India’s reinvention is a work in progress

Former Proctor & Gamble India CEO Gurcharan Das is fond of narrating an anecdote that encapsulates the entrepreneurial experience in the India of the ‘licence raj’ era.

One bleak winter in the early 1980s, when a flu wave was sweeping across parts of India, Richardson Hindustan (as P&G was then known) ended up selling truckloads of Vicks Vaporub, the cream that provides relief from cold and cough. But rather than serve as cause for celebration, it only induced anxiety in Das.

That’s because the company had overshot its government-approved manufacturing capacity, which was considered a cardinal sin in the heavily controlled industrial ecosystem under then Prime Minister Indira Gandhi. “My company secretary told me that I could be prosecuted for exceeding the production capacity,” recalls Das. “I lived with that fear — whereas anywhere else, I’d have been rewarded!”

Das’ account symbolises the frustrations of entrepreneurs who sought to navigate India’s closed economy during the post-Independence phase, right up until the big-bang reforms of 1991.

Even today, vestiges of that restrictive era remain in pockets of the economy, but today – as India stands on the threshold of its 70th Independence Day — it is possible to look back and celebrate, with some caveats, the incredible journey that the country has been on.

Changed landscape The economic landscape today is vastly different from 1947 (see Graphic: India in Numbers ). What was once predominantly an agrarian economy (agriculture and allied activities accounted for 52 per cent of the GDP in 1951-52; today, that’s down to 15 per cent) has morphed into a semi-industrial and services economy that is today the world’s seventh-largest, with GDP in excess of $2 trillion.

Along the way, it has weathered political and economic turmoil on an epic scale, muddled through two decades of Nehruvian, Soviet-style statism, opportunistic invocations of ‘socialism’ during the Indira Gandhi years, and the first tentative efforts at opening up under Rajiv Gandhi, which however only accentuated the infirmities in the economy and culminated in July 1991, when the country came perilously close to the ignominious prospect of defaulting on its external balance of payment obligations.

That crisis set the stage for sweeping economic reforms, which have, without risk of exaggeration, dramatically transformed the economic landscape and the business ecosystem and unleashed tremendous entrepreneurial energies, causing old-world industrial empires to reinvent themselves – or fall by the wayside.

The momentous nature of what happened in 1991, under the stewardship of then Finance Minister Manmohan Singh, is universally acknowledged. Gurcharan Das puts it bluntly when he says: “If not for the reforms, we would have remained a Third World basket case.”

Legitimate pride As RBI Governor at the time of the post-1991 reform process, C Rangarajan, currently Chairman of the Madras School of Economics, played a pivotal role in steering monetary policy. With that experience, together with his experience of having served in various capacities in successive governments, he sums up India’s economic journey over these 70 years thus: “From where we started (at the time of Independence), we have come a long way. And even in terms of growth, one can legitimately be proud of our achievements” (see Interview ).

In his view, however, India’s standing would have been vastly better today if it had embarked on the reform process in the 1970s, when it first became clear that the state-led model had not quite yielded the kind of growth that had been targeted. “We would have gained another decade and a half at least in terms of higher growth. And given the social orientation of our policymakers, that would have allowed them to move faster to reduce the drawbacks on the social side,” Rangarajan adds.

Stark failures India’s failures on the social front are stark: despite decades of “poverty alleviation measures”, it will continue to account for the largest share of the world’s poor for a considerable period, even if it keeps up its rapid economic growth. And its ranking on the global Human Development Index makes a mockery of its claim to being the world’s fastest-growing major economy.

But the consensus among economists is that equity is best served by growth. That certainty has often eluded policymakers, with disastrous consequences for both growth and equity.

Today, with the Narendra Modi-led government projecting itself as keen to enhance incentives for the private sector, a sense of cautious optimism permeates. “This is the first time in Indian history that the government is at least trying to remove roadblocks for entrepreneurs,” says Das, with perhaps a touch of hyperbole.

The past 70 years have not been insubstantial, and there is a widely shared sense that India’s best years are ahead of it. It will, however, need more than good intentions and momentary feel-good sentiments if India is to perform up to its potential.

With inputs from Muthukumar K

( Over the next week, BusinessLine will trace the evolution of a representative sample of companies that have been around since Independence – and which continue to thrive today. Tomorrow,we look at SBI)

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