery. Put simply, this is tantamount to mindset. To truly understand what is going on, one needs to appreciate the changes in mindset, because that is what precedes agendas and actions.

I will briefly touch upon the mindset around Independence and after 30 years of central planning. For the larger part, I will review India's current entrepreneurial adventure into world markets and relationships.

Mindset around Independence

In 1930, Will Durant, speaking about India, noted that "the economic drain out of resources of the land... has reduced India to a land of famines more frequent, more widespread and more fatal, than any known before in the history of India or of the world."

Not surprisingly, the priority of dealing with food shortage was fully grasped at the time of Independence in 1947. At that time, Amartya Sen's thesis was not known, that is, that no substantial famine has ever occurred in any independent country with a democratic form of government and a relatively free press.

However, it is entirely true to state that during the last six decades of Independence, the exercise of political rights by the people of India has put pressure on the government, compelling it to respond to the acute suffering of the people.

Potential famine has been prevented in India, often by creating countervailing employment.

It would be incorrect to derive the impression that avoidance of famine has been India's major achievement. The purpose of recounting the background elaborately is to illustrate how the mindset of a nation can be shaped by its experiences and images.

In the course of the freedom struggle, a nationalist economic platform had emerged in the country. The leadership was acutely aware of the need for industrialisation to modernise the economy.

The problem that some other countries faced was avoided. First, inadequate growth of food production and, second, a lack of general economic growth due to an undiversified production structure. The nationalist economic agenda worked — imperfectly, but pragmatically.

Mindset after Central planning

After Independence, the country had little foreign exchange, not much industrialisation, and was in quest of an appropriate development strategy. In those days, all intellectuals were smitten with socialism, and so was Jawaharlal Nehru, who was deeply impressed by his visit to the Soviet Union. India embarked on a centrally-planned, socialist model of development, but fortunately co-existing with private enterprise. Unfortunately, the results were not so good .

The year 1991 was when liberalisation began in most people's reckoning. Intuitionally, I have felt that liberalisation in India began in the 1980s with Indira Gandhi.

The firmly shut door was eased open in 1981, but swung wide open later in 1991 . She probably had felt scarred and battered by the experiences of controls and the planned economy to which she was witness.

As has been observed by The Economist, the long-term growth in India accelerated from 3.5 per cent up to the 1970s to 5.4 per cent in the 1980s and 5.9 per cent in the 1990s. Expressed more dramatically, it took 57 years to double the per capita GDP in the 1970s, now it takes only 18 years.

Due to the reduction of population growth, the per capita GDP has more than trebled 1.2 per cent in the 1970s to 3.9 per cent in the 1990s. So, the question does arise: When exactly did the transition to high growth happen? I came across a paper that demonstrates that the transition to high growth occurred around 1980, a full decade before the 1991 liberalisation to which much credit (and criticism) accrues.

Dani Rodrik and Arvind Subramanian argue that the growth transition of the early 1980s was grounded in an impressive increase in productivity. Amazingly, the total factor productivity in 1980-1999 surpasses that even of East Asia in the first 20 years of the East Asian miracle.

So what caused this sudden jump in economic growth and productivity? Through their analysis, they rule out factors such as external liberalisation, public investment, Green Revolution and internal liberalisation.

They explain the transition through certain elements. First, an attitudinal change on the part of the government. Second, this shift was pro-business rather than -competition. Third, these small shifts elicited large productivity responses because the economy was operating well below its potential.

Last, the already developed infrastructure for manufacturing played a key role in the growth due to the stimulation of these factors. I feel very persuaded by the argument that there was a mindset change around 1980.

Just as there was a pre-Independence mindset fashioned by the legacies of colonialism, there was an inflection in 1980, fashioned by the legacies of over 30 years of a centrally-planned economy.

After several years of the deregulation mindset, there is an entrepreneurial mindset driving the agenda for the next future.

Entrepreneurial mindset ahead

An entrepreneurial mindset is re-emerging in India. Unlike the generations before them, young Indians are no longer obsessed with India's poverty, but with its future. This gives India a fighting chance.

I wish to make four points regarding entrepreneurship: First, that it has been in the national gene; second, that the openness to productivity ideas has been a strong driver; third, that entrepreneurship is contagious and success attracts others in a virtuous cycle, a cycle in which India is now happily placed; fourth and last, it is manifested in three examples I will use — in manufacturing, knowledge and microfinance.

It is noteworthy that right from ancient times until 1900 India had been entrepreneurial, outward-looking and had a foreign trade surplus. As late as the 1920s, India was ranked fourth in world trade with a market share of 2.5 per cent as against 0.7 per cent today.

Trading took Indians to Africa, the Caribbean, Malaysia and the Arab world over the centuries. Therefore, the first point that I wish to make is that the colonial period apart, during the first few decades of Independent India, central planning and socialist policies frustrated the natural entrepreneur — I say, frustrated, not suppressed!

That centuries-old DNA of entrepreneurship and restlessness has once again started to find release — that is why Indian businessmen are again in a mood to go out and do business with the rest of the world.

The second point I wish to make is that adoption of productivity techniques has been a strong instrumentality. For instance, until the 1980s, one would not find global consultants operating in India. Today, you would find McKinsey, BCG, A. T. Kearney, Accenture and several others, serving clients who are hungry to cut costs, improve margins and become competitive.

Or look at the area of quality — the first time any Indian company got the Deming Award was in 1998, but after that one in 2001, two in 2002 and five in 2003. Same with respect to the TPM Excellence Award — one each in 1995, 1998 and 1999.

Thereafter, three in 2000, seven in 2001, eight in 2002 and fourteen in 2003. Of all the software firms in the world certified at the highest level of CMM level 5, three-fourths are in India!

So, for sure, one can recognise some of the instrumentalities that have been responsible for the changes that are occurring.The third point I wish to emphasise is that entrepreneurial behaviour is contagious, creates a flocking mentality, a bit like gold prospecting. Idea entrepreneurs in knowledge industries create new ideas, new segments or entirely new markets.

Thus, it was Texas Instruments which first set up a global R&D centre in Bangalore 20 years ago. Several others flocked and, today, there are 100 global R&D centres in Bangalore. Prior to 1995, venture capitalism was unknown in India. Venture investment in India in 1996-97 was $20 million; last year it reached $1 billion!

Thus, there is a mindset change among venture capitalists as well as entrepreneurs. The fourth and last point is for me to illustrate this entrepreneurship through three anecdotal examples of manufacturing, knowledge and microfinance.

(To be concluded)

(The author is Executive Director, Tata Sons.)