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India occupies a microscopic share of global trade. From about 2 per cent at the time of Independence it has come below 0.5 per cent on Friday. With the process of globalisation and the increasing competition in global trade, thanks to developments like the World Trade Organisation and the agreements thereunder, we have to think of India's core competence in competing in global trade if we want our share to go up. Traditionally, India has been an exporter of raw materials. When it comes to manufactured items, we had some advantage in products like textiles.But increasingly other emerging economies are able to beat India in traditional low value added items. One silver lining in this cloud of India's export scene is software, where India seems to have a genuine competitive advantage. Thanks to a series of protective measures and pampering with subsidies, Indian small scale industry was able to make some contribution to the economy. With the policy of dereservation and reduction in subsidies, this sector is facing severe competition. In fact, we should have aimed for a policy package to achieve a situation like in the United States and elsewhere where an industry may start in a garage but within four years can become a large global company. Many of the successful American companies which are dominant in global trade today started as small ventures. Unfortunately, thanks to our policy of reservation and protection of small scale industries, we created bonsai factories which could never compete in a global environment.One area where it will be politically correct to focus attention and which will also spread the benefits of development throughout the country is agro industries. We have so far had one outstanding example of success. This is in the area of milk production.Thanks to the vision and drive of Tribhuvandas Patel and Verghese Kurien, what started as a single district cooperative, Amul (Anand Milk Union Limited) became a phenomenon and today India has emerged as the largest producer of milk in the world.The reasons behind this success should be studied. In fact, Dr Kurien has gone two steps further and tried to replicate the same success in the area of edible oil as well as vegetables.The basic strategy of Amul depends on cooperatives which are widespread. The agriculturist or the villager, as the producer, gets full support in terms of technical guidance.The highest standards of production are maintained and the cooperative network provides the supporting system from both the logistics and finance point of view. Recently I found that there was another model available under which what was done by Dr Kurien through the cooperative set up can also be done by the successful private sector.S K Maeilanandhan is an industrialist whose roots are in the rural areas of Erode district in Tamil Nadu. He started his business by providing poultry feed. Once he was sarcastically asked when he was on a visit to the United States whether India could produce under strict hygienic conditions world-class egg products.Maeilanandhan took this as a challenge. He set up a Rs 40 crore project SKM Egg Products Export Ltd in 1997. In the last four years and more, the project is being run very smoothly and what is more, the highest quality standards are maintained. And Japanese companies are discovering that they could competitively source egg powder from India rather than from other places. What is the secret of Maeilanandhan's success? The secret is absolute quality control, which builds consumer competence, and ethical business practices, which promote trust with his suppliers.Quality control is exercised right from the stage of production of the egg. In a 100 kilometre radius from the factory in Erode district, Maeilanandhan's company provides poultry feed to the farmers for which the payment is made through eggs.As his Japanese importer tells him what will be the quality and colour of the powder he needs, say, three months hence, the feed is also adjusted accordingly so that right from the production stage of eggs, quality is ensured. Equally important is the element of trust which he has been able to build among the
various suppliers of eggs. Earlier, before the new factory was set up, when he was only in the business of poultry feed, there was an occasion where a lot of chicken died.The blame was put on the water used in the villages. But Maeilanandhan would not stop. He traced the origin of the trouble ultimately to the element of pesticides left over in the poultry feed.He fully compensated his customers financially. This act of going beyond what was legally required probably built a brand equity for SKM in terms of reliability and trust with his customers. While the success of SKM Egg Products can be taken as an example of good management practices, even more important and significant is the fact that just as in Amul, if we want agro industries to be successful, there has to be a strategic alliance between the suppliers in the villages and the large scale producer of the branded high-tech product.There has to be a total control of quality right from the village level and this responsibility will have to be that of the agro industrialists. Two questions arise.Is it possible to reproduce what has been done in Erode in all the districts of India? If we are able to do it, we would have created enormous employment opportunities to people in this sector.Can this success of agro industry be reproduced in other agricultural products? We waste nearly 22 per cent of our vegetables and 10 per cent of our foodgrains because of poor storage. We must have modern agro industries without sacrificing the profit motive and the incentive for the private sector on the model of SKM. The private sector modern agro industry can act as an engine for improving ultimately the quality of life in the villages by fully exploiting the natural resources available in the country and also creating employment opportunities in the villages. obedience, non-cooperation, hartal and bandhs are all forms of protests evolved during our freedom movement. These were used then and are used now as non-violent protests against governments; against misrule and repression. These are chosen by political parties as extreme steps when representations, pleadings, demonstrations, dharnas and strikes fail. The Constitution of India guarantees the fundamental rights of speech and expression, freedom to assemble peacefully and without arms and to form associations. Our democracy is a pluralist one. The parliamentary system that has been functioning successfully so far has provided enough scope for expressing dissent. This impels political parties to adopt suitable forms of protest. Today, discontent is growing in a big way. The neo-liberal economic philosophy has been shattering the life of the toiling people. The advance of communal-fascist forces is tearing the social fabric. Against this backdrop, the Kerala High Court order on hartal raised several issues of serious consequences for the functioning of democracy and political parties in India. Political parties such as the Congress, CPI (M) and CPI challenged this in the Supreme Court. The apex court, while upholding a part of the order on hartal by force, reversed a conclusion of the High Court which held that the Election Commission (EC) had the power to deregister parties. The very conceptualisation of hartal is non-violent. The message of hartal has to be conveyed to the people. There can be a counter move to defeat the hartal by adversaries. This can lead to confrontation. The law enforcing authorities will have to tackle the situation impartially. A hartal can develop into a bandh by the voluntary participation of masses. But now the challenge is to deal with parties that have registered themselves as owing allegiance to the Constitution, but are acting differently. Therefore there must be a proper understanding. A bandh or hartal can be on a genuine call in the national interest. The question is not that whether bandhs should be banned. The reality is that bandhs cannot be banned.
Business ethics are no longer a luxury for corporates but a necessity?
Large corporations are disappearing under the weight of excessive debt or collapsing under suspicion of accounting fraud.The supposed gatekeepers of the system - the auditors, stockmarket regulators, company analysts, professional fund managers and investment banks, as well as the business media - have failed, with a few honourable exceptions (The Economic Times, included), in their policing duty. So is the continued decline in the stockmarket reflects a new distrust of the American way of doing business?Companies all over the globe now have ethics codes. Over 95 per cent of the Fortune 1000 companies in the United States report having a corporate code of ethics.For some corporations, the move to adopt codes is a recognition that they need to be ethical because this is the right thing to do. Long gone are the days when corporate boards and executives could follow the Milton Friedman line that the social responsibility of business is to make a profit. Today, they have to be touchy-feely about everything - or face the wrath of shareholders and the media.Take the example of Anita Roddick's Body Shop, which encountered criticism for the manner of its dealings with the Kayopo Indians, an indigenous group in Brazil. There is a changing community expectations.These now also play a part in encouraging corporations to be more ethical. Many consumers now expect the corporations they deal with to be above reproach.Sportswear manufacturer Nike is continuing to face the opprobrium of consumers which flows from the employment practices of its subcontractors in Asia.Consumer boycotts and threats of boycotts in the past have been effective in making corporations more socially responsible. The cases of Nestlé and infant feeding formulas and Shell in South Africa come to mind.In both cases, the churches played a significant part in promoting the boycotts. There is also some empirical research which ties reported misconduct with a down turn in share price. Matching share prices on the New York Stock Exchange with reports of misconduct in the Wall Street Journal between 1989 and 1993 Rao and Hamilton found that companies like Delata Airlines, McDonalds, Coca Cola, Exxon, Rockwell and Boeing all lost ground as a result of stories in the Journal reporting their misconduct across one of five categories. These were bribery and fraud, employee discrimination.Yet, among ethics professionals there is a growing degree of scepticism about the benefits of codes alone. Some have argued that codes are 'regressive' instruments of social control and an imposition of morality.The bottomline is that experience suggests that for some organisations promulgation of the code is seen as sufficient. It is not. The key issue, however, is how to internalise within each employee the values stated in the code.
Can the economy achieve an 8 percent growth rate?
In an economy where the GDP has been growing at 5-6 per cent. When the government saves them by doling out tax-payers money. Achieving the ambitious target of eight per cent depends both on an increase in investment and on more efficiency. Loans to the order of a mind-boggling Rs 1. they are unrealistic for the Indian economy. But since those who gain from the current system are those who fund elections and contribute to parties. it's difficult to believe that growth can be pushed up to eight per cent during the next five years. This has to be financed to some extent by foreign capital but largely by domestic savings. steps such as reducing public sector employment. But these affect voters and interest groups. Another policy that has restricted growth has been the reservation for small-scale industry. Prospects of drought have made people more sceptical. the pressure on the government to weaken the ordinance might well work. have been pushed to the verge of bankruptcy because of these defaults. a recent ordinance aims to improve the system by which banks and other financial institutions can recover their money from defaulters. such as the IDBI. will face political opposition. There is little rationale for this after allowing foreign companies to compete with the SSI units. While these may be technically feasible. industry has to grow by 10 per cent. the onus of growth falls on the private sector.5 lakh crore are owed to lenders. Creation of an industrial policy environment that will push up private sector investment and lead to improvements in growth is not simple. we see that the share of GDP invested should rise to 33 per cent. As a result. household savings have been increasingly financing government consumption rather than going into productive investment. Looking at the scenario built by the Planning Commission. cutting subsidies and raising user charges. In the last 10 years. Other than pandering to some petty industrialists. Equally difficult will be the policy changes needed to increase productivity. For the last three years. For instance. this sector has grown at about seven per cent. There are deeplyentrenched vested interests that would oppose such moves. For achieving a growth of eight per cent. there is no reason . A government that is quick to roll back even the smallest unpopular measure at the slightest opposition. This can be easily corrected by raising taxes and cutting expenditure. But there is huge pressure by industrial lobbies on the government to change it. it effectively channels public money to corrupt industrialists. can hardly be expected to take on the long list of tough decisions that are needed. Some of them. As the role of the public sector gets reduced.
But competitive.This showed there was nothing unique about the peccadilloes of Enron. Microsoft. a cartel of drug companies were fined for trying to rig vitamin prices. And this. the question is not whether the target of eight per cent growth is feasible. hide liabilities.why this policy should be continued. Now. that hid huge debts off its balance sheets and overstated profits to create an illusion of prosperity when in fact it was heading for bankruptcy. For that very reason. Dynegy and Reliant admitted that up to 80 per cent of their electricity trades in California were bogus. not society. Businessmen seek to enrich themselves. For the 500 biggest companies listed in Fortune magazine. Thus. stands accused of manipulating drug prices. innovative book- . They indulged in fictitious sales to one another to create the illusion of a boom in revenue. We have long moaned and groaned about crooked Indian businessmen who inflate profits. July 21. But the US scandals show that crooked businessmen exist everywhere. Pfizer. This can take legal forms (lobbying. Arthur Andersen. Big oil companies are being investigated for rigging petrol prices. This week. net profit averages only 3. transparent markets force businessmen to compete on a level playing field. however. the biggest drug company. unfortunately. It is inherent in human behaviour. some of the biggest energy companies in the US such as CMS. and last year. Enron was abetted by one of the celebrated Big Five of accounting. the biggest of all. which is now in the dock for criminal obstruction of justice. They also indulged in various dirty tricks (some of which could be criminal and lead to prosecution) to exploit loopholes in power regulations (like artificially creating power congestion and then getting paid to relieve it). The most celebrated giants like General Electric and Boeing stand accused of fudging their accounts to show ever-rising quarterly profits. market systems have enabled many countries to achieve stunning improvements in living standards that would have been considered impossible a century ago. is on trial for monopolistic behaviour. is why it may not be achieved. (This article was taken from Times of India. because of which the main gains of all their innovation and enterprise go to consumers. manipulate markets. 2001) --------------------------------------------------------------------------------------------------------------------------------------------- Capitalism is a very flawed system but the others are so much worse ? Many people reading about the recent spate of business scandals in the USA may conclude that capitalism is a pretty dreadful system. businessmen are constantly tempted to find ways to reduce competition and transparency to increase their profits at the expense of customers. Crooked behaviour is not uniquely Indian or American. and break a hundred laws.3 per cent of sales. and can reach great heights in a capitalist system. but whether it's realistic to think that the BJP has the strength to resist pressure from the support base of its voters and financiers. the seventh biggest company in the world some months ago.
