by John Elliott
The Maruti Revolution
One of the first signs that industry would change came at the beginning of the 1980s, at the same time that Indira Gandhi instigated the cement control reform mentioned in the previous chapter. This was when she initiated Maruti Udyog,4 which became a successful joint venture with Suzuki of Japan. It will never be as famous as the Model ‘T’ Ford, or the Volkswagen Beetle, but the little Maruti Suzuki 800cc car that was first sold in 1983 is the most significant vehicle ever produced in India. The Ambassador car remains India’s most famous saloon, but it is now a symbol of the manufacturing industry’s limitations, whereas the Maruti has been the catalyst for India’s modern and internationally competitive auto industry.
V. Krishnamurthy, a former top bureaucrat who became the founder-chairman, was told by Gandhi to revive the bankrupt Maruti car venture that had been started by her late son Sanjay Gandhi, who had been killed in 1980. She wanted a ‘people’s car’, but instead the 800 became a car for the middle classes and was followed by larger models. I remember people in Delhi wondering how they would fit a driver into such a small car along with their families (they did!), and complaining (before they bought one) about how it nipped in and out of the traffic around larger, stodgier vehicles. Years earlier, there were similar complaints in Britain about the iconic Austin-Morris Mini.
The joint venture with Suzuki began to unlock India’s hidden manufacturing strengths that had been bottled up by post-independence economic policies. I was at the opening of the factory in Gurgaon when Gandhi released the first cars to customers on 14 December 1983. I reported the next day in the FT that Osamu Suzuki, chairman of the Japanese company, had said to me that ‘it is difficult to have a good operation in India’.5 Demonstrating the Japanese determination to mark a new start for Indian industry, the imported management style decreed ‘the recruitment of shop floor workers with an average age of 20 who have never worked anywhere before, wear grey overalls, do physical exercises every morning and prompt time-keeping’.
Few components could be made in India because there were virtually no suppliers producing to acceptable standards. Maruti Suzuki changed that with new concepts of quality, tight cost control and process engineering, sparking a revolution that spread across India’s manufacturing industry. Not only were there no adequate component suppliers in 1983, but the idea of partnerships between a manufacturer and its suppliers was not understood. ‘A supplier was treated almost like a servant,’ says R.C. Bhargava, who was Maruti Suzuki’s managing director in the 1980s and 1990s and is now the chairman.6 Maruti changed that approach with a supplier development programme, taking 25 per cent equity stakes in some companies moving into India from Japan and elsewhere.
Now the roads are full of modern cars with Indian and international names, mostly manufactured in India, and Maruti is still the market leader. At the top end of the luxury range are imported names like Rolls Royce, Bentley, Lamborghini, in what has become their biggest market after China with foreign made models at prices up to Rs 4.5 crore, and some double that figure.
Business
The corporate scene has been transformed since 1991 – and it is for the better if one looks behind the crony capitalism that has drawn headlines in recent years and sees how companies of all sizes have grown, adapting to foreign competition and improving products. In the protected economy before 1991, the ambition of many big family business groups was to exploit links with government and prove their success by the size and visibility of their factories. They were less interested in efficiency and in operating profits. That changed when the economy opened up to international competition and foreign financing.
Information technology has played a special role because it brought a much-needed ‘can do’ confidence in the early 2000s to the business sector that had been bedevilled by India’s image of poor-quality production. ‘IT’ has also provided direct employment for over 2.5m people, and maybe another 10m in spin-off work, with annual revenues of around $100 billion, 75 per cent exported. Call centres have become stepping stones to urban success for young people who may otherwise have been stuck in their villages for life.
Business families continue to dominate and are dynastically grooming younger generations to take over control though they now mostly have to earn their positions. They are supported by professional company directors and managers, with varying degrees of delegated authority, down the line. India’s entrepreneurial potential has been demonstrated by companies such as the Tata and Reliance conglomerates straddling a range of industries, Bharti Airtel in mobile telephones (in Africa as well as India), Godrej in businesses from soaps to rockets, and Mahindra and Bajaj in autos. Some new businesses continue to excel at managing their relations with the government as entrepreneurially as their new ventures, with names like Adani in infrastructure, and various airlines, notably Jet Airways, emulating the success of the Ambanis. Many have formed pre-1991-style protectionist cliques, sometimes in league with the Indian public sector, to restrict foreign investment in areas such as defence, airlines, insurance, supermarkets and retail food distribution until they are ready to cope with the competition.
