India
Page 19
Worried that the Heavy Engineering Corporation was not running according to plan, politicians tried to help. One of their methods was to parachute in new chief executives on a regular basis: a man who ran a sewing machine company, the head of the state coal company, a major general, a manager from the railways, even a left-wing politician who had lost his seat in Parliament (and who stayed for less than a year before leaving to contest another election). During a critical period from 1964 to 1974, HEC had eight different chief executives. One left because he thought his deputy had closer links to the relevant government minister than he did, another quit because there were riots in the sprawling township, which contained more than two dozen schools and a hospital, adjoining the plants in Ranchi.
In 1968, a committee of MPs visited HEC and wrote a report. They found a large number of Soviet advisers running it, trailed by interpreters. Almost all sections of the plant were used below capacity, and attendance and time-keeping were poor. “It is with the help of Russian Experts and considerable work of foreign trained engineers some of whom are heading the shops and departments and the Junior USSR trained supervisors, that the company have been able to produce whatever they have so far.”55
During the Emergency, HEC ran a little more efficiently and the chief executive fired 170 workers and officers, the first to lose their jobs in the history of the company. When the Janata government (an assortment of opposition parties, including the forerunner of the BJP) came to power in 1977, the workers were reinstated. So year after year, HEC made the Top 10—meaning it featured in a survey of the “Top 10 Loss Making Public Sector Undertakings” in India.56 The sheer scale of the giant meant no government would dare to kill it.
The Heavy Engineering Corporation is one of the more extreme examples of how big dreams in India went wrong. A lot of what it could make was not wanted or needed. At the opposite end of the scale, or on the other axis of the matrix, was a commodity that many industries needed, often in larger quantities than was available: coal. Here, the problems became more creative, for whatever happened, the nation could not do without coal.
Indian coal is usually of poor quality and contains a lot of ash. At the time of independence, it was mined mainly in open pits in Bihar and West Bengal, and in 1956 a state body was set up to develop an indigenous coal industry. After a decade, the Ministry of Steel, Mines and Metals noticed it was not getting very far. The public sector had produced merely 37 percent of its target for coal under the Five Year Plan, while the private sector had hit 93 percent.57 The production targets had been set centrally using forecasting techniques, when the demand for coal from every sector of the economy had been aggregated, using an input-output model.
The Ministry of Steel, Mines and Metals produced a report in 1967 which stated that each nationalized mine should “prepare cost data reflecting the actual expenditure and showing separately the direct costs which vary with production”—implying nobody had thought of doing this before. “There may be scope for improvement in regard to such matters as planning, administrative and organizational set-up, staffing, procurement of equipment, control of stores, financial and budgetary control management, employees’ relationship and marketing.”58 Or, everything. Each industry in the input-output model claimed it was suffering from the inefficiencies of another. Coal blamed rail for not supplying wagons, rail blamed steel for not producing materials and steel blamed coal for not providing a regular power supply. The conditions in the mines were dangerous, with accidents caused by cave-ins, gas explosions and flooding; many miners suffered from pneumoconiosis, or black lung disease.
