Hands upon the wheel
India has to be connected at a much faster pace for nationwide progress, writes Anand Mahindra, Vice-Chairman and Managing Director, Mahindra & Mahindra.india Updated: Feb 17, 2006 14:26 IST
For close on 50 years, Christmas came along on February 28 for Indian industry. That was the day when Santa Claus in the unlikely avatar of the finance minister would decide whether or not to fill businessmen’s stockings in response to their long wish-lists. While this sort of rent-seeking behaviour was understandable in a closed economy, with the advent of ongoing reforms there is no reason for everything important to happen one fine day in February. Reforms, by definition, mean that the action has to go on ‘off budget’ throughout the year. So it’s high time we discarded the notion of the budget as the tamasha of the year and viewed it for what it really is: a statement of strategic intent, a signal of fiscal prudence, and a demonstration of dexterity in allocating finite resources aligned to strategic priorities.
That said, the budget is definitely going to find itself in the international spotlight this year. At Davos, India was everywhere, and this budget will have to serve as the next episode in the Great Indian TV series. It will be an opportunity to consolidate our international credibility, and to signal our growth strategy and our determination to move forward in our thrust areas. If we want to top the ratings, there are four things we have to communicate in this budget.
First, we must show that we have a clear roadmap for the intensification of reforms, particularly in agriculture. While the urban sector is demonstrably being impacted by liberalisation and reforms, the agricultural sector, where 65 per cent of Indians still live, has yet to feel the impact of explosive growth. The financial size of the Indian government is Rs 500,000 crore. The central outlay on agriculture is Rs 5,000 crore (just about 1 per cent), and the allocation for irrigation an even more miserable Rs 500 crore (0.1 per cent). Private investment remains minuscule at about 1.4 per cent compared to over 24 per cent for the economy as a whole. Historical problems continue to plague us. The need to reform the Agriculture Produce Marketing Committees (APMC) and food processing laws, the facilitation of contract farming, vertical integration for efficient food marketing are all issues which have only inched forward since the last budget. Perhaps it is time for the government to create facilitating conditions and let Indian entrepreneurial genius do the rest. Reform the laws, create the structure, incentivise private investment, provide micro-credit through self-help groups — in short, help people to help themselves.
The second signal that has to go out is that we are serious about infrastructure. A thrust on infrastructure is the quickest way to propel growth to another orbit. It’s time to stop patting ourselves on the back for 7-8 per cent rates of growth and move irrevocably to targets of 9-10 per cent. We have made visible strides in the area of infrastructure. The big idea in last year’s budget was ‘Bharat Nirman’ that seeks to attack rural poverty by providing employment and stability through rural infrastructure and irrigation. Infrastructure development will lead to more employment, greater social development and create a channel for delivery of goods and services to newly empowered consumers.
So the thinking is right; the directions are right — what we still need to be convinced about is effective implementation. The other challenge is to keep the scheme growthoriented rather than letting it lapse into being merely welfare-oriented. What the nation is looking for is a New Deal, and not a New Dole.
That being said, what about a new deal for our metropolises? We can’t continue with the appalling disre spect we are displaying towards our cities. China has understood that cities are the gateways to a nation’s psyche, visible embodiments of a country’s aspirations and its capacity to grow. In India, by contrast, no dazzling Powerpoint presentation to a potential investor can counteract the dispiriting impact of a ride from Bombay airport into the city. We have to understand that our cities say something about us, about our competencies or lack thereof, about our capacity for effective governance. The National Urban Renewal Mission must be turbo-charged and there should be no compromise on the eligibility criteria — what we in business would call a ‘high hurdle rate’ — for receiving assistance on urban renewal. This will ensure that the ground is laid for appropriate utilisation of the finance.
While Bharat Nirman takes care of rural roads, the Golden Quadrilateral has to move forward in connecting the country at a faster pace. We need to create a nation of ‘road warriors’ because roads provide one of the fastest trips to social and economic transformation. Mobility also helps people discover their country, which, in turn, boosts local economies. It may sound a trifle self-serving, but I truly believe that roads have the capacity to engender economic and social transformation.
While in a self-serving mode let me also talk about automobiles. The manner in which the government views the auto industry is symptomatic of its residual ambivalence about the manufacturing sector. Which brings us to the third critical imperative. If agriculture is neglected, sadly so is manufacturing. To sus tain a GDP growth of 9 per cent, manufacturing has to grow at least 12 per cent. To sustain this growth, Indian manufacturing has to become a global player. Being a world player in the manufacturing arena is about creating scale. India’s great advantage is its potential to create scale, in part by building a huge consumer base, and then using that scale combined with its cost advantage to go global.
Once there is a strategic intent to champion the manufacturing sector to make it a global player, then all other impediments — high rates of excise and import duty on raw materials, lack of a pan-Indian VAT — must be quickly resolved. Continued tax incentives for R&D would also be logical as innovation is what would enable us to break into the global game.
The final signal that must be sent out is that we are investing in social equity and stability, without which the Centre cannot hold. Many economists have concluded that economic growth is a necessary but not a sufficient condition to combat poverty. Resources must also be devoted to other critical areas like education and health to enable everyone to share in growth. Literacy is a critical factor in lowering rural poverty because of the impact it has on empowerment and employability. While we have a good record in higher education, the lack of success in primary education is one of the most deplorable aspects of India’s development experience.
Health is a hygiene factor — an unhealthy population can hardly be productive. Human development is the most vital function that government can discharge and it must do this in partnership with other stakeholders including industry.
We have no choice but to attempt all this at once. In business, we have discovered that there is no silver bullet, no one magic mantra for doing well. Results come when several things are done well simultaneously. In our case, we have identified the right things. Growth in India, as someone memorably put it, has to be ‘splashed all over’. Our vehicle is pointed in the right direction — but we need to move much faster down that road for everyone to feel the splash of prosperity.
(The writer is Vice-Chairman and Managing Director, Mahindra & Mahindra)