The Hindu Business Line : How fashions change in politics

There was a time when self-sufficiency was as Indian as the Ramayana, and as much venerated. Going to the foreigner for help was considered an admission of our inability to grow under our own steam. After a series of take-overs of overseas businesses, mostly western European, by Indian entrepreneurs, notably the Tata Steel-Corus deal, it has come to pass that the Finance Minister himself prescribes buying up companies abroad as the only way forward for Indian industry.

Overseas forays

Sharing his ideas with the representatives of a cross-section of Indian business recently, he sounded obviously delighted and proud at the recent economic growth figures (how all this becomes the property of one minister as if he runs the economy!). Mr Chidambaram added that the government will go all out to help industrialists in their overseas forays. Of course, the issue is no longer one of why we think this way, since we have embraced a sort of free-market economics for nearly 15 years. The more important implication is that the economy was in some sense hitting a ceiling, around 9 per cent growth rate; therefore, further growth can only come from investments abroad.

This is an unproven assumption. It begs the question why the government cannot play the same active and supporting role in the domestic market which it so readily offers to entrepreneurs going abroad. Any cursory analysis of the manufacturing industry over the past five months should show the Minister that some sectors, notably automotive and components, are already slowing down. The reduction in the growth rate and the absolute drop over the corresponding period last year is evident in the two-wheeler business, for example. Majority of the shortfall has come in the lower price bracket of the motorcycle market. The scooter and moped segments are strangely still showing a healthy growth trend.

The reasons are that the express growth of the two-wheeler market over the past few years could not have been possible but for the easy money. As a result, some degree of laxity was bound to creep into the credit evaluation procedures. Bad debts have indeed climbed, reportedly in some parts of the country to as high as 12 per cent whereas the expectation in industry circles of non-performing assets are only around the two per cent mark. Some of the lenders have clearly indicated that they consider lending against purchase of two-wheelers a high-risk venture, and pulled in their horns. The share of the purchases of motorcycles that go through with the aid of a two to three-year credit period are variously estimated as high as 90 per cent.

Shifting purchasing power

Therefore, it is clear that the breakneck speed at which the industry grew has been bought at a price — and the industry is now paying it. Nevertheless the need for continued attention to the demand side is obvious. There are many more businesses similar to two-wheelers that span the urban-rural divide and are truly pan-Indian industries that hold long-term potential. Positive policies must he pursued that help produce more out of the rural base in such a way that it shifts purchasing power to the village and increases employment there. The Finance Minister and the other economic ministries should work out what it would take to build up the agricultural growth rate too to a 6 plus per cent level, and not fight shy of looking at even a 12 per cent overall growth rate — rather than lecturing industry on inorganic growth, and taking capital out of India.

S. RAMACHANDER

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