despite all this. demanding high import barriers in the holy name of swadeshi). manipulation and muscle. By shifting his vote. that so many people are utterly disgusted with capitalism and seek alternatives. Politicians too use intimidation and money to buy defectors. No wonder. Politicians too hire hoodlums to capture polling booths and sabotage rivals' rallies. Politicians do their best to subvert free choice through the use of money. Enron hid its liabilities and exaggerated its assets. Yet the freedom to choose empowers ordinary citizens so much that. Businessmen indulge in bribery. 2002 3:00:56 . manipulative and greedy politicians produce a satisfactory outcome called democracy. The use of money.keeping. and freedom to choose is a paramount virtue that makes other freedoms possible. how the outcome be at all satisfactory? Answer: for the same reason that self-serving. Democracy creates a market for political goods. No wonder they find the profit motive a morally unacceptable basis for ordering an economic system. In both cases. exploiting loopholes) or illegal forms (bribes. the ruler is chosen by ordinary citizens and voted out by them too. The argument for a market system is exactly the same as for democracy. Lenin was logically consistent in refusing to allow freedom of choice in either political or material goods. muscle and influence to sabotage rivals and competition is a feature of democracy no less than of capitalism. Businessmen revel in black money. for instance. The same is true of capitalism: it is a very flawed system but the others are so much worse. despite a thousand flaws. There are many criminals in politics too. So do politicians. But do not politicians make inflated claims to mislead gullible voters? Businessmen claim to represent the national interest while feathering their nest (by. But do not all political parties hide their political liabilities and exaggerate their political assets? Many crooked business promoters promise investors the moon in order to raise money. But do not politicians also promise the moon to get votes? Companies fudge their books and make inflated claims to mislead gullible investors. Why. when they fudge facts. democracy turns out to be more desirable and beneficial than the most well-meaning autocracy. So do politicians. Winston Churchill once said that democracy is a very flawed system. the ordinary citizen can oust the most entrenched politician. Capitalism creates a market for material goods. When the main actors of such a system are self-serving. but all the others are so much worse. Businessmen hire hoodlums to beat up workers or ruin a rival's business. then. TOI. In democracies. the freedom to choose gives the ordinary man in the street greater power than the biggest political or economic giant. rule-breaking). But politicians in a democracy also claim to represent the national interest while feathering their own nests. What I find amusing is the notion of many democratic socialists that the people must be free to choose their own rulers. fraud.There are many criminals in business. do we regard democracy as the best political system? Because it is grounded in choice for the ordinary man. manipulative and greedy. MAY 19. SWAMINATHAN S ANKLESARIA AIYAR [ SUNDAY. Businessmen intimidate and buy up rivals to reduce competition. but cannot be allowed to choose what goods to buy. bend the law in various ways and indulge in outright crimes. and by shifting his custom he can bankrupt the most entrenched company. that political licensing is abominable but industrial licensing is moral. There lies the road to serfdom. make false claims and promises.
with a difference. Surely this kind of quality and services comes for a price? Today. we are only bringing a retailing concept into the healthcare system. Renowned architect Alfaz Miller has done the interiors while designer Ravi Bajaj has designed the staff .If the need arises. coupled with reliability and competitive pricing. unhygenic clinics. a fully-owned subsidiary of Apollo Hospitals. What difference? There is no compromise on equipment. An engineer from IIT..neither a tacky little place that you dread nor an opulent one that daunts you. front office staff -we are putting them through a rigorous selection process with the help of Ma Foi Consultants. so that primary healthcare which accounts for two-thirds of a household expenditure gives satisfaction to the consumer. He talks to Sudha Nagaraj about the franchisee clinic concept. reassurance and convenience.AM ] ---------------------------------------------------------------------------------------------------------------------------------------------- Commercialisation of health care : Good or Bad ? Apollo Health and Lifestyle.What would you offer that a family physician or a hospital would not?We would offer a range of world class services. They are also willing to dig deeper into their pockets to get that extra reliability. a range of specially designed preventive health checks. There is very little quality control. consumers are sensitive to both care and cure and are hungry for information. GE Medical Services has provided the entire clinic management software . Prelaunch. launched its first Apollo Clinic in Janakpuri in New Delhi in end-April. complete healthcare for your family. families are spending Rs 540 a month on day-to-day healthcare. doctors. Mr Jalan has 25 years of experience across diverse industries including IT. The Apollo Clinic will provide an alternative . we would be visiting frequently to make quality checks. a well-stocked 24-hour pharmacy and even counselling and telemedicine. Though the franchisee manages it. What do they get in return? Ill-furnished. we would even give them some kind of ''preferred status'' at the Apollo Hospitals. overcrowded. the franchisee and the staff have been put through a customised training module developed by IIM Bangalore and NIS. customers can avail themselves of comprehensive diagnostic facilities.We are not trying to replace the family physician. That's what we give.. Kharagpur. advertising and marketing and healthcare. 25 per cent of the respondents said they were likely to spend even more for better services. AHLL is spearheading the ambitious task of setting up 35 such 'Family Health Centres' by December 2002 to address primary healthcare. CEO. In addition to consultation services with leading specialists. What is the idea behind these franchisee clinics? Are you converting the humble neighbourhood doctor's shop into an expensive and posh business centre? On an average.Ratan Jalan. A study by KSA Technopak last year indicates that in India on an average 11 per cent of the annual household income is spent on healthcare.it allows all Apollo Clinics to be linked.
Naturally the broadcasters want a greater share of the cable pie and local cable operators are unwilling to give in easily to demands of full declaration when no broadcaster is willing to reveal his cost of acquisition of content or operating costs and when the whole trp audience rating issue has become tainted with controversy. various queries are being raised mainly by broadcasters and consumer organisations: Is the set top box a feasible solution for ensuring that broadcasters are paid? Broadcasters have been able to double their subscription revenue in the . Ultimately the Convergence Bill will become law but in the meanwhile government has been resorting to piecemeal legislation to take care of burning issues affecting the electronic media.. Cash profits will start to accrue in the first year and the project has a projected post-tax IRR of about 30 per cent.uniforms.A 30 per cent growth rate is expected over the next ten years. as compared to the US where it is as high as 13.7 per cent.7 per cent in towns and 32. Cable/satellite broadcasters have current revenues of Rs 3600 crore mainly from advertisement revenues with the expected growth by 2006 to Rs 8100 crore largely on the strength of subscriber revenue. and DTH guidelines in 2002. The cable industry is 'governed' by the Cable Network Regulation Act 1995 which only provides for post office registration and is otherwise a toothless and technologically redundant law. That's quite a businesslike approach. These include major amendments to the Cable Act in 2000.What can we expect in the future?Ten such clinics in NCR of Delhi and 250 across all major cities in the country. TIMES NEWS NETWORK WEDNESDAY. In the past two years broadcasters and multi-system cable operators have resorted to bitter litigation on various issues and inevitably settled out of court. Now the government has accepted the Rakesh Mohan task force report on introduction of a conditional access system for pay channels.. This mandates that all pay channels would be available only through a set top box to provide the consumer the choice of viewing and an option to pay for what he chooses to watch.Broadcasters have had to face flak from advertisers for not providing assured connectivity. a local (satellite) up-linking policy in 2001. We are here to tap the potential. After the initial round of euphoria in the cable industry. But the total size of the healthcare market here is Rs 100. Free-to-air channels would continue to be available through present receivers at an' affordable price' to be determined by the government. promos and make preventive healthcare the new catch-phrase. We would continue marketing and advertising support in a big way. The average growth in the TV segment sector has been 38 per cent.Herein lies the rub. The size of the healthcare industry in India is just 5 per cent of the GDP. We will convert healthcare into a brand conscious commodity through community re-orientation programmes. 2002 -------------------------------------------------------------------------------------------------------------------------------------------- Conditional access system for cable TV watchers: boon or bane? The Indian Readership Survey 2001 reveals urban cable penetration of 84. MAY 15.000 crore of which the share of domiciliary healthcare is 68 per cent while hospitalisation accounts for just 32 per cent. Each clinic involves an investment of about Rs 2 crore and is funded on 1:1 debt:equity. Cable operators have had to face wrath of consumers for blank screens.7 per cent in villages.
Economic freedom refers to the freedom to engage in economic activity without interference from the government as long as the freedom of others is respected. Any further raise will not be tolerated. the consumer will bear the cost of the set top box. 3) As government has decided to fix a maximum retail price for free-to-air channels. The purpose of the meeting was to discuss the World Economic Freedom Index created and computed by the Fraser Institute in Canada and to assess its findings for Asia. Thereafter the broadcasters would have to persuade customers to subscribe to their channels both in terms of attractive content and pricing. mini metros in the next 12 months and the entire country in 18 months. Ashok Mansukhani [ TUESDAY. 'Welcome Delegates. we saw a large banner which read. The government has to chart the road ahead once conditional access becomes mandatory. The contrast between the two meetings is instructive. principles and policies that were discussed at the two meetings. begs some fundamental questions: sustainable for how long? For whom? And what is it that we're trying to sustain? Are we to sustain the amount and distribution of natural resources that exist today for future generations? Or the current standards of living.' Before we could absorb the pleasant surprise of being welcomed by the government of Indonesia.last one year forcing cable operators to raise rates to Rs 300 per month in Mumbai. 2002 12:52:34 AM ] ---------------------------------------------------------------------------------------------------------------------------------------------- Economic freedom not old fashioned theories of development will lead to growth and prosperity As my colleague and I walked down towards immigration at the airport in Bali. The cable operator will bear the cost of the subscriber management system.'Sustainable development'. 4) As the Convergence Bill is still being scrutinised by a standing committee of Parliament. it should also freeze all current pay channel rates till deployment of set top boxes is actually in place. The delegates at the AEFN meeting discussed what empirical variables capture this idea and what policy changes are required to increase economic freedom. We were in Bali for a meeting of the Asian Economic Freedom Network (AEFN) organised by Friedrich Naumann Stiftung. There is a vast difference in the fundamental concepts. 2) To ensure easy acceptability of set top boxes and subscriber management systems for cable operators all duties including central/state and local levies be waived for a period of three years. an interim arrangement to settle all disputes in the TV segment between broadcasters. Government has to continue to take a proactive consumer stance by taking the following additional measures immediately: 1) Ensuring a three-phase roll out to cover metros in the next six months. which clarified that the welcome was for delegates to a meeting for the World Summit on Sustainable Development. cable operators and consumers may be considered by enlarging the function of the Telecom Regulatory Authority or appointment of an ombudsman. MAY 14. the amount and distribution of material goods and services? Should we sustain whatever it is that we agree to sustain only for . Will consumer choice be reduced by government mandated solutions? All that the government is doing is restoring the right of choice of watching channels to the consumer who will only now pay for channels he chooses to watch. The broadcaster will have to fix a maximum retail price to compensate the cable operator for use of the infrastructure and system upgrade including the subscriber management system. we spotted the rest of the message. Who will bear the costs of regulation? Obviously. discussed at the other meeting.Wrong number.
fair income. racial harmony. In contrast. and businesses.The most critical ingredient for economic growth is economic freedom. sanitation. to offer official assistance to less developed countries. The difference would be of magnitude. The forces of supply and demand are more powerful than any bribes by governments in focussing human ingenuity to solve problems. but the historical achievements of the human mind give us great confidence that we will have it well before any emergency. healthcare. that we didn't have too many concerned agencies and NGOs then. A world powered by charcoal can't sustain 6 billion people. Would subsidies for the discovery of alternative fuels have reached the right individuals and would they have found coal. all 16 countries which declined the . including the mandate to reduce by half. All 17 countries in the most-improved category experienced average per capita GDP growth of 2.A Charcoal Summit could have occurred about 150 years ago when Malthus' worries about population growth overtaking production were prevalent. equitable access to education. to petroleum. NGOs. the Charcoal World Summit for Sustainable Development is called by concerned international agencies.7%. The Fraser study concludes that no country with a persistently high economic freedom rating during the last 20 years failed to achieved a high level of income. it must either grow or decline. a hundred.future generations of Homo sapiens or also for other species of flora and fauna? And how long are we planning to sustain these-ten generations. the proportion of the world's people whose income is less than $1 a day and the proportion of people who suffer from hunger and. and to subsidise the discovery of alternative fuels. Then large quantities of petroleum will be left underground and future generations will grin about how primitive our energy sources were in the 21st century.The consequences of the edicts of the final Johannesburg meeting in late August would resemble those of our hypothetical Charcoal Summit. but the pattern would remain the same. The market keeps producing prosperity and the commissions keep setting target dates. to coal. Suppose we live in a period when charcoal is the main source of energy in the world. and large quantities of coal are lying underground. or longer? The absurdity of the concept becomes clearer with a hypothetical example.What kinds of policies are pushed by the confused proponents of sustainable development? The Draft Plan of Implementation issued on June 12 by the UN Commission on Sustainable Development is 77 pages of dense text. I am thankful that no Charcoal Summit took place 150 years ago. No one can predict what will be the next source of energy. The dire predictions of Malthus did not come true. that we were allowed to grope our way and discover new fuels. petroleum. to halve the proportion of people without access to safe drinking water. ecology and economy are similar-none can stay stagnant for long. by the same date. Market forces took us from whale oil. it seems quite unlikely. Charcoal is made by burning wood and destroy forests and ecosystems and generate greenhouse gases. The forest cover in the industrialised world today is higher than it was 150 years ago. to charcoal. The heads of state and governments present at the summit agree on timebound targets to reduce charcoal use and production of greenhouse gases. The choice is between a growing and a declining economy. This world does not seem sustainable. water. It covers all that the humanity would have ever wanted: gender equality. solar and wind power or fuel cells? Given the history of government subsidy programs.So. Fundamentally. by the year 2015.
