Wednesday, December 31, 2003

Is India Really Shining ?

The Economic Times, 30, Dec 2003

Indians have good reasons to feel confident. Our economy has grown 5.9 percent per year since 1980, making it the fifth fastest growing major economy in the world over a 23 year period; this is not a case of one swallow making a summer. We may be well behind China, but remember that the West created its Industrial Revolution at a 3 percent growth rate over 100 years. More recently, our population growth has begun to slow, and in 1998 it was down to 1.7 percent compared to its historic 2.2 percent growth rate. Literacy has also begun to climb—it reached 65 percent in 2000 compared to 52 percent in 1990, with the biggest gains taking place among women and the backward states. More than 200 million Indians have risen out of destitution since 1980 as the poverty ratio has declined to 26 percent. And we may have finally found our competitive advantage in our booming software and IT services. Finally, all this has happened amidst the most appalling governance; imagine, what might happen if governance improved.
If our economy continues to grow at this rate for the next three decades—and there is no reason why it should not—then the majority of the people in half our states should be middle class in the first quarter of the century and the other states should get there in the second quarter. At that point poverty will not vanish, but the poor will come down to a manageable ten percent of the population, and the politics of the country will also change.

I travelled widely across India in 1995 and discovered that the nation’s mindset had changed in the nineties, especially of the young, whose minds had become decolonised. This became one of the premises of my book, India Unbound, and I felt this mental liberation would be a powerful force in national regeneration. I also wrote that for all Indians to benefit from our recent prosperity we needed to reform agriculture and education. We are on the verge of a second green revolution, which like the first one will be labour intensive and will be based on a technological breakthrough (this time, on the new GM seeds.) For that to happen we need extensive agricultural reforms and move away from peasant farming to agribusiness. Equally, we must drastically improve our government schools in order to offer some hope of equality of opportunity.

Our national weakness is governance. We have to recognise that our past failures were due less to ideology and more to poor management. Hence, we have to focus on the reform of our institutions more than even of policies. This is a much tougher job. Let’s take heart from the institutions that do work—Indians admire the armed forces, the Supreme Court, the Reserve Bank and the Election Commission. (Curiously, except the Election Commission, these are the same institutions that Americans admire most in their country.) So, it is possible to have good institutions in India. If we can reform telecom we should also be able to do the same with our institutions of electric power. India Shining will have a hollow ring unless we sustain vigorous reform of our institutions, including the control our disgraceful fiscal deficit.

National confidence is a good thing; it makes ordinary people do extraordinary things. Ask a historian of Rome, and he will testify to its amazing power. Or of post-Meiji Japan, or 19th century Britain, or even current day China—they will all bear witness. Ask a CEO and he will tell you that a sustained positive feeling among employees often separates success from failure. To be sustained, however, confidence has to be based on performance, not on bombast. Also, confidence can easily degenerate into chauvinism, arrogance and militarism, and these are bad things. Finally, the truly confident know they are good; they are ‘quietly confident’ and don’t need to proclaim it in ‘India Shining’ campaigns.

To India’s entire political class Brutus’ famous words in Julius Caesar (about ‘a tide in the affairs of men’) should be a timely warning: that we stand at a crucial moment in our history when the stars appear to be on our side. If we do not seize the moment and improve our governance and accelerate the reforms, then history will not forgive us.

Saturday, August 16, 2003


Outlook, Aug 15, 2003

A resident of Vadapalani Road in Chennai wrote to me last year to say, “Our street used to be one big garbage dump. The bin outside our home was always overflowing because the corporation van did not often show up. My neighbour in frustration used to set the garbage on fire, but the smoke irritated my asthma and I would douse it with water. So, we began to quarrel and we fought all the time.

“But one morning the dustbin suddenly disappeared and a brightly painted cart stood at my door with a boy in uniform and gloves. Called the ‘street beautifier’, he taught us to separate our garbage at home. Each morning he would empty the organic waste into the green section of his cart and the recyclable waste into the red section. When he had covered the street, he would take the cart to our Zero Waste Centre, and empty the organic waste into a storage tank that had holes at the bottom and where it got converted to compost. He would sell the recyclables and the compost to augment his income. I have to pay Rs 20 a month for this, but our street is now spotlessly clean, and where there was garbage outside each home, we have now planted trees.”

All this happened, she told me, because residents of Vadlapani Road decided to form an Exnora Club. Started by M.B. Nirmal, a bank manager, the Exnora civic movement has been so successful that it has rapidly spread across the entire South, and now covers 40 per cent of Madras city, 75 per cent of its suburbs and has clubs across Tamilnadu and the three southern states. Its 17,000 street chapters provide clean, scientific garbage collection to approximately 17 lakh homes. Having realised their collective negotiating power, many clubs have begun to solve other civic problems, such as sewage, street lighting, and water supply through their municipality. Hence, Exnora was recognised by the United Nations Conference on Human Settlements in 1996 as one of 100 Best Urban Practices around the world.