In terms of caste and business communities, Marwaris, who were the most prominent among business families, have declined. This business clan comes from the deserts of Rajasthan and grew rich serving Mughal and British rulers, but its people are basically traders at heart so could not compete in a more open world. Names like Mafatlal, Dalmia, Scindia, Walchand, Shriram (DCM), Nanda (Escorts), and Modi have declined markedly and some have vanished. Just two branches of the once dominant Birla family empire remain significant: the Aditya Birla Group, which is run successfully by Kumar Mangalam Birla and is among the biggest in the country, and the Hindustan Times media group that is run by his cousin, Shobhana Bhartia.
Ratan Tata and Others
Ratan Tata, who headed the Tata conglomerate for 21 years till his 75th birthday in 2012, has been the most lauded businessman of the post-1991 era. He was a trailblazer, notably for spearheading foreign investments by Indian companies, spending about $20bn in just over a decade. It started rather unexcitingly with the purchase of Tetley Tea in the UK in 2000. More significant was the takeover of South Korea’s Daewoo truck manufacturer in 2004, which showed that a company in India’s largely unimpressive and uncompetitive manufacturing industry had the nerve and managerial ability to venture abroad and learn new skills. This marked what was becoming a turning point in Indian industry’s self-confidence, which then grew rapidly in the mid to late 2000s, with many companies going abroad – and sometimes overextending themselves in terms of financial and managerial resources.
Tata Motors bought Britain’s Jaguar Land Rover car business in 2007 from Ford Motor for $2.3bn, which became a winner because Tata had the energy, finance and managerial strength to capitalize on design work started, but not carried through, by Ford. Less successful was a $11bn takeover of Europe’s Corus steel business that left Tata Steel heavily indebted, but together the cars and steel acquisitions helped to turn Tata into Britain’s biggest private sector employer with about 48,000 people on its payroll. By the time Ratan Tata retired, the group had become the first in India to record $100bn revenues (2011–12) and its interests ranged from tea to telecoms, software to hotels, wristwatches to defence rockets, and coffee (Starbucks) to power and steel with 450,000 employees worldwide.
No one has bestraddled Indian business in the way that Ratan Tata did. There has been no other Indian business figure of similar stature in the post-reform era, and no one near to being able to take his place as a symbol of managerial ethics and success despite the group’s mixed reputation on environmental controls.7
Economics
The reforms had a surprisingly limited impact on sustained economic growth. In the 1960s and 1970s, the GDP growth rate had averaged only 3.5 per cent per year when other developing countries were growing much faster. The tentative reforms of the 1980s saw just under 5 per cent growth (5.6 per cent,
if a 1988–91 boom is included), but that was largely based on a build-up of external debt that led to the 1991 crisis.8 The 1991 reforms led to 6.7 per cent growth in 1994–95, but that slowed to 5.4 per cent in the second half of the 1990s, averaging 5.7 per cent over the decade – almost back to the 1980s’ levels. India then entered what was billed as its shining years in the first decade of the 2000s, spurred as much by favourable global conditions as by the cumulative effect of the reforms, with growth nearing an unsustainable rate of 10 per cent. By 2013, however, it was back to not much more than 5 per cent as a result of adverse world economic conditions and insurmountable supply-side constraints within the country, ranging from bad infrastructure and skills shortages to weak and corrupt government institutions and blockages caused by environmental and other regulations.
Industry still only accounts for about 27 per cent of GDP, marginally more than 25 per cent in 1991. This is mainly because manufacturing has been stagnant at around 16 per cent since the 1980s (compared with 25–35 per cent in other Asian economies), employing only about 10 per cent of the workforce. Industry and government together have failed to capitalize on the potential generated by Maruti in the 1980s, and by the skills that enabled some leading companies to grow in later years. The services sector has grown to 60 per cent of GDP, but its labour force only accounts for 27 per cent of the total. There is a mismatch because manufacturing is not creating the jobs that India’s so-called demographic dividend of young people will need in the next 20 years, while the services sector faces shortages.