It's not that the authorities were unaware of problems. They were. almost all the changes in the stock market can be traced to the need to overhaul archaic systems in the light of the 1992 scam. As long as things were going along. As incomes increase.people begin to invest in the quality air and water. we are likely to see faster movement on the long-promised single access number for each employee covered under the PF Act. Every cloud has a silver lining Every cloud has a silver lining. At higher incomes . it is often too late to try and fix it. the management of provident funds. but for the balance of payments crisis we might never have changed course. healthcare. have a regulatory body overseeing PFs. visits to parks and wildlife. sanitation. of housing. He was a key member . But nothing serves to focus the mind as much as a crisis. Suddenly there's a new realisation of the need to improve systems and procedures in co-operative banks. the health of cooperative banks and two. to the abolition of badla and finally to the introduction of derivatives. Not in the financial sector. but sustained development.. And now it's the turn of the frauds in co-operative banks and provident funds to focus attention on two crucial areas that have long been neglected.In 1992. It may be hard to sell that to the seamen who have lost their hard-earned savings or to the thousands of depositors faced with the prospect of losing their money.the NSE .000 . turned our back on decades of planning and socialist thinking and moved to a more open. One.' But that logic doesn't always work. market-driven economy.500 exempted provident funds. The vision underlying the two meetings in Bali was antithetical. education. In 1991. it was the trigger for the path-breaking reforms in the capital market over the next few years. and environment. Also of the need to bring greater professionalisation in the management of PFs.most on the index of economic freedom declined at an annual rate of 0. 'if it ain't broke.to dematting of shares. the attitude was. people demand higher quality.studies suggest above per capita income of $2.The Central Provident Fund Commissioner has ordered an immediate audit of all the 2.6%. None of this would have happened but for the recent frauds. We don't need sustainable development. albeit in a far-from-satisfactory fashion. For the sake of humanity the next official welcome should be for delegates of the World Summit on Economic Freedom. There's the silver lining For globalisation to succeed in India people must be able to see what is in it for them Do we need another crisis to get India together to take some tough decisions to improve our economy? mused one of India's leading economists last month. don't fix it..But look at what's followed.This is why the latest spate of frauds is a blessing in disguise. Also the price paid may also be too high.Beginning with the setting up of a fully electronic exchange . the securities scam saw thousands burn their fingers. The reason is that when the crisis comes. Yet in retrospect.
And "what is in it for them" means people who are expected to take a journey together should be able to visualise in their minds what the outcome of the journey will feel like to them. each seeking to stand proud. have to continuously improve capabilities and performance. was generally outside the equations of the new economic scientists. most communications by economists express the outcomes of development as numbers about the performance of the economy. The maintenance worker in the factory . All knew that they had to be economically strong if they were to count. Whereas dialogue about the goals of development.In at least one fundamental way the development of the capability of societies is not unlike the process of transformation of corporations that. the focus of the emerging profession was almost entirely on the means for economic development. Thus began their search for the means of effective economic development. who came to be seen by economists and businessmen as troublesome and ill-informed meddlers in the systematic growth of economies. "We clearly have a problem of communication in India: people must see what is in it for them". However.of the team that had heralded in economic reforms in the early 1990s when India came to the brink of default. The economist agreed. in a competitive world. What they want to know is.I also hear business managers say that it is more difficult to mobilise people when there is no evident crisis. whence began the growth of the profession of developmental economics. or evoke a crisis to bring people together again!A better way than fear to get people moving is to create an attraction . "What will my life be like if this change is brought about?"The past half-century has seen a massive release of human aspiration in the world as colonialism receded and over a hundred sovereign nations joined the international pantheon. the problem with using crisis or fear as a motivator is that the need to keep moving is diminished when the crisis passes. with increasing numbers of economists in international developmental institutions and national planning commissions. However. the problem of unemployment is growing. said he. Economic Development: The History of an Idea. and how development should change the nature of societies and the lives and cultures of people. Which then confronts the leaders with the question of whether one must wait for another crisis to happen. There is a world of meaning in the simple statement. the dialogue amongst the people for whom development is required was left to politicians and NGOs. To see means to visualise. "Not too bad and not too good. True. People have to be engaged with the process of change and must be able to visualise the potential outcomes in terms that mean something to them personally. However. And many turned to economists to guide them. crisis and fear are very effective spurs to collective action. and good leaders know how to take advantage of them. as Arndt points out in his book. In a Mexican company that set itself on a path to international growth and radical performance improvement. Meanwhile. "We are drifting again". "See what is in it for them". the outcome of successful change could be visualised by the CEO as his picture on the cover of Business Week someday. People cannot visualise what the numbers would mean in images of real things around them.an aspirational vision that draws people towards the same goal. Thus. But it is very difficult to get people to agree to the decisions that must be taken".
22 per cent of the donor countries' GNP to 0.Not only do these countries . and there was great commitment through the process of transformation. followed by admonition to the donor countries for their less-thangenerous contributions.7 per cent target without re-examining its relevance under the changed circumstances. Which aligned people. ARUN MAIRA Economic Times [ WEDNESDAY. a meaningful picture of the India we want. Moreover. poverty has declined significantly.7 per cent of their GNP a much larger sum. Nevertheless.Both would get what they aspired to if the transformation was successful. It is high time we paint together. A refreshing exception. two thirds of it will have go to two countries outside the LDC group. however." the authors offer calculations that decisively lay to rest NY claims that the large increase in aid is required to outlaw poverty in the 49 Least Developed Countries on which Wolfensohn and others focus tirelessly as reasons for aid expansion. you can hear continuous and repetitious affirmation of the Millennium Development Goals. are themselves engaged in the distribution of aid and. many in the aid community have chosen to coast along with the 0. India and China. hence. 2002 12:37:44 AM ] ------------------------------------------------------------------------------------------------------------------------------------------- Foreign aid is a dangerous drug that can stimulate in small doses but become fatally addictive in larger doses Recent calls for the expansion of the Official Development Assistance from 0. In parallel. The Pearson Commission had first recommended the 0. face a potential conflict of interest. however.They conclude that if such a large increase in aid is to be absorbed effectively. Everyone admitted that their current reality with which they were comfortable. through dialogue. just as the CEO could see the possibility for himself. and the company became a global benchmark for operational excellence through participatory practices. notably the World Bank President James Wolfensohn. is a recent paper by distinguished economists Peter Heller and Sanjeev Gupta of the International Monetary Fund. enable people to visualise aspirational goals they all desire and thereby commit to often-painful change. Missing from the exhortations. The desired outcomes were obtained: the CEO was on the cover of Business Week.In the paper "Challenges in Expanding Development Assistance.7 per cent deserve a closer scrutiny. The lesson throughout history has been that great leaders.visualised a happy place to work and a place of pride in his local community. Or else we will slip from 'chalta hai' to crisis. the donor countries are much richer today than in 1969 and 0.7 per cent target in its carefully crafted 1969 report Partners in Development. JUNE 19. is a clear roadmap of precisely how the extra funds are to be spent. the worker was able to visualise how the steps of change would lead to the outcome he aspired to. With more than 30 years elapsed since then. This is doubly essential because those making the calls most forcefully. This painful discrepancy created a crisis of aspiration. of societies and companies. At high profile conferences held at equally high frequency. with many countries in East Asia completely eliminating it. was far short of what they aspired to.
even these large countries cannot absorb the proposed inflows. government disbursements of aid inflows are not subject to the continuous market discipline. thus. Can India and China absorb such large allocations? Contrary to Heller and Gupta. Heller and Gupta conclude that the only realistic poverty-based allocation consistent with the countries' absorption capacity is the one that gives the lion's share of ODA to India and China.Unlike foreign investment flows. India would receive $40 billion and China $76 billion.7 per cent target would yield a whopping $175 billion in aid. aid would be several times its total government expenditure.Replacing the allocation criterion by the number of poor rather than total population does not materially alter the picture. Indonesia.And not too long ago. The advocates of aid tirelessly emphasise the importance of good governance for aid effectiveness. they also have the necessary absorption capacity. But consider first the obvious problem in justifying the 0. the World Bank and IMF temporarily blocked debt relief to Uganda under the Heavily Indebted Poor Countries initiative because its President wanted to buy a jet. Setting the aid target without a broad roadmap of how such aid is to be spent puts the cart before the horse.In this respect.To maintain export competitiveness. multilateral aid is not costless and often comes with conditionality." which have per-capita incomes between $500 and $800 and include such large countries as India. Even the World Bank's IDA allocations are loans at concessionary rates rather than pure grants and. Yet. add to the recipient country's external debt. they overlook the adverse effects such mega sums of aid themselves would have on governance. consider just India. What the advocates of increased aid need to do is to ground the aid target in a credible spending plan.house half the world's poor.Likewise. Nigeria and Pakistan.Such inflows would lead to a huge appreciation of the rupee and a collapse of India's exports. India would receive $73 billion and China $39 billion and if policy effectiveness is given appropriate weight. The politics of aid makes it even less likely that countries such as India and China would accept the proposed inflows. Meeting the 0. In every country. Professor Jeffrey Sachs is to be admired for having linked his calls for increased aid to an explicit plan to fight the health crisis in . The addition of "other low-income countries. The only realistic option would be to retire the existing debt of $100 billion but that too would be accomplished in less than three years. This is only a part of the story. the Reserve Bank of India has had to purchase more than $10 billion worth of foreign exchange within last one year. According to Heller and Gupta. spreading this amount evenly on a per-capita basis across LDCs would result in aid flows ranging from 84 per cent of GDP for Sudan to 302 per cent for Ethiopia. I will argue shortly that even this solution to the aid-absorption problem is unrealistic. If the allocation is based purely on the number of poor. $40 billion in aid would result in new inflows of $35 billion annually. sometimes in ways that encroach upon the sovereignty of the recipient countries. Even replacing all of the present capital inflows other than foreign investment by aid. lowers per-country aid flows to LDCs but still leaves them well beyond their respective absorption capacities. Donors can and do use bilateral aid to promote their favourite domestic agendas and interests. bringing the total foreign exchange reserves to $57 billion.7 per cent target as a means of alleviating poverty in the least developed countries that have per-capita incomes of $500 or less. Thus.
by the 1990s.Why did post-independence leaders in developing countries go so badly wrong? Mainly because they equated globalisation with 19th century colonialism. To make these payments. The net transfer of capital from India to Britain averaged 1.4 per cent by 1985. Instead they produced more than 100 weak. have done much better at poverty alleviation. JULY 31. Alas. the colonies had to chalk up large trade surpluses.5 per cent of GDP. creating unprecedented opportunities for the poor to rise. misgoverned countries which.This reverses decades of centralized rule and autarkic economic policies in developing countries. Colonial experience led them to believe that globalisation meant imperial enslavement. Countries that adopted sound policies.5 per cent at independence to 0. It is an idea whose time has come. And many claimed that political decentralisation could spark secession.the Third World. This faulty interpretation led to faulty policies aimed at de-globalisation. They failed to see that. and derided outward-looking countries like Singapore and Taiwan as neo-colonial puppets. the supposed puppets rapidly became rich while India remained poor. 2002 12:39:42 AM ] ----------------------------------------------------------------------------------------------------------------------------------------- Globalisation is good for developing countries MOST developing countries are both integrating with the world economy and devolving power to local governments and communities. Alas. The idea that nations can be lifted out of poverty just by throwing enough money at them belies the aid experience of the past fifty years. Underlying both trends is a single force: the empowerment of individuals and communities at the expense of the monolithic nation state. Glocalisation improves the voice. They thought such self-sufficiency was a passport to prosperity. The centralised nation-state is giving way to both supra-national and sub-national institutions. and so were very export-oriented. But most developing countries suffered economic stagnation and political oppression. Unsurprisingly. And so developing countries began moving in two new directions. The collapse of the Soviet Union and rise of Deng's China showed that more socialism was not the solution. participation and prosperity of individuals and communities. This combination of globalisation and localisation is best called glocalisation. ARVIND PANAGARIYA [ WEDNESDAY. irrespective of their aid status. united countries. and made some modest gains. Self-sufficiency and centralization did not produce prosperous. globalisation was not political conquest but economic partnership. The drain from Indonesia to Holland was as high as 10 per cent of GNP. needed to be rescued by the IMF. A few countries like India genuinely sought to use autarkic centralization for the public good.01 per cent of developed countries' GDP. his calls for additional aid are limited to the modest sum of 0. in the late 20th century. endangering their new-found nationhood.Indian socialists cheered as India's share of world trade fell from 2. too often centralisation and autarky proved to be excuses for concentrating all political and economic power in the hands of ruling cliques. globalisation and localisation. All colonial masters extracted large sums from their colonies. thus disempowering citizens. India's export-import ratio ranged from .