After her 1971 “Garibi Hatao” election victory, Indira Gandhi decided the best way forward for the floundering coal and steel industries might be to nationalize them completely. Her chosen men were Mohan Kumaramangalam and a senior bureaucrat, K. S. R. Chari, “Secretary, Coal.” Kumaramangalam was a recognizable type, and following his untimely death in a plane crash Mrs. Gandhi wrote: “He came from a wealthy, very conservative Brahmin family of Madras. While in Cambridge he fell for the ‘idealism’ of the Communist party … I took him into the Cabinet to clean up the mess that was our steel production. He did a marvellous job, but it was only just begun.”59
When the nationalized Coal India Limited, or CIL, was formed in 1975, it was apparent as production stagnated that the company was failing for the most basic reasons: a shortage of explosives, problems with transportation, non-receipt of shovels and drills, thriving corruption. Its figures for “output per man shift” were way below those of other countries. Equipment would be bought at grossly inflated prices from a single supplier, without a tender. An MP asked in Parliament how it was that a large, highly mechanized conveyor belt had disappeared from the Churcha colliery, which operated for twenty hours a day: “If that belt can be stolen then anything under the sun can be stolen.”60 CIL’s losses for 1978–9 came to $258m: this money, frittered away by just one state-run company in a single year, could have sponsored all the social welfare schemes (family and child welfare, women’s welfare and welfare of the handicapped) and all the nutritional support schemes covered in India’s entire Fifth Five Year Plan.61
By the 1980s, the company had almost 700,000 employees. One year, it reported a $12m profit when it had on closer inspection made a $65m loss.62 In 1988, the co-creator of Coal India Limited, K. S. R. Chari, did an about-turn. He admitted that despite boosting production, the nationalized coal industry needed urgent and radical change. The coal had to keep on coming, because the nation required power. In a report he detailed the incompetence of the management, the fiddling of statistics, the manipulation of coal prices and interference by bureaucrats. Chari added that CIL’s management, while far from blameless, was “a virtual prisoner in the hands of buccaneers, charlatans and mafias enjoying political clout.” Law and order problems in the coalfields of what is now Jharkhand were so serious that “there can be no solution to them without political will.”63 India’s coal industry combined the rigidity of a communist system with the latitude of a democracy—a fatal combination. In its very inflexibility at this time, the matrix was profoundly un-Indian.
During Rajiv Gandhi’s premiership, an official board was formed to suggest “preventive, ameliorative, remedial and other measures” for the “timely detection” and potential recovery of sick industries.64 A subsidiary of CIL was referred to the board when it reported a negative net worth of $55m and accumulated losses of $412m.65 The total declared losses of Coal India Limited at the time of Rajiv Gandhi’s assassination were around $1.4bn. In addition, it had overdue arrears to the government exceeding $1.2bn.66 CIL remains the world’s largest coal-mining company, and has been at times a source of corruption, with politicians from smaller political parties being given the coal ministry as a trade-off for backing the government.67
What would John Maynard Keynes have made of all this? We can be certain that such crazed deficit spending would have dismayed him no less than a global boom built on credit default swaps, with banks lending out the same money time after time and feeling safe because they had insured it with other banks. Keynes was not a Keynesian, at least not in the sense the word was used during the 1970s, as a term of abuse by economists frustrated with his nominal followers and the paralysed creations of P. C. Mahalanobis. At the core of Keynes’s bisexual, liquid mind was an acceptance of risk and a belief that any rigid system would be likely to fail, whether in economic, political or personal philosophy.
6
A DISMAL PROSPECT
WHEN THE TREATY OF PARIS was signed in 1783, breaking British power in the new United States and bringing the American Revolutionary War to a close, it took a little time for this information to reach India. At Cuddalore, a humid port on the south-eastern coast, a desultory battle continued between the French and British fleets until a messenger arrived with news that the shooting could end. For centuries, Cuddalore has been a place of interaction, a lush city, home to a wealth of Vaishnavite temples and what may
be the oldest mosque in southern India.
When C. K. Ranganathan was a child in Cuddalore in the 1970s, his prospects were poor. As a young chemistry graduate, he did not know what to do with himself. Rejecting “the Hindu mythology about the family”—by which he meant the idea that senior males should be deferred to, regardless of their ability or character—Ranganathan refused to work in a subordinate position to his elder brothers in the family business. The phrase “family business” implies something substantial, but this was a part-time operation started by his father, a mathematics teacher, to bring new goods to those who could not afford them. His father had made sachets of shampoo and sold them to people who could not manage to buy a whole bottle, along with tiny packets of Epsom salts and talcum powder. When he started out, he sealed the shampoo in lengths of rubber hose for his customers.