The story of Exnora is not unique. It is one of hundreds of examples of a new India that began to emerge in the nineties, and I think it happened because we broke decisively with the old dogmas of the ancien regime, shedding our earlier rigidities of the mind, as we discovered a new view of ourselves and of the world. This change in mindset more than anything can help to unravel the behaviour that underlies the theme of this special Outlook issue.
We were liberated politically, economically, and socially in the nineties in India, but the biggest change by far has been in our minds. Politically, we were freed from the rule of a single party—nay, from the dynastic rule of a family; but more importantly, power has increasingly begun to filter downwards to the states and to the villages, as local self-government (“panchayati raj”) has slowly become a reality. Economically, liberalisation began to free us day by day from the heavy hand of bureaucrats and politicians. Socially, the lower castes have continued to rise through the ballot box and growing literacy. In Bihar and Uttar Pradesh, the newfound freedom is palpable in the body language of the Yadavs and other backward castes.

The profoundest change, however, has been mental and the young have led the charge. Our minds have become decolonised, and there is a new feeling of confidence in the air. Gone are many of our inhibitions and hang-ups of the past. Economists and businessmen instinctively understand the value of confidence in entrepreneurial success and in creating a climate for investment. Historians also understand the power of confidence in national success, and they point to examples in Roman history and Japan’s success after the 1868 Meiji reforms. We have begun to observe some of this self-assurance in India since the nineties.

I don’t think we know why this has happened. Perhaps, it is the impact of television, especially with the advent of competitive cable TV. Perhaps, it is due to the reforms, which have been reducing the intrusive power of the state in our lives, making us begin to rely on ourselves. What we do see is lots of young Indians moving about in all manner of new ways, with a “can do” attitude that doesn’t need approval from others, especially from the West. People have begun to speak on these cable channels in a curious mixture of English and Hindi in a most relaxed manner, and they call it Hinglish. Pop stars like Daler Mehndi and A.R. Rehman display an exuberant nonchalance, as do the new young Bollywood heroes. So did new fiction writers in English, the designers of fashion clothes, the beauty queens and the cricket stars.

Making money became increasingly a legitimate route to success in the nineties, as we lost our earlier hypocrisy towards wealth. All sorts of unlikely people began to take risks with their savings, either by starting new businesses or on the stock market. There was a flowering of entrepreneurship since no one needed a licence to get started, and the discourse in India gradually began to shift from politics to economics. The business pages of newspapers became livelier; chief ministers in the states scrambled for private investment; judges became more even-handed in industrial disputes and no longer assumed that capital must always exploit labour. Even trade union leaders began to rethink their mission.

Our changed attitude to English, I think, best explains this new mindset. When I was growing up it mattered far more how you spoke than what you said, and you could get away with rubbish as long as you said it in the right accent. Today, young Indians in the new middle class think of English as a skill, like Windows or learning to write an invoice: “I need to answer my customer in Hungary and my supplier in Taiwan, so I have to know English.” And this is why Hinglish is spreading. Encouraged by Zee, Sony and Star TV, and supported by their advertisers, the newly emerging middle classes avidly embrace this uninhibited hybrid of Hindi and English, and this popular idiom of the bazaar is rushing down the socio-economic ladder. The purists naturally disapprove, but most of us are more comfortable and accepting of it today. This is because we are more relaxed and confident as a people, realising that this is how languages evolve. Over the decades we have learned painfully that it is often better to go with the tide than to impose one’s will--all those damaging experiments in Bengal, Gujarat and other states, which deleted English from the school syllabus, have been quietly rolled back.

Ever since the British left we have heard constant complaining against the English language, and then one day in the 1990s it suddenly disappeared, and quietly, without ceremony English became one of the Indian languages. English lost its colonial stigma, oddly enough, around the time that the Hindu nationalists came to power. Hindi protagonists lost steam because they lost their convictions--their own children wanted to learn English. Based on present trends India will become the largest English-speaking nation in the world by 2010, overtaking the United States, according to the English linguist, David Dalby, the author of Linguasphere Register of the World’s Languages and Speech-Communities. Dalby predicts that India will then become “the centre of gravity of the English language”. Thus, it would seem just as intrusive to want to remove English from India today, as it was to introduce it during the time of Rammohun Roy and Macaulay.

Beyond language, I also think young Indians are more willing today to face life as it is and see it without the gloss of religion. They are less willing to evade life. The old Hindu-Buddhist idea that ‘life is suffering’ no longer resonates. Like all the other evasions, religion is fading in their lives. Life contains none of the qualities traditionally described by religion. But modern life too, they realise, is difficult to exult over. So, they are ready to put up a fight against all odds--against dowry, insolent bureaucrats, greedy businessmen--and even if they don’t win, the struggle affirms them. Even in defeat it is the struggle that matters. Let me conclude this enterprise on a sceptical note, however. One ought to be careful (and humble) in making statements about national character for these generalisations are inevitably over-simplifications of a complex reality, and end in stereotypes. Especially when one is talking about an infuriatingly diverse country like India—no matter what one says about it, the opposite also holds true. Hence, we get rubbish such as Nirad Chaudhari’s Continent of Circe or Naipaul’s An Area of Darkness--both books filled with wonderful insights yet in the end so wrong in the way they distorted rather than uncovered reality.