The very opposite is true. who accounted for 30.In the 19th century. and the share in East Asia was a whopping 83 per cent. In the 20th century capital has flowed the other way. They were wrong in several ways:u19th century globalisation represented colonialism. shifting manufacturing jobs from the poor countries to the rich ones. through aid and FDI.2 per cent of all FDI in 1997.2 per cent in 1990-00. Indians moan today their GDP growth rate is only 5. But in the 20th century. But 20th century globalisation has shifted millions of manufacturing jobs from high-income to low-income countries.172. So. They assumed that 20th century globalisation would do the same.Many critics think globalisation has impoverished the poor. High-income countries registered 3. But in the 20th century. He and other Third World leaders knew that globalisation in the 19th century had produced alien rule. globalisation has made poverty an advantage for the first time in history. Income per head is now higher in Singapore ($24. But in recent decades the fastest-growing countries have all been in the Third World. Socialists like Nehru interpreted this to mean that export-orientation was a tool of colonial exploitation. The share of manufactures in the exports of low-income countries rose to 53 per cent in 2000. mostly in Asia but also in Africa. A new study by Prof.uIn the 19th century.4 per cent. and free trade a ploy to help Britain dump its manufactures on a deindustrialised India.uIn the 19th century. And developing countries now have their own multinationals. this is a decline from 17 to 6.5 per cent in 1840-69 to 133. poverty was a major disadvantage. In the 19th century.Developing countries actually chalked up a trade surplus in manufactures with the USA of $57. But 20th century globalisation has yielded GDP growth rates of up to 10 per cent in many developing countries. As a proportion of developing countries' population.In the 19th century.In the 19th century. institutions and infrastructure. the fastest growing gaps have been between developing countries that globalised and those that did not. the fastest-growing income gaps were between imperial powers and colonies. most Western foreign investment in and trade with developing counties was in minerals and agricultural commodities." But in the 20th century.5 per cent respectively.Lowincome countries averaged 4. creating huge opportunities for the poor. but this is double the British rate a century ago.3 per cent and 2. lower in both cases. That is revolutionary.5 per cent annual growth in 1980-90 and 3.19th century globalisation yielded GDP growth rates of no more than 3 per cent annually in the fastest-growing countries like the USA.920) than in their erstwhile colonial master Britain.2 billion in 1997.740)and Hong Kong ($25. and indeed for most of history. wealth flowed from colonies to their imperial masters. Globalisation is a two-way street. So Nehru and others thought globalisation was a trap to keep poor countries as commodity producers. factories are shifting from richer to poorer countries provided the latter have decent policies. 20th century globalisation has been the era of decolonisation. as "hewers of wood and drawers of water. foreign investment in developing countries has been overwhelmingly in manufacturing. British manufactures decimated textiles and other traditional industries in India and other colonies. the rich imperial powers grew fastest. Sala-i-Martin of Columbia University shows that the number of people living on under one dollar a day has fallen from 550 million in 1970 to 350 m in 1999. mostly for export back to rich countries.7 .4 per cent in 1913-38. poverty and transfer of wealth to colonial powers.
The CII. The point is to ensure that in the event border tensions escalate again the resultant actions and reactions will be less divisive and preemptory.The advice also put MNCs in an awkward situation.We live in a world today.There will no doubt be other perspectives. right or wrong. saw the advisory as a form of economic sanction.Do governments on account of their obligation to safeguard their citizens have overriding "rights" to expect compliance. the answers should be formulated. in matters such as where. rather that there is now greater interaction amongst societies. yet others as simply a misreading of ground realities. Never in history has poverty fallen so rapidly for so many. when and for what purposes.There are a large number of issues in which governments and companies (not to mention NGOs and the public) have overlapping.per cent. Most countries there have not created the institutions or policies needed to climb onto the globalisation bandwagon. not to mention their shareholders. though often conflicting. environment. This article cannot answer all of these questions but it can provide one backdrop against which I believe. for instance. others as a component of a broader geopolitical plan to pressure India and Pakistan to de-escalate. This does not mean that the nation state and nationalism is dead. SWAMINATHAN S ANKLESARIA AIYAR [ SUNDAY.Global terrorism. narcotics .Poverty remains stubbornly high in Africa. After all. and the continued pull of . to comply with the directives of their parent government?Should the political risk assessments of foreign office functionaries be accepted as gospel notwithstanding the fact that most companies carry out their own sophisticated internal assessments? I ask these questions not because I have any doubts about the motives for the June advisory. JUNE 16. are but a few such issues. which is in many respects truly global. the "germ of a universal consciousness" (to quote the scholar Raymond Aron) in the value of transnational cooperation and liberal open market norms on the one hand. Many have been autocratic kleptocracies. interests. They deserved to. The challenge for governments in this "new order" is to manage the tension between. They had to decide whether to accept the advice and evacuate all expatriates notwithstanding possibly their own more optimistic assessment but risking thereby the disruption of operations and the erosion of carefully built up local relationships.I ask these questions because. if the situation was indeed dire enough to warrant immediate evacuation of foreigners then surely the security of local staff who after all are no less a part of the organisation also needed to be addressed. citizens should travel?Should MNCs subordinate their responsibility towards their host society. AIDS.They also had to consider the impact on staff morale. the advisory triggered reactions that tells us something important about the context in which MNCs and governments operate today. I can appreciate governments acting with prophylactic caution in anticipation of what could have become a logistical nightmare of large-scale evacuation had the border situation spiralled out of control. Or to demur and then risk criticism from their embassy. No wonder they failed. 2002 11:10:48 AM Globalisation versus nationalism The stern travel advisory that foreign nations issued in June urging their citizens to leave India provokes a set of questions that should be debated against the context of globalisation and liberalisation.
There is also no denying that globalisation has not altered the "enduring national nature of citizenship". and so did many of his successors.The June order has dealt the Indian tourist industry a severe blow and the Indian IT companies are scrambling to reassure their international clients of uninterrupted service. There is no denying that governments and companies must forewarn visitors against travel to potential trouble spots. Keynes conceived his model in the context of a closed economy. embassies. MNCs face a not too dissimilar set of challenges. assembly is done in another and sales of the final product are made to a third. operates within well defined and agreed global principles.Notions of sovereignty predate the imperatives of globalisation. Companies that do not behave responsibly risk harsh reactions and possibly the withdrawal of their licence to operate and grow. NGOs) to ensure that at least each eschew the simplistic "unilateralism" of the status quo ante. notwithstanding the conflicting constituencies of governments and industry.The call for the unilateral evacuation of expatriate staff without consideration of the impact on local stakeholders belied recognition of the complexity of the various commitments that globalisation entails. When I studied economics at Oxford in the 1960s. often unintended. companies. that can reach well beyond the target audience.The tools of technology exist to share and scrutinise information and facilitate collaboration. But I lacked the space to elaborate on a special reason for the diminishing impact of pump-priming. Next time a border crisis occurs it should be deployed to bring together all concerned parties (CII. cultural and national identities. but simultaneously. religious.The challenge is compounded by the heightened expectations of the public regarding environmental and social performance. and that most people feel a heightened sense of insecurity in a foreign land. I learned about Keynes from the standard textbook by . one must not deny that in this emergent "new order" the adoption of narrowly self interested policies have consequences.The challenge for companies is to run a multinational and multicultural operation that respects local.what if indeed one of their citizens got hurt? Equally.It has opened up new avenues for investment and growth and facilitated a "footloose" manufacturing and marketing strategy wherein components are often manufactured in one country. The question is whether.These arguments should not be unduly stretched. A primary driver behind the June advisory was domestic public opinion -. 2002 2:57:18 AM ] Government pumping money into the economy is not the solution for our economic problems In this column last fortnight. the consequences of such a clash can be contained. JULY 25. VIKRAM SINGH MEHTA [ THURSDAY. Globalisation and liberalisation has given them greater freedom of action and a greater say in policymaking in many countries. I took some pot shots at simplistic Keynesian pumppriming. The travel advisory in June has highlighted this challenge.national self interest and "unilateralism" in decision making on the other. nor that foreigners especially westerners are often the targets of random attacks. This is globalisation. however.Companies make a commitment to local relationships and wider community development not simply out of philanthropy. A clash is not therefore surprising.
This stated that GDP was the sum of private consumption. a big fiscal and monetary stimulus has leaked into the global economy.Some analysts called this a liquidity trap.Samuelson. not Japan. A modern textbook will define GDP differently: as the sum of private consumption.Exports must be added since they represent domestic GDP.Such a large proportion of the fiscal and monetary stimulus leaked abroad that recovery from the recession was slow and virtually jobless. the finance minister has done . you are probably buying something made in China or South-East Asia. A good example. government investment and investment. not macroeconomics. Earlier. the combined fiscal deficit of the centre and states has been a huge 9-10% of GDP for most of the last decade. the Japanese preferred to save rather than spend. When you buy a Sony or Mikasa product.At the macro level. He failed miserably.But the Democrats focused on the economy. even though they are consumed abroad. Japanese companies are investing in factories in China rather than at home. plus exports minus imports.Despite such a big fiscal and monetary stimulus. and Reagan and Thatcher were determined to use the opportunity to kill inflationary expectations rather than attempt a Keynesian rescue. Bush also went for low interest rates to stimulate investment.French President Mitterand. Near-zero interest rates did not stimulate domestic investment. a socialist. Here too. was the attempt of US President George Bush Sr to tackle the 1991 recession. France too discovered the limitations of Keynes in a globalised world. Or of the impact of international capital flows. imports and exports are roughly equal. and thus improve his re-election chances. But part of this cheap money was simply used to invest abroad. and distributed car bumper stickers saying. reducing its domestic impact. However. the very existence of imports and exports can greatly affect the impact of Keynesian pumppriming. a huge fiscal stimulus did not translate into either domestic purchases or imports on a big scale.Besides. Have you?" The result: Bush was defeated. Imports must be subtracted since they represent the GDP of other countries. This has increased the leakage of pump-priming out of the country through trade and capital flows. in which case neglecting trade may not greatly affect GDP calculations. No mention at all of imports or exports. Rather. many industries complain of slack demand. Money supply has been galloping upward by 14-18% annually. In many countries. but I think that is an exaggeration. In 198082. I think. It became clear that one open economy in isolation could not reflate out of a global recession. a global recession had set in. government consumption and investment. In Japan.Globalisation has steadily increased the share of international trade and capital flows in economic activity. Why? The answer clearly lies in the realm of microeconomics. even though we consume them. He stimulated spending by letting the budget deficit widen. "Saddam Hussein has kept his job. not just by Clinton but by globalisation. Bush thought his victory in the Gulf war would ensure his re-election in 1992. and then importing these goods made in China. The Japanese are not keeping all their money liquid: they are investing billions abroad. right through the 1990s. perhaps an outright error.But this seemed to stimulate the purchase of East Asian goods rather than domestic goods. What are the lessons for India? Well. denounced the Anglo-Saxon approach and swore to revive the French economy by pump-priming.