So here was the young Ranganathan in the early 1980s, burdened with what he remembered as “a terrific inferiority complex,” because unlike his elder brothers he was educated in Tamil and knew barely a word of English. He lived in a single room in Cuddalore which tripled as his bedroom, office and kitchen, and also rented a unit for $6 per month in a nearby town, to which he bicycled each day. His hope was that he might raise chickens, but for chickens you needed space, and he had only $300 in savings. So he decided to compete with his brothers selling sachets of shampoo. Using his knowledge of chemistry, he mixed the components in the rickety unit to make sodium lauryl sulphate, the frothable basis of most shampoo, heated it to 70°C, cooled it to room temperature, adjusted the pH, added perfume, colour and viscosity, if required, and squirted the mixture into a PVC sleeving screen-printed with the logo of his new company, Chik, named for his now deceased father, Chinni Krishnan. (A south Indian’s first name usually indicates the home village, the second the father’s name and the third their own, although this can vary and polysyllabic names like Sivaramakrishna, which include different gods, are often abbreviated; the Tamil actor and singer Mayavaram Krishnamurthy Thyagaraja Bhagavathar was known as plain M.K.T.) Then Ranganathan climbed aboard a pedal-operated polythene seal welder, not unlike a giant exercise bicycle, which he had bought for a magnificent $70, and divided the sleeving into “pillow packs” of shampoo.
He trudged the streets, trying over the course of each long day to persuade shopkeepers and other retailers to take his new product. It was humiliating: they called him a “copycat”—a loanword that has passed from English to Tamil and other Indian languages (as in “copycat, copycat, copycat killed a rat!” an insult used gleefully by schoolchildren). His family were irate at what he was doing. Ranganathan saw he would have to do something different: he would need to move and innovate, constantly. He was persistent, and like many Indians he was instinctively versatile, adapting to each change in circumstance. His philosophy was that you must differentiate your product, or your product would perish. He did not learn this at business school—he learned it on the street. If a move failed, he moved on.
“At first,” he said, “I thought that since ladies have long tresses, I will make a bigger sachet for them: 10 ml.” Tresses—an old-fashioned word, probably important in the world of shampoo, perhaps left over from the British days like “stepney” for a spare car tyre. “It didn’t sell. I tried using fuchsia, an expensive imported fragrance. I was losing money.” Then Ranganathan realized the problem: when people asked for a sachet of shampoo in a Cuddalore shop, they usually used the brand name of his brothers’ company, Velvette. But when they said, “Velvette,” shopkeepers would produce whichever brand of copycat shampoo offered the highest margin.
Lacking the financial resources to undercut his rivals, Ranganathan understood he would need to do something original. In the early 1980s no banks would lend money to small businesses, and the best rate offered by the local Marwaris was 4.5 percent monthly interest. That rate assumed you had assets to set against a loan. So he tried to make people take notice by offering a free sachet of Chik if they returned five empty sachets of any shampoo, and combined this with a flyposting campaign. It worked, until the local shopkeepers offered schoolchildren “some small chocolate” if they picked up empty sachets from the riverbanks where women washed their hair. So now he declared it could only be empty sachets of Chik. Sales rose. “Every retailer started taking orders,” he said.
Ranganathan had not been much of a success at school, but as the months passed by he found he had a genuine talent for business. He employed three casual workers, who buried the empty, redeemed shampoo sachets each day in gunny bags, and later sold the waste for reprocessing. His business spread across the southern state of Tamil Nadu: prominent film actors agreed to promote the brand and Chik sponsored the screening of movies featuring the regional superstar Rajnikanth.