This is why I feel more comfortable with the economist’s explanation of change. Marcur Olson and others who look to institutional change to explain behaviour would say that the many liberations and the new energy we are seeing in India is the result of a gradual reform of our statist and socialist institutions of the Licence Raj. They would argue that Indians are simply responding to the new incentive systems created by the reforms and learning to depend less on the state and more on themselves. And this simple explanation of our confident new mindset is a good reason, I expect, to support wholeheartedly the whole enterprise of economic reform.

Thursday, August 14, 2003

A Winning Strategy for Post-Reform India


The truth is that a decade after the reforms most Indian companies are floundering. With a couple of dozen exceptions the vast majority has failed to become truly competitive. Our companies have still not acquired the confidence or the skills to succeed in the global economy. Most continue with a “factory mindset” when the industrial age is disappearing. Most sell cheap, shoddy products.

It has become increasingly clear that a definite divide has emerged in Indian business. And it is not the divide between the so-called “new” and “old” economy companies. It is between those companies who have a clear strategy and are quietly building competitiveness and those that are not.

The best Indian companies have been re-inventing themselves, building on their strengths, investing in talent and technology, and approaching the type of competitiveness achieved more broadly by Korea and Taiwan. Reliance and Hindalco are two outstanding examples. Those who think that Indian brands are disappearing should note that Titan watches are stronger after the entry of Timex. Maruti may have lost market share, but it is putting up a good fight and becoming innovative. BPL, Videocon and Onida are holding their own in colour TVs, despite the entry of global players. Bajaj may be struggling, but this has more to do with a shift in the market than competition. Even Thums Up is well and alive within the coke stable. Taj and Oberoi continue to expand their world-class hotel chains.

There are only three ways that a company can create sustainable competitive advantage. It can compete on the basis of superior costs or superior products or superior service. There is no fourth way. I find that most Indian companies are still following the cost/price strategy. This is a vulnerable approach—for example, when the neighbouring country devalues, your cost advantage disappears overnight, as we learned painfully during the East Asian crisis.

Indian companies have many failings—they are short term; they try to do too many things and lack focus; they do not invest enough in improving their employees or their products; they have been unable to separate the business’ and the family’s interests—but, I think, their biggest failing is that they are following the wrong strategy.

It is unrealistic to expect Indian companies to become technology leaders. This is not because Indian scientists are not capable, but because Indian companies will take time to mobilise the power of science and create a technology driven culture. The companies of Korea and Taiwan still do not have a technology edge. Eventually, some will become innovation-driven, but it will take us 10-15 years to get there after sustained investments in R&D.

The right strategy for Indian companies is the third--to differentiate themselves by offering unparalleled service. This is a far cheaper strategy than to invest in R&D or in cutting prices. In the competitive global market, the quality and price of most products have narrowed to the point where it is only service that distinguishes companies. A survey in the U.S. found that 68 per cent of customers are lost not because of quality or price but because of service. Service builds on the proven capability of Indian traders in the competitive bazaar economy.

Anyone who has shopped in a sari store or eaten in an Udipi restaurant knows the Indian traders' ability to deliver superior service. The employee in a typical sari store opens a hundred saris within five minutes in an attempt to sell a single one. Similarly, the waiter in a typical restaurant or dhaba delivers the customer's thali in two minutes. Among larger companies, HDFC and Sundaram Finance are good examples of superior service. Everyone recalls the positive experience of dealing with HDFC for a housing loan. The legendary loyalty of truck customers to Sundaram Finance is based on excellent service.

Commitment to a service strategy means that you hire new employees on the basis of their attitude and train them on skills. Most companies do the opposite. No matter which of the three strategies you adopt, however, you have to deliver a threshold level of quality, price, and service in order to exist. But in order to gain advantage over others, you must choose one and stay with it.

A strategy based on superior service can be especially powerful where the value added is high. Superior service delivered by highly trained “knowledge” workers—scientists, engineers, market researchers, salesmen—provides a powerful insulation against competition. Not only can knowledge workers harness the power of information technology, they can also be trained to benchmark their deliverables against competition and against customers’ needs.
Creating competitive advantage takes years of painstaking effort and few Indian companies have had the patience or the inclination to do so. It requires the ability of the top management to penetrate into the messy details of the business, without losing sight of the big picture. Most Indian businesses have found themselves hopelessly unequal to this task. Until 1991, they could blame the Socialist Raj. Now, a decade after the reforms, they have no one but themselves to blame.