The social record is disappointing. Poverty has been considerably reduced from 50 per cent of the population in 1990 to between 20 per cent and 30 per cent, according to (much debated) official figures, and there have been considerable improvements in areas such as access to drinking water and basic education, but it is more significant to say broadly that more than half of the 1.2bn population are poorly fed and with inadequate access to basic health care, clean water, sanitation facilities and adequate education. So slow has been the improvement of living standards that World Bank data shows only five countries outside Africa (Afghanistan, Bhutan, Pakistan, Papua New Guinea and Yemen) have a lower literacy rate for female youth, with similar low ratings for child mortality, underweight children and other social indicators.9 ‘There is probably no other example in the history of world development of an economy growing so fast for so long with such limited results in terms of broad-based social progress,’ say Amartya Sen, economist and Nobel prize winner in 1998, and Jean Drèze, a development economist.10
This has led to a debate over how much policy priority should be given to pushing growth or to financing aid schemes that are inherently wasteful because of the weakness and corruption of public institutions responsible for distribution programmes, and because it is people who are not poor who often benefit from subsidies. The emphasis of the 2009 UPA government was more on distribution, with Sonia and Rahul Gandhi favouring handouts for the poor, while Manmohan Singh and his advisers wanted reforms and cuts in subsidies that would lead to growth. What is needed, of course, is a mixture of both, but what India needs most is basic changes in the way the governments in the states as well as in Delhi operate and implement policies that are already in place.
That said, the stories of Beejna, Maruti, Tata and others show that Narasimha Rao did indeed launch India on a new path in 1991, when he picked up the threads of reforms developed and debated in previous years, and turned them into policies that were then implemented. The gains that he set in motion are beyond doubt.
Notes
1. Conversation with JE, September 2013, along with others from Ritinjali, http://www.ritinjali.org/ – and Arun Kapur, who runs the night school and a second chance school – http://www.ritinjali.org/initiatives/second-chance-school as well as Vasant Valley School
2. JE, ‘Great Expectations: Teenagers in India have big ambitions – and the confidence to match, Fortune magazine, 25 July 2005, http://money. cnn.com/magazines/fortune/fortune_archive/2005/07/25/8266604/
3. JE, ‘Darshan weaves her way to a dowry’, Financial Times, 14 November 1987
4. http://ridingtheelephant.wordpress.com/2008/12/14/today-is-the-25th-anniversary-of-the-maruti-suzuki-car-that-changed-india%E2%80%99s-motor-industry/
5. JE, ‘India File’, Financial Times, 15 December 1983
6. R.C. Bhargava and Seetha, The Maruti Story: How a Public Sector Company put India on Wheels, HarperCollins India, 2010, http://www.harpercollins.co.in/BookDetail.asp?Book_Code=3822
7. http://ridingtheelephant.wordpress.com/2012/12/29/ratan-tata-indias-sensitive-and-visionary-tycoon-steps-down/
8. Statistics and interpretation partly based on ‘Prospects and Policy Challenges in the Twelfth Plan’, a speech by Montek S. Ahluwalia, 21 May 2011, http://www.planningcommission.nic.in/aboutus/speech/spemsa/spe_21052011.pdf; also Arvind Panagariya, India: the Emerging Giant, Oxford, 2008
9. Jean Drèze and Amartya Sen, ‘Growth in Its Place – It has to be but a means to development, not an end in itself ’, Outlook magazine, 14 November 2011, http://www.outlookindia.com/article.aspx?278843; also see Amartya Sen and Jean Drèze, An Uncertain Glory: India and its Contradictions, Allen Lane, London, and Princeton University Press, New Jersey. Reviewed in The Economist, http://www.economist.com/news/books-and-arts/21580124-why-worlds-biggest-democracy-still-fails-too-many-its-people-beyond-bootstraps
10. Ibid.
8
Losing the Environment
India’s environment is at the centre of the debate over liberalization and the future of India’s economic growth, and it is in a no-win situation. On the one hand, mountains and hills, forests and rivers have been plundered by mining that is often illegal, and by other industrial and commercial activities that have laid to waste much of India’s natural heritage, causing social upheaval and irreparable damage. Sometimes there is loss of life, as was seen in the Himalayan state of Uttarakhand in 2013 when devastating floods led to more than 6,000 deaths.1 On the other hand, environmentalists are blamed for challenging industrial, mining and highway projects and creating procedural blockages that slow down essential investment and development.
