India Transformed
Page 57
As the Table shows, only Bangladesh fares worse than India in terms of per capita consumption of electricity. The average Chinese citizen consumes 4.8 times the amount of electricity compared to an Indian; and the average Malaysian 5.9 times. Even Vietnam’s per capita power consumption is 1.7 times that of India’s. Of the eight countries listed in Table 5, only the population of Bangladesh has lower access to electricity versus India. In terms of annual container port traffic, China dwarfs us by a multiple of 15.5. And in logistics performance—data aggregated from responses in World Bank’s Doing Business survey—again, it is only Bangladesh that does worse than us.
Much more can be said. For instance, we still do not have dedicated, high-speed freight corridors, although two are expected to come into being by the mid-2020s. Regarding national highways, we have a total of 24,900 kilometres that are presently four- and six-laned, of which about 2000 kilometres are tolled expressways. Contrast that with China: it has over 2,65,000 kilometres of highways, of which some 1,40,000 kilometres are expressways.
To understand how poorly entrepreneurs fare even after twenty-five years of reform, it is useful to glance through India’s scores in the latest Doing Business survey conducted across 189 countries by the World Bank published in June 2016. Table 6 gives the data. The story is pathetic. A quarter century after the advent of economic reforms, 70 per cent of the countries rank higher than us; 9 per cent do better in getting construction permits; 73 per cent are ranked higher in registration of property; 83 per cent face lesser troubles in paying taxes; 94 per cent are better off in enforcing contracts; and 72 per cent rank higher in resolving insolvencies. In a milieu such as this, how does a federal state such as India transform the slogan of ‘Make in India’ to actually produce more in the country?
Table 6: Doing Business in India; How Bad We Are, 2015
India
Rank
Percentage Better
Percentage Worse
Overall Rank
130
70%
30%
Starting a Business
155
82%
18%
Construction Permits
183
97%
3%
Getting Electricity
70
37%
73%
Registering Property
138
73%
27%
Getting Credit
42
22%
78%
Paying Taxes
157
83%
17%
Cross-Border Trade
133
70%
30%
Enforcing Contracts
178
94%
6%
Resolving Insolvency
136
72%
28%
Source: Doing Business, World Bank, 2016.
‘Why Should We Employ Any More?’
The header is a boardroom-level clarion cry across corporate India. It is not an exaggeration. In the last five to seven years, companies throughout India, especially those in manufacturing, have made determined efforts to reduce the labor force. In part, this has been accomplished by not replacing many of those who retire. But, in most cases, it has been to reduce contract labor and to replace them with greater shop-floor efficiencies—by use of more productive machines or by better management of throughput. So too among the sales forces that increasingly use IT and better logistics and warehousing to de-layer levels of employees. The reasons are simple enough.
First, there is a distinct concern about creating a sense of ‘permanency’. While the Contract Labour Act, 1970, does not explicitly state that contract laborers continuously employed for more than a certain number of days must be made permanent elements of a company’s rolls, labor courts and high courts in various states have often taken a view that it should be such, especially when they believe that the nature of the job is ‘permanent’ and that the contracting arrangements are façades to prevent creating permanent employees. Companies, therefore, are either rotating their contract employees or limiting them to ancillary activities or, as in recent years, replacing such labor with mechanized systems.
Second, given the absence of adequate flexibility in the employment of labor, especially ‘workmen’, many manufacturing companies have opted for labor-saving computer-numeric-controlled machines and more scientific organization of workflows. Prices of highly efficient versions of such machines are significantly lower today than in the early 1990s; and the benefits are such that, in most cases, wage savings and higher output allow the capital cost to be recouped in a couple of years. Thus, a cotton mill today—be it pure spinning or a composite unit—employs far fewer workers than it would a couple of decades earlier; so too do automobile and auto-ancillary manufacturers, and even traditionally labor-intensive factories that produce garments and piece-goods. This shows up in the employment elasticities.
The Planning Commission published some disturbing figures a few years ago. Between FY 2000 and FY 2005, employment across various sectors increased by almost 61 million to 457.5 million people. Since then, however, employment growth has dramatically slowed down: between FY 2005 and FY 2010, it grew by merely 2.7 million to reach a total of 460 million. The largest absolute decline in employment was in agriculture, by 15.7 million people, or by 6 per cent of the number employed in 2004–05. The second worst was in manufacturing, down by 7.2 million people, or almost 13 per cent of those employed in 2004–05.10
More disconcerting is the sharp fall in employment elasticity, or the percentage change in employment for a percentage change in the value added. For all sectors taken together, the employment elasticity has slumped from 0.44 between FY 2000 and FY 2005 to 0.01 in the next quinquennium (FY 2005 to FY 2010). Manufacturing has seen a fall from 0.76 in the first period to –0.31 in the second. In other words, growth in value addition has occurred in the milieu of an absolute decline in employment. So too was the case for agriculture: down from 0.84 to –0.42. What is probably most disturbing, given its share in GDP, is that employment elasticity in services slumped from 0.45 to –0.01.
