The Hindu Business Line : ‘Planned economy was needed’

Rahul Bajaj, Chairman of the Rs 9,000-crore Bajaj Auto Ltd, has been at the forefront of business for over five decades and straddled, so to say, two distinct eras in the country’s industrial development. Approachable, articulate and forthcoming, as well as outspoken, he talks about what it was like for those aspiring to make a success of business in the pre-liberalisation days. And, more typically, what the business could and should be like in the days to come.

What was the business climate of the 1950s and 1960s like? Was capitalism an ugly word, and entrepreneurship the preserve of a privileged few?

There is enough archival material on the past. I have no desire to relive it. It is relevant only as much as it helps us understand the present and plan for the future. So I will be brief.

The business climate in those years was characterised by a protected market and an economy of shortages and licence permit raj. Entrepreneurship was not only a privilege of a few but one generally needed influence and/or money to ge t industrial and import licences and merit was relatively unimportant. Both capitalism and profit were dirty words.

What challenges/bottlenecks did an aspiring entrepreneur/industry, or an existing industry face? How did business houses, including yours, put up flourishing businesses despite the multiple problems?

An aspiring entrepreneur faced problems of bureaucracy, red tape, corruption, inability to get industrial and import licences on merit. Similarly permission for technology import and joint venture was not easily available, and capital was not easy to raise if one did not have a track record.

Some people think that due to absence of competition all companies, including Bajaj Auto, benefited and made monopoly profits. This was perhaps true for some companies but not for all. A company like Bajaj Auto faced grave difficulties as we did not indulge in corruption and hence had to get permission for expansion and import licences purely on merit. This meant not only delays but, most often, also not getting what was really required.

Hence, our expansion took place very gradually over many years in spite of the fact that there was a great shortage of Bajaj scooters and three-wheelers and a 10-year waiting period. There were other manufacturers of motor scooters and hence we had no monopoly. However, due to the low price and high quality of its scooters, Bajaj Auto gradually became the dominant manufacturer of scooters and others fell by the wayside.

During the late 1950s and early 1960s, Lambretta was the preferred model as the company making it was given the industrial licence before us even though we had applied earlier. It was Bajaj Auto’s superior performance which enabled us during the late 1960s and 1970s to overtake Lambretta. Bajaj Super and Bajaj Chetak became the national two-wheelers and made lakhs of Indians mobile.

Even the MRTP Commission in a hearing acknowledged that when Bajaj Auto could have afforded to increase the prices because of waiting lists it chose not to do so. In fact, it is precisely those companies (like Bajaj Auto) which chose to focus on productivity and quality even in that era, that have survived and prospered in even the current era of global competition.

Was protection to domestic industry the need of the hour? Did you benefit or lose on account of this policy?

The policy of industrial development during 1950s and 1960s was, by and large, a correct one. For various reasons it focused on indigenous content, importance to the public sector and a planned economy. However, from the 1970s onwards this policy became dysfunctional.

Could liberalisation have come earlier than it did?

The liberalisation, which really started in 1991, should have started during the 1970s, which was a difficult period in the history of industrial development in India. Misguided socialism and licence permit raj were at their height. In the automotive industry, for example, no new joint ventures or technology agreements were approved during the second half of 1970s. For many industries it was a lost decade.

Most nations that started industrialisation late — Japan, South Korea have protected and developed their industry. Foreigners were not allowed to invest in the auto sector in Japan and were neither allowed to export vehicles to Japan. Import duties and non-tariff barriers were extensive.

Hence, our policy during the 1950s and 1960s was correct. Otherwise, we would have risked becoming an economy which had companies with screwdriver operations. Such companies exist even today in some countries like Egypt and Pakistan.

As was the objective, many companies benefited as a result of this policy and used it to acquire size which after 1991 helped them become globally competitive. To reiterate, liberalisation should have come much earlier than 1991.

How do you rate the business climate in the country today?

The business climate in the country is much better today than it was till mid 1990s. It started improving during the second half of 1990s, and Indian industry came into its own from the beginning of this decade.

Of course, many companies that did not restructure and make their operations more efficient fell by the wayside, but others grew, gained confidence and became internationally competitive and even started acquiring companies abroad.

From a net importer of foreign capital, India has become a country whose capital outflow exceeds foreign direct investment.

What actions do we need to take today to assure a better business climate for tomorrow?

By most global benchmarks, however, Indian industry still faces significant handicaps that are material, systemic and also attitudinal.

Among the material handicaps are infrastructure, especially power and ports. Systemic are still the plethora of red tape in which business, especially manufacturing, is ensnared. These refer to labour laws and matters dealing with excise, customs and sales tax.

Attitudinal handicaps are in the political and bureaucratic realm. Many of them still do not understand economics and the intensity of competitive pressures under which Indian companies operate. On the other hand, they have no hesitation in piling on further burden on business. Let me give three examples.

FTAs: Under SAFTA we get no reduced duties on auto products to Bangladesh but have given them 66 per cent reduction in our duties in a sector in which they have no current capacity. This illustrates the bad bargains the government makes. Due to the ASEAN FTA, auto component industry may take a big hit. And, there is irresponsible talk of FTA with China. Indian industry suffers a 15-20 per cent cost disadvantage vis-À-vis East Asia; FTAs, without removing these disadvantages, are a recipe for trouble.

Rupee rate: We are, perhaps, the only country in the world with a huge trade deficit, higher than global inflation, whose currency is appreciating.

This is because of service exports, NRI inflows and capital inflows. If our inflation rate is higher, logically our currency should depreciate. We have to curb unnatural capital inflows. Should we benefit FIIs and speculators, or manufacturer-exporters? The government is choosing to benefit the former and hurt the latter.

Reservation for SC/STs in the private sector: The real issue why business is and will resist this idea is because work culture in a company is its most important asset. It cannot allow its work culture to be compromised. But, for vote bank politics the whole political system would have no hesitation in legislating, as they have done in the case of reservation of OBCs in education, knowing fully well that what they are doing is wrong. This has destroyed the work culture in the government. But then, the government does not have to earn its keep.

Yet we are progressing — courtesy Indian entrepreneurship. However, progress of Indian industry is not as rapid as desirable and should be and is taking place in a skewed manner. We need to be concerned about this.

Hopefully, Indian entrepreneurship, whether in agricultural, services or manufacturing sectors, will keep taking Indian economy to greater heights in spite of political constraints which, unfortunately, are likely to continue for some time.

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