Of India’s triumph and tragedy

Tata’s purchase of Jaguar and Land Rover marks a special occasion in the history of Indian business. In a way, there is nothing new since Tata already own Tetley Tea and Corus. But there is a historical perspective. Steel is an industry which has been migrating eastwards for some 20 years now. The Japanese were the first and then the South Koreans. Lakshmi Mittal is a global steel maker and Swraj Paul also has his reach in many countries. So Tata buying Corus was news, but not a milestone. After all, Tata is also a century-old name in steel.

Car-making is another game altogether. In the decades since mid 1950s, first the British with their Mini, Germans with VW, French with Peugeot and Italians with Fiat had competed away the American advantage. Then the Japanese piled in followed by the South Koreans. Each established their brand of car, sold in global markets and grew. Here, however, Tata has gone straight to the heart of the industry, buying two classic brands.

There is Nano to come and it will no doubt revolutionise the economics of car pricing.  Here is a global Indian company arriving in the auto industry with a bang. It is not a basic material industry like steel or consumer goods industry like tea or beverages. This is the consumer durable, high-value market. How have Tata done it? After all, the story we all learnt in our history books is that the British de-industrialised India, recalled Dhaka muslin and chopped off fingers. We thought until independence there was no industry and only planning and socialism built up the basics. The private sector could not be trusted to build the foundations of Indian industries and everywhere —in steel, coal, machinery, heavy electricals—the government had to take the lead. So how come the Indian private sector is raiding the world?

It is time now to re-examine the old nationalist story. What really happened is that India was an early entrant to modern industrial habits. Cotton and jute textile mills, railroads, cement, glass were all manufactured in modern factories from the second half of the 19th century onwards. India had a manufacturing growth rate of eight per cent per annum between 1860 and 1900 and this went on for another 20 years. It was because the great depression coincided with the crucial years of the independence movement that we associate British rule with economic underdevelopment. How many of us know that at the time of independence India was the seventh largest industrial country in terms of volume of industrial output.

Now all this growth had been achieved under a hostile foreign government with very little tariff protection. This should be no surprise because Indians have gone all across the world and made an economic success of whatever they have chosen. India has a lot of entrepreneurial talent available, if only it is allowed to flourish. But when Independence came, the false perception of the nationalist movement was that foreign trade was bad and foreign capital had to be barred from India. So for 40 years after 1950 and the advent of planning, India infantilised its private sector. A world-class textile industry was destroyed by Datta Samant and Indira Gandhi. Today, when textile markets have been opened up worldwide, it is Bangladesh and China who are at the forefront not India.

Luckily for India, the Mahalanobis model and all that planning had to be abandoned because it practically bankrupted the economy and slow growth  crippled enterprise. India had to go with a begging bowl around the world when foreign exchange was down to two weeks worth of imports. So in 1991, reform began, at first hesitantly. It is only since the last 10 years that the private sector has really been allowed to flex its muscle. Tata’s triumph with Tetley, Corus and now Jaguar/Land Rover proves those wasted years can now be left behind.

Yet while the private sector is competitive and efficient on a global platform, the public sector cannot give up its bad habits. Ten years ago the Left Front government had given a pay award which crippled public finances at the Centre and in the states for years. It was a scorched earth strategy by a coalition which knew it would not have to live with the consequences of its folly. But now comes the sixth pay commission and it seems that the UPA is about to wreck the public finances in a bid for re-election. A 40 per cent hike in pay back dated to 2006 will cost Rs 30,000 crore by 2008-09 alone and more in the years to follow. Budget deficits will rise. The 55 lakhs employees in central government will soon be joined by state governments and every other public sector employee.

All talk of incentive-based promotion is hollow. Manmohan Singh promised administrative reforms and nothing happened. Yet everyone knows that public delivery of every conceivable public good and service is inefficient, corrupt and regressive. And having wrecked the public finances, MPs want red light-topped cars. This is designed to help them serve the aam aadmi better—block him out of the traffic and out of the way of the obnoxious official cars. When it comes to serving the people, it is never aam aadmi; it is invariably apna aadmi.

(The writer is an economist)