BusinessLine@25

India is an economic powerhouse in the making

RC Bhargava | Updated on January 27, 2019

Twenty-five years ago I was hugely optimistic that with the control and licence raj ending, India would move to an economy largely regulated by market forces. I was hopeful that competitive forces would start to operate in all sectors and that would result in products and services improving to reach global standards. Some areas of business did benefit from liberalisation and competition. Mobile telephony would never have spread to all corners of India, with costs becoming the lowest in the world, without the lifting of controls and opening up to competition. The disappointment over these years has been the failure to extend the full benefits of liberalisation to all sectors of manufacturing and services. Agriculture remained a highly controlled and regulated sector and the rural-urban income disparities only increased. The mindset of policymakers only partially changed from the full control mentality of the past.

The automobile sector immensely benefited from competition. Licensing was abolished in 1993, and in a few years most global manufacturers headed to India. This was to a large extent because the unexpectedly large success of Maruti convinced the world of the potential of India. The production and sale of cars has continued to grow, from less than 200,000 vehicles then to nearly 4 million cars now, making India the world’s fourth-largest car producer. The quality, design and performance of cars is world-class. The sale of cars generates huge downstream employment. India exports about 750,000 cars a year and the auto component industry not only has a turnover of over $51 billion, but earned $ 13 billion by exporting components in 2017-18. Can the benefits of free competition be doubted?

In this period, Maruti Udyog itself underwent a huge transformation. From a Public Sector Undertaking, it became a 50-50 joint venture between the government and Suzuki Japan in 1992. After a few years, the government wisely decided to let Suzuki Japan manage the company and gradually diluted its holding to zero in 2007. Maruti became Maruti Suzuki India Limited, was listed, and is among the top ten companies in the country, with a market capitalisation substantially larger than its parent in Japan. I wonder what Maruti would be like today if the government had decided to continue it as a public sector enterprise.

There are several other success stories in the past 25 years. Despite these successes, overall industrial growth has not accelerated, and manufacturing has remained between 15-16 per cent of GDP. India over the years became a country where it was very difficult to do business or establish a competitive manufacturing industry. Tax evasion, black money and corruption continued to grow and flourish and was accepted by most as a permanent part of life. Team working and partnership between politicians, bureaucracy and industry failed to develop and resulted in economic growth being below our potential.

It was only from 2014 that the process of change in this area started. India’s Ease of Doing Business ranking has improved by 65 positions in these four years, but even now new investments in manufacturing are slow. Several measures taken by the government, including introduction of the GST and direct transfer of benefits to the poorer sections of society have resulted in better tax compliance and reduction in black money. Digitisation is spreading and reducing the ability of the bureaucracy to hold citizens at ransom. The pessimism that had crept in due to stalled liberalisation is slowly giving way to optimism.

The past 25 years have seen the social change that the internet and the smartphone is bringing to the country. In 1993, there were no mobile phones. Now hardly anyone, and especially the young, can be seen without it. The ability to access information about any subject from anywhere in the world is rapidly changing the thinking and behaviour of the youth. They are becoming much more independent of the beliefs and thinking of earlier generations. Their aspirations are very different, and they want jobs and the means to meet these aspirations.

The reduction in the voting age to 18 has led to the voting power of the youth increasing in every election. They no longer vote as their parents did and caste and religion are not as important as development and jobs. It is exciting to think that in the next quarter century, politics in India will become development-oriented, productivity and competitiveness will rise sharply and India will become an economic powerhouse.

The writer is Chairman, Maruti Suzuki India.

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Published on January 27, 2019
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