High procurement prices have created problems in the food economy which cannot be solved by pump-priming. But the leakage of domestic stimuli to the global economy remains a reality. Government. 2002 6:45:52 AM ] Government should clean its own hands before pointing finger at the private sector for corruption THE MUDDY waters of global corporate fraud are lapping at our shores with the formerly inviolate Tatas embroiled in a financial controversy and Xerox's Indian subsidiary involved in bribing Government officials. It has to be seen whether the latest initiative to bring the dormant Department of Company Affairs under the Finance Ministry rather than under the purview of the Law and Justice Department will make it a more pro-active agency. India's gradual opening up has revealed to businessmen and banks alike the uncompetitive nature of much of our industry. the problems lie in the micro-issues of the relevant industries. Second. low labour productivity and faulty labour laws have made entire sectors look uncompetitive. not pump-priming.Finally. In addition. DGCIS data show a modest trade deficit. Enron.High real interest rates. This is not to say that our very own domestic corporates have remained untainted by scandals till now. first in the Asian financial crisis of 1997-99 and again in the global recession of 2001. globalisation has hit India through trade twice in succession.more than enough to stimulate overall demand. These problems cannot be solved by pumppriming. If this still does not translate into demand for particular industries. We know from Mitterand's experience that one economy cannot reflate in isolation in a global recession. action has been taken by the market regulators. eroding India's competitiveness. we need reforms to ensure higher productivity and global competitiveness before going for an investment binge.The Asian financial crisis caused huge depreciations in the currencies of Asian countries with whom India competes. They need purposive reforms.Third. Jaswant Singh. scams in this country have left the perpetrators virtually untouched and small investors especially remain highly vulnerable with the market regulator remaining toothless in many cases. At least in the case of multinationals mired in financial fraud. Additional pumppriming cannot reverse this. First. Laws that make it difficult for banks to recover loans have constrained fresh lending. The bankruptcy of the power sector means that all industries connected with it are going to be in trouble till its solvency issues are sorted out. poor infrastructure. to .The answer to much of our excess capacity is closure. has set up a Serious Frauds Office. the courts and the U.This has been cloaked from public view by the inflow of NRI remittances. the Finance Minister. JUNE 12. SWAMINATHAN S ANKLESARIA AIYAR TIMES NEWS NETWORK [ WEDNESDAY.The global recession has done the same again. Worldcom and Andersen have not been able to wriggle out of their quagmires and entire global conglomerates are being wound up. In sharp contrast. the trade data of the RBI yield ample evidence of stimuli leaking abroad. How does globalisation come into this? In many ways.S. but RBI data (based on actual payments) show a whopping trade deficit of $ 14 billion. The country has faced a spate of such scams in recent years but little has been done to stem the rot in the system.
Some small banks collapsed in the process and middle class depositors saw their life's savings wiped out. With the share market appearing to have become a relatively secure investment. the chief controller of imports and exports has had its controlling power withdrawn and the agency has been converted to a trade promotion organisation. bribery involving Government officials is not quite so improper in this country. But there are still large segments of the Government with enough powers to harass both corporates and individuals. Power brokers almost disappeared from the scene after the Industry Ministry was stripped of licensing powers. Harshad Mehta. unwary investors applied in virtually each and every company launched in the then stock market bubble. and several banks. This coincided with foreign companies taking the public issue route to dilute their equity. Many small investors applied for these blue chip companies ranging from Hindustan Lever and Cadbury's to a whole host of pharmaceutical companies. to below 50 per cent. customs and excise. that there have been too many scams in the Indian financial markets and too little effort to ensure that anyone is actually punished for wrongdoing. it took years for a single conviction to actually take place. Others were genuine companies where the share values crashed. The banking system also went through turmoil during this period as several reputed banks were involved in routing the funds through their systems. Similarly. One of the success stories of the reforms has been that the corridors of Udyog Bhawan are no longer crowded with wheeler-dealers trying to utilise the licence raj to their advantage by interacting with key Government officials. it seems that the little man has been the hardest hit by the corporate frauds. Several companies simply disappeared when the bubble burst and were no longer listed by the stock markets while the addresses turned out to be non-existent. The most widely publicised scandal was the securities scam involving the Reserve Bank of India. notably on the revenue side such as income tax. in line with the norms laid down by the then stringent Foreign Exchange Regulation Act (FERA).signal that the Government is determined to bring corporate criminals to book. high-profile stock market brokers such as the Big Bull. It was at this time that the role of the market regulator began to emerge with the Securities and Exchange Board of India (SEBI) seeking to protect investors' interests. "improper payments" remain the norm rather than the exception in dealings with Government agencies which continue to have regulatory powers. It is not quite clear whether the newly created Serious Frauds Office will focus merely on corporates or whether the banking system will also come under the glare of its scrutiny. . merely setting up a special division to deal with scams is not enough. however. however. the spotlight must also move to improving governance within the Government itself. In any case. The most effective way of curbing corruption in the Government is to reduce regulatory powers as has been done in a phased manner through economic reforms. Despite the unending parade of testimony before a joint parliamentary committee. As a result. making the share certificates worthless. the Directorate-General of Foreign Trade. fraud is not limited to the corporate sector alone. Till now. The fact is. With what are described as "improper payments" having been made to Government officials on purchases of copiers and other such equipment. As the Xerox case shows. In fact. The problems began for small investors when the stock market became an attractive investment prospect for the middle class after Dhirubhai Ambani launched Reliance Industries' first public issue in the early 1970s.
The Aspen Institute held a seminar last month on the Challenges of Global Capitalism. it must be pointed out that leading software companies such as Infosys are noted for good corporate governance but these are also the ones with the least interface with the Government. of public respect for different professions place business leaders dead last. a decade which sought to celebrate the triumph of global capitalism. 2002 How can business get rid of the bad name that it has earned? Business leaders seem to have fallen off the pedestal on which they were placed in the go-go Nineties. stock options. In this context. it is the very essence of the system of Government functioning. in the US and Europe. It is thus essential for the Government to look at corporate fraud from both sides of the lens. The ruling party which sought to be different still has to prove itself to be on a higher moral ground than past regimes on the score of good governance.Corrective action focused on stronger rules for disclosure.Indeed. while CEOs were awarded huge salaries. even below trade union leaders! Glaring breakdowns in corporate governance in many companies resulting in enormous losses to small shareholders and employees. and retirement packages. but also from the viewpoint of good governance within the Government. Even Pramod Mahajan has conceded that the success of the Indian information technology sector may have been due to the lack of governmental interference. At the same time. August 26. No wonder the outcry over "improper payments" by Xerox Modicorp has left most people cold given the fact that little progress can be made in the corridors of power without these essential lubricants for the system. The only rider is that all these measures would carry greater conviction from a Government whose own track record on ethics can at least be described as commendable. Every company knows that files do not move without bribes. which is undoubtedly essential. Pious pronouncements about the need for ethics in the corporate world carry little weight when they come from a Government facing flak for favouritism and nepotism in allotment of petrol pumps and land. the creation of the Information Technology Ministry had raised concerns that it would introduce regulations and controls and thereby put roadblocks in the growth of this thriving sector of the economy. However this will not get to the systemic causes of the alienation of the public from big business and its bosses. it has not done so and the problems of the IT sector are linked to the worldwide recession and slump in demand rather than any hurdles placed in its way by governmental interference. Sushma Ramachandran . have fuelled the public outrage. if not of the highest standards. Good corporate governance is closely linked to the Government's own performance. Hindu Editorial. steps to curb corporate fraud in any manner such as setting up a special cell or strengthening the SEBI are to be welcomed as the small investor needs to be protected at all costs. Fortunately. Not just from the perspective of good corporate governance. and accounting of stock options is being hastily taken in the US. projects are not cleared without bribes and inspections are not completed without bribes. Recent surveys. penalties for wrong information. in . In fact.
in both meanings of the word-a moral compass. come from the same social and ideological backgrounds. these reforms are focused entirely on the accountability of corporate managers to shareholders. and terrorism.However if all directors. Some boards do have directors with diverse backgrounds and perspectives. Firstly. there cannot be any fundamental dissonance. secondly. Secondly. There was excessive focus. while improvements in corporate governance were high on the agendas of business regulators in many parts of the world. Good governance would require the inclusion of people with different perspectives and also effective processes that surface and address difficult issues of ethics . whereas it is becoming clear that corporations are responsible to a wider constituency that includes their employees and the communities in which they operate. including India. But studies show that in many of these boards the processes of discussion do not permit difficult questions to be thoughtfully explored before moving quickly to decisions for the sake of efficiency. and thirdly. increasing income disparities. whether internal or external. These improvements. and view the world through basically the same lenses. Companies are required to have outside directors on their boards to bring in diverse perspectives so that risks to the company can be anticipated and avoided. Firstly. metrics must be established to gauge performance against the requirements of multiple stakeholders. there seems to be some debate on whether our companies can afford to engage with social needs if they have to compete internationally! Secondly. In the 1990s. In fact.Moreover. are insufficient for two reasons. changes only in structures and rules will not cause corporate managers to behave responsibly. Which brings us to the third part of the solution.It is the job of the board and the CEO to manage these difficult trade-offs rather than take the easy way out of focusing only on a narrow set of measures oriented towards quarterly financial results and the stock price. and corporations must report against these broader measures that may go beyond the scope of stock market regulators.Fuzzy notions of social responsibility will have to be made precise. while necessary. the improvements were generally limited to changes in board structures and information disclosure to shareholders. on shareholders as the only stakeholders of the business. on opinions of analysts and investment bankers. the influence of Wall Street dominated the business world. leading western companies are already working to define measures and set standards. firstly on stock prices to the exclusion of almost any other measure of corporate performance. whereas in India. persistent poverty.The seminar concluded that the solution to these problems required reform in many institutions including business corporations. A major failing of corporate boards and CEOs is their inability to really listen to different views. and empathy with the wider world around them. It was interesting to observe at Aspen how US business leaders recognised that corporations can no longer afford not to engage with societal needs. The solution lies in reshaping the governance of business corporations in three ways. the fundamental charter of corporations must be expanded: they must produce value for shareholders and fulfil a broader responsibility to society.What they need is 'integrity'.the context of global economic uncertainty. There will be trade-offs between the interests of investors and the community.
there must be 'very convincing reasons to justify treating privatisation proceeds as revenue. What this means is that a large part of the government's routine expenditure is being met. And just as no prudent family would use money raised by selling its house or jewellry to settle its monthly provision bill. Yet that is precisely what the government has been doing in the past few years. money raised through privatisation is not like tax revenue. The revenue deficit or the excess of revenue expenditure over revenue receipts has been steadily growing. The full benefits of privatisation can be reaped only when privatisation proceeds are regarded as a kind of bond financing and used to finance additional investments in productive avenues or to restructure public finances by repaying debt. He may not have succeeded entirely . This is an invitation to disaster. a couple of hotels of ITDC and so on.Take a look at government budgets in the nineties. Arun Shourie in an interview in Singapore in April this year. Only then can boards fulfil their principal responsibility to shareholders of guiding the company's management through potential minefields of risk. external assistance and borrowing.and social responsibility. In effect.562 crore in 1991-92. Engineers India. But remember. while privatisation itself . Maruti Udyog. SCI. But not any longer. CMC. not from current receipts like tax revenues and user charges. National Fertilisers Ltd. we are liquidating family silver to meet our daily expenses. Rashtriya Chemicals and Fertilisers.After three consecutive years of falling short of the target set in the budget. In fact.'Unfortunately. close to 70% of the country's fiscal deficit is now accounted for by the revenue deficit. chances are the government will exceed the disinvestment target for the year. IPCL and IBPL. the nationalised banks…. MMTC. How should privatisation proceeds be utilised? With a little bit of luck (and provided Pramod Mahajan is quickly shown his place). Consequently. Sure. Balmer Lawrie. November 1997). there is now the distinct possibility that privatisation will deliver the kind of bounty it has delivered in many countries the world over. STC. The twelve months to June 2002 have seen as many as twenty four sell-offs.' That was the disinvestment minister.000 crore according to the revised estimates for 2001-02. but the list also includes a handful of big-ticket sales like VSNL. some were small like Hindustan Teleprinters. But it has certainly become a pretty routine affair.HPCL. From Rs18.It should become a routine affair.disinvestment still makes it to the front pages. BPCL.Indeed the very success of the disinvestment exercise in the past few months brings to the fore an an issue that has so far been relegated to the back burner: How should privatisation proceeds be utilised?Should they be treated on par with other budgetary receipts? Or should they be earmarked for specific purposes after a wider public debate? In the past. 'My aim is to get privatisation off the front pages. but from privatisation proceeds. it has now crossed Rs 90. It is a one-off inflow. The months ahead are likely to see many more PSUs on the block . the amounts raised were relatively small. no prudent government ought to use privatisation proceeds to meet its current expenditure.According to George A Mackenzie (IMF Papers on Policy Analysis and Assessments. how the funds were used was largely a matter of academic interest.