Given that most sectors, including manufacturing, are either producing more output with the same or lesser number of persons, the country faces a huge problem of gainfully employing the potential labor supply. The numbers are huge. According to the sixty-eighth round of the National Sample Survey conducted in FY 2012, the ratio of workers to the sample population of men and women (called the worker population ratio, or WPR) was estimated at 0.544 for males and 0.219 for females. Even if these WPRs are held constant over the next two decades, India would still be looking at the need to create additional employment for over 12–15 million workers each year right up to FY 2036.11 How is it going to be possible in a climate of declining or negative employment elasticities? Besides, a growing share of future jobs will need greater literacy, IT and machine skills. Given the state of education and technical training in India, how can one expect even a reasonable percentage of the additional 20 million people seeking jobs each year to have these requisite skills?
This is a central problem of India’s political economy—an issue that we are resolutely pushing under the carpet, for it is too difficult to comprehend, let alone tackle. It is all too facile to exult about ‘demographic dividend’ in public when we are looking at the face of a demographic and employment nightmare. Somehow, we refuse to come to grips with this central challenge.
The Way Forward
In seminars, when supremely frustrated by poor papers and silly questions, the late Prof. Mrinal Datta Chaudhuri of the Delhi School of Economics used to angrily sputter, ‘Can we stop prefacing sentences with “But in a country like India …”’ There is much truth in this. India is a ‘time-series nation’, in that we love comparing ourselves today with ourselves yesterday. Getting a cross-sectional perspective, or how we stand against other
comparable nations, is alien to our thought or analysis. The first step in the way forward over the next quarter century is to get away from self-satisfaction and critically examine where we are versus others that matter. Yes, as this chapter has shown, we have accomplished much in the last twenty-five years. Equally, we have relatively achieved far less compared to some other Asian nations and have a very long way to go. To understand this, consider a brief comparison between India and China, culled from the World Bank’s World Development Indicators.
In 1990, our current dollar per capita GDP adjusted for purchasing-power parity was roughly similar to China’s. By 2014, ours had risen to $6009 and China’s to $14,239, 2.4 times that of India’s.
Even after scaling down, China’s gross capital formation stands at 46 per cent of GDP. Ours at 30 per cent, 16 percentage points lesser with a far lower base.
China’s adult-literacy rate for males and females is 95 per cent; ours is 69 per cent. China’s adult-literacy rate for females is 93 per cent; ours is 59 per cent.
100 per cent of the population of China has access to electricity versus 78.7 per cent in India.
The quality, quantity and efficiency of physical infrastructure in China is significantly, almost incomparably, superior to India’s—be these railways, highways, expressways or ports.
China’s share of industry in GDP is almost 43 per cent; ours is 30 per cent.
We are ranked 130th out of 189 countries in the index of ease of doing business. China, which is no Singapore by a long shot, is ranked 84th.
One can continue in this vein for much longer, but the limited list suffices to prove the point. It also suggests a way forward.
For the next decade or two, let us use China as our comparator in matters relating to industrial development and GDP growth. If we do so, let us then ask the following questions:
What investments and managerial practices do we need in order to increase the rate of building sustainable six-lane highways to at least 50 km per day?
How do we ensure that every home, factory and office gets electricity 24x7 at tariff rates that ensure financial and operational sustainability for the providers of power?
How quickly can we create a railway infrastructure that rapidly and efficiently carries goods between factories and ports?
How and in what ways can we dramatically increase the scope, scale and quality of technical training across India so that young men and women above eighteen get the skills needed to be attractive to an increasingly digitized workplace?
How do we ensure that ‘Make in India’ becomes more than a conveniently worded slogan?
How do we recalibrate our public expenses so that the government spends more on creating income-earning and income-supporting capital goods than the hoary subsidies for the relatively better off?
When will we have a properly working bankruptcy-resolution process that quickly intervenes to help those firms that can be restructured, and even more rapidly intervenes to accelerate the process of insolvency and winding up?
There are other tasks as well, especially in the social and educational sectors without which we cannot expect to have a ‘future-ready’ workforce. None of these is easy. But each can be achieved. If the polity of a nation called India believes that the next twenty-five years is ours to win, it can do so. Not perfectly. But in large measure. Otherwise, we will have to remain content by saying how well we have done compared to 1991, just as we are with a silver and a bronze medal in the 2016 Olympics.
Select Bibliography
Bhandari, Bhupesh. Business Standard, 8 July 2011.
Cowlagi, V.R.S. ‘The National Renewal Fund: Promise, Performance and Prospects’. Vikalpa 19, no. 4.
Doing Business. World Bank, 2016.
Economic and Political Weekly Research Foundation, India Time Series, a digitized database.