Environmentalists see the debate in terms of protecting forests, rivers and wildlife, and they worry that they are losing the battle, which indeed they are. Businessmen, almost without exception, see the environment as something that has to give way to allow investments and development to go ahead. They grumble that projects are being held up while those who are well connected bribe politicians and officials to let their projects through – though the environment ministry claims that the vast majority of proposals are sanctioned. Politicians usually back the growth story and are often involved at both the national and state level in trying to undermine the environmentalists, either by revising regulations, as Prime Minister Manmohan Singh has been trying to do since 2004, or by circumventing them and accepting bribes for doing so.
Tribal communities, who occupy potentially lucrative forests and mountains, complicate the issue. There are about 96m Adivasis in India, belonging to various ‘scheduled tribes’ that make up about 8 per cent of the population.2 They are mostly forest dwellers who live in relatively remote regions that were inaccessible until the mid-1900s when they were penetrated by mining companies and others that did not have a good record of caring for the interests of those they displaced. Since then, huge sums have been spent in trying to bring these tribal communities into the mainstream, for the most part unsuccessfully. Tribals are also seen as a potential vote bank by politicians including Sonia Gandhi and her advisers. The threat to peace and security posed by Maoist Naxalite rebels is linked with this because they thrive in remote areas inhabited by tribal communities and where the environment is threatened by illicit mining and similar activities.
Put bluntly, the poor will remain poor and India will not meet its economic potential unless some forests are cut down, some mountains and rivers are mined, some tribal people lose their h
abitats, some coastlines are disrupted by ports, and agricultural land is used for industry. But that threatens precious natural resources and the livelihood of the poor, so the issue is how to ensure that development happens equitably, without devastating the environment and without adding to the already toxic air pollution, filthy rivers and health risks.
Tigers to China
The lack of public interest is demonstrated by the plight of wildlife, especially the tiger and the elephant. The tiger is India’s national animal and one of India’s greatest natural assets, yet there are only about 1,700 left in the country, according to a 2011 census that produced a range with a minimum figure of 1571 and a maximum of 1875.3 That is better than the 1400 recorded in 2008, though new areas were added in the survey, including the important Sunderbans tidal mangrove forests in West Bengal. The increase was therefore probably not significant, and the numbers were dramatically down from an estimated 3,500 in 2002, though again it is diffi cult to compare the figures because a new counting method was used. If numbers continue to decline, eventual extinction of tigers in the wild would seem to be inevitable. And if the government cannot get to grips with the survival of this high-profile and iconic animal, it seems unlikely that it will be able to protect the rest of India’s natural heritage.4
There is big money to be made by poaching tigers and smuggling their body parts out of India. Wildlife trafficking is the third or fourth largest illegal trade in the world after arms and narcotics, and is worth billions of dollars. ‘India has a vast array of wildlife species that are highly valued in the illegal trade – from the spiny-tailed lizard of the desert to the musk deer of the Himalayan foothills to sea cucumbers from our coral reefs. And, of course, tigers. Unfortunately tigers are valued more than most other species because of their beauty, strength and power,’ says Belinda Wright, one of India’s leading wildlife conservationists, who runs the Wildlife Protection Society of India (WPSI).5 ‘Every part of the tiger – be it whiskers, eyeballs, penis or bones – has a use in traditional Chinese medicine,’ she says. WPSI’s wildlife crime database illustrates the scale of the trade – it has information on over 19,000 wildlife criminals and more than 22,000 wildlife cases involving some 400 species.6 The Indian poacher makes an increasingly large profit and, on the international market, an animal can account for tens of thousands of dollars. Lowly officials grow rich on the kickbacks that they are paid to facilitate – or at least ignore – the poachers and traders as the parts travel by land across India, into and across Nepal, and then into China.