In his budget speech last year last year. the entire exercise will be meaningless if government does not prune its fiscal deficit so that the reduction in public debt is not taken as a licence to borrow wildly once again.guarantees.of these bodies. It is silent on the utilisation of privatisation proceeds. the total debt/GDP ratio is likely to be much closer to 90 -100 %. therefore. that we in India debate the issue of what's the best use of this money. or that of public sector undertakings and quasi sovereign undertakings like state road transport corporations.Reducing public debt to more manageable levels must therefore be the first charge on privatisation proceeds. JUNE 03. In the UK and Italy. External debt is also computed at historical cost. if not encouraging. allegations about the Haryana State Public Service Commission as well as the continuing communal riot situation in Gujarat have focussed attention on the issue of governance in the country. is a gross under-estimate of the true extent of government's liabilities. It is imperative. However. Is that a deliberate omission? Or is it that the FM. Given the crippling burden of our public debt and hence of interest payments. But in most countries. decided not to make any promises? Whatever the reason the fact is that we have no clue. Agreed. We need to debate both the bill and privatisation in tandem and more fully. corruption? The recent spate of scandals of corruption like the one involving the former chairman of the Punjab Public Service Commission (PPSC).has been widely debated. maybe.This is where the Fiscal Responsibility Bill comes in. but there is no mention at all in the subsequent 'Actiontaken Report' on how the money has been spent. public debt. state electricity boards and so on. raising budgetary resources has been a key element in privatisation exercises everywhere.Some time back there was talk about "Suraj" or even "Ramraj" but what we have instead is very poor level of . A situation where interest payments alone account for 50 per cent of revenue receipts and the government has to borrow steadily larger amounts to repay maturing debt is hardly conducive to fiscal health. the FM declared his intention to use Rs 7000 crore of the sell-off money to restructure PSUs and the balance Rs 5000 crore as budgetary support to build social infrastructure. it was mostly used to retire debt.In the event. especially when compared to Japan's 140 per cent of GDP. the reason is that we have designed our system of governance for protecting. This year's budget is no better. It is possible that some will argue that our public debt at about 60% of GDP is nothing to get worried about. MYTHILI BHUSNURMATH TIMES NEWS NETWORK [ MONDAY. for instance.Adjusted for all these factors.It does not include the debt of state governments. 2002 12:10:35 AM ] If India is poorly governed. And we do need to know. The problem is we don't even have very precise figures on this. not only did the final amount raised fall well short of the target. as defined by the authorities in India.Nor does it include contingent liabilities . the wisest course would be to retire some of the more expensive debt contracted in the mid nineties. the exercise was also accompanied by greater public debate on how the money would be spent. letters of comfort etc . stung by criticism about setting targets that are never realised. the related issue of how privatisation proceeds are to be utilised has not received much attention.But the fact is.
leads to business corruption. This is the route of political corruption which. The voluntary disclosure of income scheme (VDIS) under which those who had black money could convert their black money to white on payment of 30 per cent income tax against a situation earlier when those who were in higher income brackets had to pay 40 per cent. If we really want to check continuous looting of the public sector banks by influential people why not change the requisite rules including the Banking Secrecy Act? The basic reason why corruption flourishes in our country is because the way our democratic system operates. namely influential people who had misused the bank loans could not be published on the web site like what the CVC did so far as the public servants are concerned. Industries in our country can become sick but our industrialists do not become bankrupt.000 crore. a polite word for bad debts. when it comes to implementation.governance. But there is still zero action.Fortunately we have still hopes in the form of institutions . Black money has many avatars. these rules were all made by us. India is one of the most corrupt countries in the world. has crossed already Rs 58. corruption. the reason is that we have designed our system of governance for protecting. But in every sector we find that we have designed systems for encouraging corruption and poor governance and then complain that we are not able to check corruption. In 1988 September. if not encouraging. bureaucratic corruption and criminalisation of politics. the argument of the RBI was that because the Banking Secrecy Act. Mostly it is in the form of benami property or accounts. we fail completely. Article 14 of the Constitution and Chapter 3 of the Reserve Bank Manual. a Berlin based NGO.After all. in turn.Section 8 provided that government would prescribe the rules under which the benami property could be confiscated.Year before last the finance minister announced in the budget speech that SICA will be modified and BIFR scrapped. The burgeoning non performing assets (NPA) in the Indian banking system. clearly put a premium on dishonesty! It was a slap in the face of all honest Indian tax payers. When the RBI was asked why the names of the wilful defaulters. Section 5 of the Act empowers the government to confiscate benami property. If we find that 40 per cent of the Indian GDP is black money. Let us look at some examples. this could not be done. Corruption is a direct index of the lack of good governance. All political parties are dependent on black money.The PPSC case only highlighted how a constitutional body which was designed to ensure that there was fairness and probity in selection to public service itself could be compromised. how can we complain? After all we created the black money by policy.This is a case where even though legislation may be passed to check corruption. ranking 72 out of 91 in the Corruption Perception Index of M/s Transparency International. This is because the Sick Industries Companies Act (SICA) and the institution of the Bureau of Industrial and Financial Reconstruction (BIFR) has been so totally transformed to serve the interests of the unscrupulous industrialists and the labour aristocracy that the original intention of protecting the interest of the creditors is totally lost in its Indian avatar.If India is poorly governed. the Benami Transaction Prohibition Act was passed. It is more than 13 years but still government of India have not prescribed the rules under Section 8 for confiscation to be implemented.
there is an excessive tendency towards the thinking rather than doing While I was remorsefully growing out of competitive. there is an excessive tendency towards the thinking work. it demonstrates a national bias for the more Brahmanical work rather than the Kshatriya / Vaishya mode of doing things. the Supreme Court should be requested to direct the government to identify all sensitive or lucrative posts and for filling up these posts a procedure similar to that for filling the post of the CBI director must be followed. In our economic matters.I served on the Rakesh Mohan Committee on the Indian Railways last year and found that any sensible idea about the Railways had been well argued and documented in one report or the other of committees set up by the Railways themselves at an interval of two years for the last 15 years.Once a person is appointed as director. In order to break the nexus between the corrupt politician and the corrupt bureaucrat. 2002 12:54:24 AM ] Economic Times (The author is Central Vigilance Commissioner) In our economic matters. JUNE 01. CBI he will not be shifted for two years without the permission of the CVC.The Representation of Peoples Act must be amended so that the directives of the Supreme Court becomes part of the rules and the present pathetic situation of the law breakers becoming law makers in our country can be stopped. all that is required is a public interest litigation in the Supreme court. A new book (Execution: The discipline of getting things done) by Larry Bossidy and Ram Charan brings out some relevant ideas very readably.To prevent this nexus between corrupt politicians and corrupt bureaucrats. Another reason why our governance is so poor is because corrupt political leaders support corrupt bureaucrats who occupy sensitive posts.like the Supreme Court which has at least taken the initiative to prescribe in its judgment of 2 May that the candidates to elections must give an affidavit about their criminal back ground and track record. The thinking part has captured management people's imagination. I was consoled by a comment made about the great Ken Rosewall. but his body is unable to keep the appointment. We find these days political parties are asking for "lucrative ministries". including Home Secretary and Personnel Secretary as members. CBI would be appointed from a panel of names recommended by a committee. chaired by the CVC. This was done to prevent outside influence on sensitive organisations like the CBI.In one stroke a substantial step would have been taken to break the nexus between the corrupt politicians and the corrupt bureaucrats which is at the root of the poor governance of our country. university level tennis.The court had. "His mind makes the appointment."This elegant expression has relevance for organisations also. and there is a similar pattern. Can we move towards better governance at last? [ SATURDAY. Young people .I am now on the Deepak Parekh Committee on the Restructuring of our SEBs. who was moving past his prime.Concerned members of civil society and chatterati who bemoan the quality of poor governance in our country can at least take the initiative of filing a public interest litigation on the above lines. in the Vineet Narain case (Hawala case) directed directed that the director. Perhaps.
So how did inadequate execution capability manifest itself at Lucent? Here are the eight answers .find it more attractive to be in investment banking and consultancy than in operations. However. Tennessee to create a completely new work culture. it is a discipline and integral to strategy. it must be a core element of an organisation's culture. How to create a doing culture? I have learnt five valuable lessons . not the internal strife: In 1984. but it can become an end in itself. But he had difficulty getting things done in the company.For successful transfer of learning. This looks quite obvious. not changing work processes fast enough to take advantage of the huge investment in SAP. Fight the external competition.These created such strong social identities among divisions that it became very difficult to achieve reverse transfer of learnings into the main company divisions. third.In my experience. When HP's instrument division at Santa Clara tried to bring more of a customer focus to the engineer-dominated culture. being a district officer in the IAS or becoming a field manager at HLL. it is more important to understand the why in terms of the philosophical underpinning than the details of how. McGinn was fired and Henry Schacht was recalled from retirement to head the company. inadequate financial information about profit by customer / product line. the Toyota-GM joint venture at California. but poses substantive issues in large organisations. but as the following story about Lucent shows. without the accompanying doing. and people who say thoughtful things. second. Secure people's buy-in: Many have toured Toyota's facilities to learn about Lean Manufacturing.as always.To understand execution. high status and as leaders. and amassing huge debt. but in execution. it is the essence of the job of the leadership.. all have understood it but very few have successfully replicated. "We got ahead of our capacity to execute.cumbersome structure. management rightly seeks new strategies. The story is about Richard McGinn. manuals and reports. they faced huge problems. huge credit / financing to customers by sales people. selfevident. recording shipments to depots as sales. one needs to remember three things . Learning comes from doing: It is assumed that doing comes from learning. the difference between successful turnarounds and less successful ones usually does not lie in ideas or strategies per se. unwillingness to confront non-performing executives.GM created Saturn in 1985 at Spring Hill. A strong marketer. Many Indian companies will recognise these symptoms. so also NUMMI. the obvious does not automatically happen.Thinking (and talking) is very valued in organisations. That is dangerous because the 'think only' types usually impress better than the 'do only' types!That is why good training programmes involve strong 'doing jobs' at the very early stages. people who say the right things at the right time are likely to be judged as more influential. McGinn was adept at explaining the company's bright prospects to the investment community. but the converse is more the reality. The more insightful tacit knowledge is transmitted only through mentoring and doing. who took over as CEO of Lucent in 1996 from Henry Schacht.first. I do not discount the value of thinking or talking. Whenever a company gets into trouble. Apple used the external threat of .As Henry Schacht put it." In October 2000. All this may appear elementary. Very likely.g. missing technical milestones for new product development. e. often equal attention is not paid to the execution of these strategies. You can teach the explicit knowledge through courses.
