The Indian way is littered with inefficiency management & culture

To expect that every citizen would have all the information possible in a country as illiterate and with so little access as India is irrational, writes Gautam Chikermane.

What is the Indian way? While that is still under construction, here is the Indian landscape: creative (also known as ‘jugaad’) solutions, nimblefootedness to be able to move with a constantly-changing and evolving policy framework, low quality of infrastructure that reduces smooth flow of physical and financial capital, lack of willingness to pay user charges by a huge population backed by politicians, cornering of benefits by entrenched interests, corruption that’s rampant but on the wane, bureaucratic procedures that increase transaction costs — all these are hurdles for doing business in India. They are also opportunities for building India…and are small steps towards defining the Indian way of doing business.

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As a result, if you were to try and describe and walk that path even the best of minds would find it a considerable challenge. The Western way of capitalism, with its sharp focus on the primacy of capital, is relatively simpler. Tributaries of that strong idea such as the profit motive as the key driver, the importance of growth over who is growing, the subjugation of all else — natural resources or men, for instance — before money, are all easy to grasp.

Without doubt, if economic success and mass prosperity are the big ideas of societal organisation, capitalism is the model to follow.

Even China, that stood at the opposite end of the societal universe till the 1980s when it began its galloping growth of 10 per cent per annum, has shown that to be true. So has Russia and the Transition Economies of Eastern Europe. If success of an economic model is to be measured, capitalism is way ahead of any other system.

But what sort of capitalism are we talking about? Neither China nor India have acceded their economic systems before blind faith in free markets — the pivot of capitalism. And the reason is only partially the ideological fig leaf of pretending to protect the people from a hostile economic environment that only a lazy, staid, inefficient state can manage. (That did little else than put immense power in the hands of bureaucrats and politicians in India and in the Party officials in China.)

If private property is the left hand of capitalism, free markets is its right (to economists, ‘other’) hand. And free markets need three conditions to flower. One, businesses are governed by the laws of demand and supply rather than state-control. Two, every player in the economy has all information needed to take rational decisions (in economic terms, there is no information asymmetry). And three, all players in the economy — producers and consumers — behave rationally all the time.

Barring a few sectors and products, most notably oil, condition one is largely fulfilled in India or getting there. As far as condition two is concerned, to expect that every citizen would have all the information possible in a country that’s as illiterate and with so little access as India is irrational (freely available information is not a condition even in developed economies). The third condition of rational behaviour is just not applicable in a country that’s culturally layered with huge differences in wealth, race, caste, religion.

Thinkers trying to decipher this difference in nations such as India — true to the capitalist tradition, they call them emerging “markets”, thereby putting the sovereign below the bazaar) — suggest otherwise.

Spotting institutional voids such as over-regulation while starting a business or lack of credit card penetration, for instance, are just two of many reasons that Harvard Business School (HBS) professors Tarun Khanna and Krishna G. Palepu identify in their new book, Winning in Emerging Markets. This is an academic study of India and Indian businesses without the blinkers of efficient, prosperous, friction-free western systems and companies that function within them.

Last week, when I asked the HBS dean-designate Nitin Nohria whether the world had anything to learn from Indian companies, he was optimistic. “We have been studying Indian companies,” he said. “I believe most of the important new ideas of the world will come from countries such as India, Brazil and China.” He mentioned employee engagement, adaptability and mission. I don’t doubt the scholarship of Khanna, Palepu and Nohria, but I think they’re too focussed on the top of the pyramid and the opinions that run out from there. To understand the Indian way, academics and practitioners alike will have to take a walk down to the bottom — something C.K. Prahlad did very well.

Making money in India today needs varied skills to be able to see monetary light that at the end of this dark tunnel. But that is only one part of the Indian way. Those wanting to understand and exploit it need to understand India’s cultural values and attitudes and embed them into their business plans. Still evolving, it needs the conviction of economic success before it can be ratified. Until then, exposing the Indian people to the vagaries and brutalities of the selectively free market mechanism needs a little toning down. We will get there, of course — but as an entire nation, not just the influential, powerful and articulate few.