By 1986, C. K. Ranganathan was manufacturing more than 20 million sachets of shampoo each year. Today, his company has an annual turnover of $140m and employs 1,000 people, making toiletries, cosmetics, cleaning products and food. He has a reputation in India as an innovator; he was the first person to put pickles in a sachet, something that had previously been thought impossible because they would leak. His products are promoted on regional radio and at big urban bus terminals, with free sachets of jasmine shampoo catching the wide-eyed visitors who are starting to move between the village and the city. His target is less the existing market than new customers: lower-middle-class families who might spend a few rupees here and there on items their parents would never have thought to buy. He has more than 20 percent of the Indian shampoo market and is known as the man behind the sachet revolution, bringing small quantities to people who cannot afford to buy more. When I mentioned the sachets of Chik to a radical journalist in Delhi, he had never heard of them; but his wife had: “Our maid uses them.”
It would be simple to depict Ranganathan as the predatory capitalist who has turned villagers into consumers (his company now calls itself CavinKare, with a possible echo of Calvin Klein), but the sachet revolution is a major feat of democratization. People who have previously been too poor to buy the products they see on billboards and movie screens can now sample the experience, and aspire to the pleasure of having shiny hair and softer skin, and washing with something other than rough country soap; at current prices, $1 buys you about a hundred of the smaller sachets of shampoo. Most CavinKare products are useful and cheap, although some such as Fairever, a cream designed to make you whiter, are unlikely to be of much benefit to anyone’s health. It plays on the Indian obsession with skin tone, where every variation of colour is mentioned and compared, and matrimonial adverts specify shades ranging from very fair to fair to wheatish to not fair. CavinKare’s Fairever, with its Kashmiri saffron and creamy milk, plays on a particular prejudice: Kashmiris are known for being fair while south Indians are usually darker; on the Fairever television advert, available on YouTube, a bride who is noticeably paler than her parents visits the house of her intended: regular applications of the cream must have worked.
Sitting in his office, bursting with energy and still struggling with his English, C. K. Ranganathan retained the intuitive, open-minded approach that got him going in business. It pleased him that his initial success came from breaking convention. His family were from a farming community, but their switch to selling was not especially unusual in Tamil Nadu, where strict caste barriers had been breaking down since the 1920s. Retail distribution, however, remained in the hands of the old merchant community, and the merchants set the rules for small manufacturers: forty-five days’ credit, take it or leave it. Ranganathan tore up tradition by recruiting a new class of distributors. He described to me how he went about it: “First I got a man who hired out bicycles to help me, then I found some retired civil servants and small landlords who wanted to go into business. I called them to a big hotel, so they would think I was rich. They gave me a payment in cash and I gave them sachets of shampoo.” He sprayed the boxes with perfume of rose and jasmine, to give the impression they contained something special. “Soon I had a
distributor in every town in Tamil Nadu—perhaps 150 of them. I helped them to make a success. It was, you might say, the blind leading the blind. Even today, I don’t extend credit.”
The rise of Chik shampoo took place during the later days of the permit raj, so India’s gradual economic liberalization in the early 1990s was a possible threat to Ranganathan. For example, during the 1980s, a company would be charged a numbing 120 percent excise duty if the annual turnover of the factory exceeded about $10,000. He dealt with this problem by paying others a good return if they opened small factory units to manufacture his products.
“After 1993 the law changed, and it was not important whether you had a big or a small factory. All the foreign cosmetic brands were coming to India. Our advantage had disappeared. It was a leadership challenge for me. I thought, we are here to stay. I hiked salaries by 50 percent, hired people from IIMA [the Indian Institute of Management in Ahmedabad, which has a high reputation] and designed new products. We advertised. Before shampoo, Indians used to take a bar of soap or shikakai, a traditional herb, to wash their hair. So we launched Nyle, a herbal shampoo range containing traditional ingredients like shikakai. It made us stand out against the new big brands. After three or four years, we came back with synthetics—and hair dye, fairness cream, lotions, deodorant. All the banks came knocking on my door, wanting to extend capital. They came to my own office. I could never have imagined that! Now, I can put a proposal to four banks and go with the one which offers the best rate. We have good machinery, we have automation, and importing quality materials is much easier than it used to be. We are starting to export to Singapore, Malaysia and the Gulf.”1