they were arbitrarily divided into three lots called High. Pradip Baijal.then it should be apparent that the sale of assets makes no difference to the deficit. the tantalising prospect of upwards of Rs 25. George Yarrow. the High performed with more positive attitude. Leverage the co-operative instinct: There is a laboratory game called Prisoner's Dilemma in which the neural activity of the players is studied as they select from an array of greedy or co-operative options as they pursue financial gain. when Unilever mounted a frontal assault on a dominant Tide Detergent.In reality. Beware the Pygmalion effect: The Israeli army did a study on incoming soldiers who were told that from a battery of tests. they could predict which one-third had high command potential. 2002 12:53:30 AM ] Is disinvestment really that good for India or is a rethink in order? The frisson of excitement generated by news of a great leap forward in privatisation is almost palpable. The point was made years ago by an economist. it would be surprising if asset sales represent a free lunch through which current . When the government uses asset sales to retire debt.If we think of the government's deficit as changes in net worth . "Privatisation in theory and practice" (Economic Journal. The secretary for the ministry for disinvestment. The brightest brain signals arose in co-operative alliances and in that part of the brain which responds to desserts and pretty faces! It seems the human mind is naturally wired to co-operate. Such measurement includes the government's liabilities but not its assets.that is. He argues that the government has realised Rs 7164 crore from strategic sales in the past two years. "Thus. Given the government's borrowing rate of around 10%. A self fulfilling prophecy. The fallacy in this argument has to do with the conventional measurement of the fiscal deficit. changes in debt minus changes in assets .In the journal Neuron. Yarrow went on to add. Privatization (MIT Press). at the end of the fiscal tunnel. Yet the notion that privatisation is a miracle cure for fiscal problems rests on such weak foundations that it is astonishing that this proposition is heard so often in popular discourse. 2002). this translates into an annual benefit to government of around Rs 700 crore (which would imply a corresponding reduction in the fiscal deficit).IBM to provide organisational energy against the "common enemy. Prof Gregory Burns has written "We were really surprised by the results. the stream of future interest payments is reduced to the same extent as the income stream foregone through the sale of the asset.000 crore in revenues is now being dangled before our eyes."Likewise with Nirma . Where ministers were loath to mention any target for a given year. Both imply the mortgage of future income to improve current cash flow. selling public assets is equivalent to selling fixed-interest debt. At the end of fifteen weeks. AUGUST 23. April 1986). In his paper. Light at last. adumbrates this proposition in a recent article in the Economic and Political Weekly (April 27. co-author with John Vickers of the classic treatise. it would seem. as a first approximation." R GOPALAKRISHNAN [ Economic Times FRIDAY. For this reason.at HLL in 1987 and once again in my experience at Unilever Arabia in 1992. Regular and Uncertain potential.
Vickers and Yarrow provide two important qualifications to this proposition. strong corporate governance. 2002 Is industryless growth here to stay? READERS are familiar with the concept of jobless growth.Indeed. But in India industrial growth . than GDP in a business downswing. notwithstanding some fears of a second downward dip in coming months.This was unsurprising last year. This was seen in the sale of IPCL to the Reliance group.broad-based ownership of shares and professional management subject to control by institutional investors. it must be recognised that there is an inherent tension between the pursuit of strategic sales and the objective of improving firm efficiency. or falls faster. with Singapore leading the pack at 18.9 per cent. But in 2002 the world has swung up out of the recession. induce a virtuous cycle of lower interest rates and higher private investment. Industry typically grows more slowly. conditions not easily met even in developed markets. therefore. can be called industryless growth. The odds. are that privatisation actually worsens the government's long-term financial position. Once we do that. the merits of phased disinvestment as distinct from strategic sale will become apparent at least in the case of the better-performing PSUs. But India is now demonstrating a less familiar phenomenon. Neither of these conditions is met in practice.Many of our Asian neighbours have recorded big jumps in industrial growth. In their book. by retiring public debt.The focus on strategic sale is leading up to a disregard for the market structure implications of such sales. which militates against the objective of improving efficiency.One of the paradoxes of privatisation world-wide has been that. let alone in the Indian context.It is hard to conceive of a greater tragedy for the economy. when the global recession forced down industrial growth everywhere. including India. T T RAM MOHAN Economic Times THURSDAY. AUGUST 01. The net worth of the public sector remains unchanged only if the sale is correctly priced and there are no transaction costs. But this requires competition. We need to abandon wrongheaded notions of using privatisation to manage fiscal problems and to focus instead on the central issues of governance and efficiency. it has ended up creating greater concentration.The impact on public finances would be positive if the efficiency of the firm sold improved markedly under new management.But the emphasis on strategic sale raises the disconcerting prospect of enormous assets being handed over to precisely the narrow set of family-managed industrial groups that are themselves in need of radical change. while in principle it is intended to usher in greater competition. What is required is the rejuvenation of the public sector through an altogether new culture of governance .government deficits can be financed without upward pressure on interest rates and consequent crowding out of private sector expenditure".Strategic sales are also likely to undermine the central objective of improvement in firm efficiency by perpetuating forms of ownership that are inimical to this objective. So much for the notion that privatisation proceeds could. and an active market for corporate control. which. It could happen again if the Hindalco-Indal combine ends up bagging Nalco. for want of a better phrase.
8 per cent GDP growth but 10.Taiwan has registered barely any GDP growth at 0. now regarded as a commodity producer like OPEC or Africa. But businessmen have similar fears all over south-east Asia. The Philippines has recorded 3. Some forecasts put GDP growth at no more than 4 per cent this financial year. which may becoming selffulfilling.Hong Kong is the one exception . No.Singapore.7 per cent industrial growth. Even Russia. India has been the second fastest growing economy in the world.9 per cent in June. Now. as in most developing countries. industryless growth does not mean no industrial growth at all. however.It shows that India has the second highest rate of GDP growth but only the eighth highest industrial growth among the countries in the table. The accompanying table gives recent data for top developing countries. a period when the rest of Asia has surged way ahead of India industrially. Industrial growth relates in some cases to May. in a downdraft it is common for industry to suffer as much or more than GDP. has registered industrial growth of 18. Many countries that lagged well behind India during the recession are soaring industrially in the global recovery. This is because of the region's financial woes.4 per cent in the most recent quarter. which originated in Argentina and are now spreading like a virus to the whole region. many Asian countries have surged ahead industrially in recent months. industrial growth is swinging downwards rather than upwards. True. India. Ever since the global recession set in. Even Chile.a modest acceleration of GDP has spurred a most faster acceleration of industry. in others to June or July.9 per cent in the latest quarter.Rainfall had no impact on industrial data for the first six months of 2002. This has been a matter for some satisfaction. Yet it is gives a bird's view of trends. by far the biggest country in the region. Now.Some pessimists will say that. yet its industrial output has soared 8.In Latin America. is currently registering faster industrial growth than India.Instead of being the locomotive of growth.4 per cent in June. Many miracle economies in East Asia ground to stagnation in this period. By contrast India. Similarly. with GDP growth of 6. given the poor monsoon. Despite this. However. GDP relates in some cases to the second quarter and in others to the first quarter.Many businessmen feel that India cannot compete with China. long a miracle economy. India has not. is witnessing lagging industrial growth even in an upswing. while Latin America has been imploding. this is virtually double the rate a year earlier. But that is cold comfort.continues to lag behind GDP growth even in a global recovery. it has in India become a passenger that has to be pulled forward by the services sector. . which is beating Indian producers in both the Indian and global markets. the phrase jobless growth does not mean no new jobs whatsoever.Almost everywhere else in Asia .Brazil. monsoon failure is a minor explanation for India's industrial stagnation. It simply means that jobs grow proportionately less than GDP. is caught in the downdraft. these downbeat forecasts reflect rainfall conditions from July onwards. It means industry is growing more slowly than GDP. has registered a pretty pathetic industrial growth rate of 4 per cent in June. The data are not always comparable across countries.9 per cent in the latest quarter.China seems to be able to beat everybody. India may not experience an upswing at all. whose GDP growth was just 3. is in serious danger of going down the Argentinean path for no good reason other than international financial panic.
While the need for interest rates to come down is imperative there is no point in placating the relatively well-to. 2002 Is the budgeting exercise of any use? During the last 12 years the Indian budget has been twisted and distorted in quite some ways. In 1992-93 and 1993-94 Dr.Many countries of the West have agonised about jobless growth and then shrugged their shoulders. We are agonising about industryless growth. transport. In a country where 300 million poor do not have even a minimum conceivable economic security. it would be a crime for the Government to abolish subsidies. Singh achieved a measure of success in this area but the process involved a drastic slashing of capital expenditure of the State and public spending on the social sector. but may end up shrugging our shoulders too. do remember we have to win the next elections and come back to power. It looked as if the BJP believed that Mr. namely. kerosene. fertilizers. Without vibrant industry. high real interest rates.do salaried class with the assurance that they would not be . the Finance Minister has not had much freedom in formulating a budget. V. reservations for small scale industries. GDP cannot grow faster than 5 to 6 per cent. power and a host of services. Jaswant Singh has not totally failed in the party's expectations. But it will be difficult to find any rationale in the new patch-up. The one major dimension of the budget that has continued to defy policy correction is the question of subsidies covering food. His focus was on the reduction of fiscal deficit. guiding Yashwant Sinha is not so much as reduction in the level of fiscal deficit as mobilisation of resources and re-deployment of resources towards education. which is why politicians are reluctant to reform radically save in a crisis. There is the oft-quoted reported admonition of Dr.Every reform tends to create losers before it creates winners. Singh by P. The salaried middleclass and the senior citizens have obtained some relief in the tax proposals made by the new Finance Minister. but that seems a perfectly acceptable rate politically. this country could remain the second-fastest growing economy after China. even as the rest of Asia speeds past India industrially. Frequent elections have put governments under populist pressure. health and social welfare. The budget for 2002-03 was literally hanging in the balance for four weeks before the Government inducted Jaswant Singh as the new Finance Minister. For one thing. SWAMINATHAN S ANKLESARIA AIYAR TIMES NEWS NETWORK [ WEDNESDAY. Sinha's regime witnessed some positive movement towards the rationalisation of excise duties there has been little action on rectifying the anomalies in the enforcement nor addressing the widespread corruption. But with what results? The belief that more public funds of these sectors will start a process of expansion of access to education or to health facilities for the poor has not come true. But Mr.I have no space in this article to dwell at length on the many issues that depress our industrial prospects. we do not have a crisis. Indeed. "Deficit reduction is perhaps a critical need. high import tariffs that make raw materials costly.'' It may sound paradoxical that the fiscal policy orientation during the last five years.So. AUGUST 21. slow industrial growth looks here to stay for some time. thanks to its burgeoning service exports. Singh. Narasimha Rao the then Prime Minister. Appreciation of the real exchange rate. Jaswant Singh was capable of mollifying its major vote bank.all these issues have been analysed in detail by many others. But while we have a long list of problems. inflexible labour regulations . Mr. The only period when the budget was guided by fiscal objectives and that too to a limited extent was when Manmohan Singh was Finance Minister and he was not immune to criticism. the middle class with liberal tax concessions. especially for foodgrains. security has become an additional drag. Even though Mr. After the Gujarat riots and threatened war with Pakistan in June. Our political economy has settled into an equilibrium where there is little political incentive to rock the boat with radical change.