Goswami, Omkar. ‘Generating Employment’. In Getting India Back on Track, edited by Bibek Debroy, Ashley Tellis and Reece Trevor, 89–102. Noida: Random House, 2014, 89–102.
National Sample Survey Organization, Government of India. Rounds sixty-one (2004–05) and sixty-six (2009–10).
Ninth Five-Year Plan. Planning Commission (now NITI Aayog), Government of India. vol. 2.
Planning Commission (now NITI Aayog), Government of India, database.
Prowess. Centre for Monitoring the Indian Economy (CMIE).
Public Enterprises Survey, 2014–15, Department of Public Enterprises (DPE), Government of India. vol. 1.
Reserve Bank of India, digitized database.
World Development Indicators. World Bank.
25
Animal Spirits: Stray Thoughts on the Nature of Entrepreneurship in India’s Business Families after Liberalization
Gita Piramal
A comparison between the top fifty business families in pre-liberalized 1990 and liberalized 2016 reveals just how sharply reforms impacted the nature of entrepreneurship in India’s business families. Knowledge-based businesses and consumer-facing companies seized the lead from traditional agriculture-based industries such as cotton textile mills, sugar refineries and tea plantations.
‘[It is] characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation … our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits—of a spontaneous urge to action rather than inaction … if the animal spirits are dimmed and the spontaneous optimism falters, enterprise will fade and die.’
—John Maynard Keynes, British economist (1883–1946)
Creative Destruction
‘The opening up of new markets, foreign or domestic, and the organizational development … incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.’
—Joseph A. Schumpeter, Austrian-American economist (1883–1950)
In Greek mythology, Cassandra was a princess blessed with the gift of foreseeing the future but cursed in that no one believed her. Possibly, it was not one of Virenchee Sagar’s and Manhar Bhagat’s brighter ideas to name a group company ‘Cassandra Investments Ltd’ instead of a variant of ‘Nirlon Synthetic Fibres and Chemicals’.
The months before Cassandra Investments was incorporated (1984) were the high point of the two entrepreneurs’ careers. For twenty years, Nirlon made nylon textile yarn in a plant off the Mumbai highway. The future seemed to have suddenly perked up as the government showered Nirlon with approvals for technical collaborations. Letters of intent that had been gathering dust were rapidly converted into licences. Sagar and Bhagat began building factories in Roha, Raigad district, and Tarapur, Thane district, both in Maharashtra. In 1985, the two entrepreneurs proudly announced the twenty-second consecutive year of a dividend payout, acquiring blue-chip status.
A few days later, the Rajiv Gandhi administration announced the New Textile Policy, 1985, liberalizing production, enabling technology upgradation and offering tax concessions. The tide turned suddenly but not for the better for the two business families with sons and daughters waiting in the wings. Competition, a force unfamiliar to Nirlon’s management, began applying pressure on the bottom line. The half-built factories became a drain on their resources. Sagar and Bhagat sought to balance the now with the future but the ‘1985–87 unrealised expansion plans during turbulent times for the Indian Synthetic Textile Industry led to losses and an erosion of net worth’, records Nirlon dolefully in its milestones.
The 1985 reforms were like a playful breeze fronting the gale unleashed by the P.V. Narasimha Rao administration in 1991. Liberalization released animal spirits in business families. They reacted by growing, slowing, expanding, morphing or imploding.
Roughly 6000 co
mpanies were incorporated between 1992 and 1996 by family business groups. Many were launched by first-time entrepreneurs, but the data show a fair number of re-energized business families aggressively pushing existing businesses or entering new domains.
A comparison between the top fifty business families in pre-liberalized 1990 and liberalized 2016 reveals just how sharply reforms impacted the nature of entrepreneurship in India’s business families. Knowledge-based businesses and consumer-facing companies seized the lead from traditional agriculture-based industries such as cotton textile mills, sugar refineries and tea plantations.
During this quarter century, 72 per cent of the business families that dominated the pre-liberalization period completely drop out of the list. A different set of 70 per cent enter (family splits account for the small difference between exits and entrants). First-generation entrepreneurs make up 36 per cent of the 2016 top fifty list. Another 34 per cent are second generation.
Only fifteen hardy business families survive the challenges of change. The Birlas, the Ambanis and the Tatas remain on top for the entire quarter century under discussion. Only two business families—Tata and Bajaj—maintain the same rank throughout this period. We will explore the challenge of longevity later in this essay.
A full list of India’s top fifty business houses in 1990 and mid-2016 appears in Annex 1. Special mention needs to be made of two categories of unlisted companies missing in this essay. The first category is composed of established multigenerational business families who see no reason to list. Parsi groups curiously lead the corps. The Shapoorji Pallonji Group is one of India’s leading construction companies with seventy-seven operational privately held active companies. Unlisted Godrej & Boyce&, a diversified industrial conglomerate led by Jamshyd Godrej, is an important missing firm from this survey as is Cyrus Poonawalla’s Serum Institute.