The second reason is that a backlash may be brewing and business institutions may find their power and freedom curbed if they do not act responsibly towards a wider set of stakeholders. the company should have stood up for what was right in Nigeria even if its business suffered. the self-interestedness of corporations and their leaders is now causing a reaction from society.about which business leaders in India and elsewhere have a need to ponder. might not only undermine growth but might cause devastation of the lives of the rural masses. Its business philosophy was to be a good corporate citizen and to work in 'partnership' with local governments everywhere. which is where Enron and Andersen failed.term point of view. he suggested the Gujarat riots might not have happened had industry intervened in earlier problems! Similarly. resources. Integrity also means the quality of being integrated. For many business leaders everywhere in the world. From the long. 2002 Is the business of business only business? Would the carnage in Gujarat have happened had Indian business leaders been more actively engaged with socio-political developments over the past 30 years?Participating in a heated debate on the role of the government in Gujarat at the annual meeting of the CII last month.Remember the old Burma-Shell line: "Burma-Shell in India's life and part of it"? But what if the government is not effective in protecting human rights? According to Shell's critics. Swaminathan Hindu Editorial. On the one hand. Even in the USA. Mr Punj of the BJP wondered why industry was making a noise about the mayhem in Gujarat while it had been silent when Hindus were driven out of Kashmir. the question is no longer whether business has a role in social change but how it should play its role. the bastion of free markets. the economy is showing clear signs of deterioration.There are at least two good reasons why business must now face up to its broader role in society. Royal Dutch Shell was accused of complicity by remaining silent when the Nigerian government executed Ken Saro-Wiwa. Shell was in a quandary at the time. the main prop of the economy. of being in tune with and connected with the wider society . Are the ministers able to pay attention to the economy in the midst of their own political squabbles? By S.affected by a general decline in interest rates. in both meanings of integrity. has given more power to business leaders. August 6. Business leaders with great personal qualities of honesty can be deeply pained.Trying to turn the tables on industry. accompanied by the decline in the role. Gujarat has brought home to India the debate on the role business has in influencing broader socio-political change.Now the integrity of business and its leaders is being questioned. And it is no wonder the BJP government suffering from a drought of ideas has appointed special committees to explore the possibilities of fine-tuning the system. In the meanwhile. The first is responsibility that comes with freedom. integrity is the quality of being honest and uncompromising of values and principles. Increasing freedom from controls on business and the growing respect for market institutions in the later part of the last century. With this power comes responsibility for making sure the right things are done in society. the interest rate policy leaves a lot to be desired. and their . Agriculture. and even respect for governments.
businesses hurt as Shell was.to prevent bad things from happening and induce good things to happen without meddling with politics. The amended Act also gives the adalats adjudicatory . especially in their dealings with public utilities. will now have an alternative avenue for redressal of their grievances.The steady deterioration in the quality of governance over the past few years.To facilitate this. can address only 'consumer' complaints. and invest in environmental protection processes. 2002. innovative ways to contribute to the broader needs of society that improve the revenues and operating margins of the business. Business has to play a more integrated role in society and has to develop new ways to fulfil this role purposefully because old models are no longer effective.The simplistic view that seemed to prevail in the 1990s that business leaders need to focus single-mindedly on shareholder value as determined by the share price. provide services to the community.In summary. which among other things. Parliament put its seal of approval on the National Legal Services Authorities (Amendment) Bill. MAY 15. Economic Times Is the consumer really the king in India? Thursday was a red-letter for consumers in the country. Consumers. Unfortunately. did not forget their values and role in society during those dizzy days. they must do this in innovative formats that stimulate systemic thinking and dialogue rather than posturing. new models of engagement are required by which business can enable social and political leaders to discover ways in which desirable outcomes can be brought about. such as Tatas and Shell. The traditional model of being a good corporate citizen was to give handsome benefits to employees. This effectively keeps public utilities such as health and civic services out of the purview of these courts. and that financial analysts are the best judge of business strategy. puts lok adalats on a permanent basis. has been matched by a corresponding decline in the quality of delivery in public utility services. Business leaders must engage in more systemic thinking and stimulate innovation in business processes. The second challenge is to influence change in society . The first is the pressure to reduce costs. which most business leaders are loath to do. moreover. Sure. offers a much-delayed but sorely-needed alternative mechanism for dealing with disputes. The Bill. Consumer courts. Therefore. when society questions whether business practices are in tune with the evolving values of society such as human rights. About time too. may have clouded better judgements. it is time to contest the notion that the role of business must be restricted to business. ARUN MAIRA WEDNESDAY. they have been rightly challenged to find ways to fulfil their leadership role in society more effectively. All these measures add costs and reduce profits. make donations to social causes.The challenge now is not to walk away from these obligations but to find new. While the truly great companies.These leaders have two principal challenges. However. they could take their complaints to the consumer courts but the latter could barely cope with the pressure. consumers had very few avenues where they could take their grievances. long at the receiving end. business associations can take the lead to bring together many stakeholders.
Moreover. the decision in this regard will have to lie with the creditor because a misjudgement means for him much greater losses. which have always been there. Given the numbers involved -according to the Standing Committee on Home Affairs there are 24 million cases pending in different courts . There are only 10.5 judges for every one million of our people as compared to 107 in the US. What this present ordinance will actually do is to change the mindset of the creditor as well as the borrower. Part of the reason for the huge backlog of cases is the inadequacy of judicial officers. 2002 Economic Times) Is the NPA ordinance too harsh? The ordinance removes a critical shortcoming which has been debilitating the entire credit system in the country. allowing courts to function uninterruptedly and dealing severely with litigants who deliberately create delays. It must be appreciated that any bank/FI would not proceed to take possession of the securities without exhausting all other means of recovery. as we all saw.This is a major improvement over the erstwhile system under which they could only try to settle disputes on the basis of a compromise formula. Prudential and social concerns. The distinction between a wilful and unwilful defaulter is extremely thin and it is hardly ever possible to distinguish in which category a particular defaulter falls. The provisions of the ordinance have been termed by some as harsh. the creditor must forbear and not enforce its rights in respect of the securities which the borrower so readily offered at the time of availing of the credit.Inability of the banks and the financial institutions to lay their hands on the securities made it plain to the borrowers that the creditor had little or no means to enforce performance of the credit contract and in effect depended largely upon their goodwill for the recovery of the loan. strengthening the judicial system. Lok adalats have made a significant contribution in settling industrial disputes and in disposing of cases where banks have filed suits against erring borrowers.In any case. MAY 18. the majority of our laws are antiquated. Especially since the decision of the adalat will be binding and treated on a par with the decree of a civil court.It has also been argued that this approach need not be adopted in the case of a defaulter who does not default wilfully. was delays and defaults.powers. Lok adalats can only help at the margin. It will remove from the minds of the creditor the sense of lack of control it gets as soon as the amount of credit is out of its door and from the minds of . EDITORIAL (SATURDAY. It is not only consumers who have reason to be happy. It would appear harsh only if the agreement has been entered into with the assumption that whatever be the extent of the borrowing party's failure and default and howsoever much the covenants contained in the agreement may have been violated.The remedy. lies in tackling the problem on many fronts: making our laws more relevant to the times. will continue and the creditor just cannot act trigger-happy. therefore. The result. That is true but only to a certain extent.lok adalats can offer only one kind of remedy for a legal system that is close to choking.
2002 Is the patents bill good for India? Global pressure. Signing WTO was deliberately not fully discussed in Parliament.Sanjiwan Sahni.The issues are simple.Also. A patent is a monopoly . No complaints against unfettered recourse to security by a creditor.America's Super 301 places India on 'priority watch' threatening sanctions. avoiding compromise and responsibility for inadequate action. Sale of security under the Ordinance. Only on repayment of the entire outstanding. an acquirer can be unfairly accommodated with preferential terms. Secured creditors can proceed against guarantors "without court intervention" and "without first taking the measures for disposal of security from the borrower". does not revert rights to the borrower.Considering that personal guarantees are taken from all small borrowers but not necessarily from corporate borrowers. But the Ordinance needs revision to iron out inequities. TRAIThe time for such an Ordinance has arrived. If the value of the security exceeds the dues to a secured creditor. the seller and the beneficiary are the same party. The absence of time bound decision-making regulations in respect of restructuring proposals aggravates the Ordinances' inequity. ignorance.with many legal stalwarts barely attending meetings. incompetent should be equally liable.For disposal of security. Even stronger regulations for large defaulters including absent provisions for shareholding transfers are fair. In law. are a borrower's rights revived. India has buckled supinely.These will incentivise both credit delivery by the Banks/FIs and its return by the borrowers. cowardice and conspiracy and not national interest are forcing India's Parliament to amend our exemplary Patents Act 1970 under threat from WTO and its TRIPS treaty. The Joint Committee (1999-2001) ignored most suggestions and toed the line . Parliament became Geneva's rubber stamp. including those not currently due. M S Verma. Chairman. a sale at a value enough to cover his dues would be adequately self-serving but unfair to all other stakeholders. which clears the default that created an NPA.most borrowers remove the sense of total complacency which many of them have about meeting the terms of agreement under which credit has been extended.Bills to implement TRIPS are being cascaded through on voice votes and minimum attention. in theory and practice. coercion. Willful defaulters is not a relevant category.The Ordinance targets large defaults but is applicable to small borrowers too. Segregation by size and product categories (home/ industry) is necessary for deliverable regulations. this provision in particularly unfair.Consequent to risk aversion in the system and financial difficulties of lenders (such as IFCI). But discriminatory action as evident from publicised threats to Haldia Petrochemicals is avoidable. the provisions of the Ordinance will probably be applied as a first resort. you cannot do indirectly what is prohibited directly. Management and economic advisor Editorials Economic Times WEDNESDAY. The provisions transferring management control effectively give rights to secured creditors over "all properties" thereby permitting them to take recourse to unsecured assets contravening the stipulated intent. Public debate was throttled. JULY 31.
and will be. A few negative economic reports over the past few weeks though have dramatically changed that perception. Why has India followed TRIPS to grant 20-year monopolies to foreigners through patents? The argument that research will stop without the incentive of luxurious returns is bogus.To protect public health. 2002 Is the US economy headed the Japanese economy way? Unfortunately. food and energy and research.Now the continuing sharp downward revisions to GDP growth forecasts are eerily reminiscent of the Japanese experience in the early '90s.The US economic outlook continues to be terribly uncertain.It was cowardice not to do so. this is not just about M Night Shyamalan's latest blockbuster .After all. as the teaser states: " Either this is one of the most elaborate hoaxes ever created or this is for real". . The Parliament cannot mindlessly translate treaty into law. Now we're at the stage where the signs can't be ignored.which. where a debate is raging on whether there are signs of a Japanese-style bust in the current US experience. By most measures the structural excesses haven't been weeded out and with the passage of time the preceding boom seems increasingly flaky.American law declares that its law will prevail over the WTO.Poor nations with ailing needs should be empowered to break corporate monopolies at will to meet their needs. Doha required stronger compulsory licensing provisions. the signs have been appearing but could be explained away. owned by foreigners.0 % real US GDP growth in 2002. But. For years. India's sovereign Parliament could have declared a shorter patent of 5-10 years from the date of sealing. Patented combinations can last forever. itself a contradiction. Of course. Yet. fixed royalties of around 4 % and better public interest provisions enabling a modified licence of right as scheduled by the government for health. Good returns follow in 3-4 market years. The comparisons with Japan have gained currency of late as 29 months after the bubble peaked US equities have fallen by almost a similar magnitude as Japanese stocks following their December 1989 top. genetic research and steps in basic research being patented. given the fact that the world is still smarting from the Japanese boom-bust cycle. Researchers are troubled by issues relating to microorganisms.Signs. The promise of a possible third amendment is illusory. the consensus was then calling for a nearly 3. India would have been better off telling WTO that its sovereign parliament does not accept certain provisions.This will stifle basic research. in a free trade treaty is.And in the present analogous case it could well be only paranoia. patents should be given only for molecules. Economists and financial markets consistently overestimated actual growth and inflation rates in Japan till the second half of the 1990s. The stock market may have been in a funk but the US economy was apparently responding to all the stimuli. another ruse. Rajeev Dhavan Economic Times WEDNESDAY. These lines from the movie trailer are today as applicable in the economic and investment circles. we know that 60-90 % of patents are. MAY 29. It appeared quite different till as recently as this June. Parallels with Japan really begin with the boom.Research gets huge tax benefits.
been running at or below zero.Well.like the productivity miracle one . the non-believers in the Japanese parallel like to turn all these arguments on the head.The argument runs that as with Japan in the late eighties the new era for the US was exaggerated and led to financial mania with concomitant effects on the real economy. No two situations are completely identical.stand discredited.There'll always be differences.A discussion paper by the Fed titled: "Preventing deflation: lessons from Japan's experience in the 1990s" has captured the imagination of many policymakers. and the weak string of US economic data of late has increased such doubts. there were excesses but those could be purged with much less pain inflicted. the Austrian school can still be right but the pain could be in the form of inflation rather than deflation with the Fed incessantly spraying monetary gasoline to .Of course. and the risk of deflation is high. expect the protracted-downturn-is-inevitable (a la Japan) or the Austrian school to be on the ascendant.Similarly.Market valuations were thrown out of line but rationalised all the way up and (wrongly as early buying opportunities) on the way down.The general lesson the paper draws from Japan's experience is that when inflation and interest rates have fallen close to zero. in contrast with Japan. like there were between the Great Depression in the US and Japan post-1989 even though the two experiences are often clubbed together. The paper argues that Japan's sustained deflationary slump was unanticipated by Japanese policymakers and so was a key factor in the authorities' failure to provide sufficient stimulus to maintain growth and positive inflation. by several inflation measures. They say it is precisely because the US has Japan as a cautionary guide and policymakers like Fed chairman. Keynesians think the Japanese slump in the nineties was as much a policy mistake as a cleansing operation. Sure. where the excesses of the boom will have to be wrung out of the system and there is little policy can do about it. are obsessed with the Japanese parallel that the US economy will not face the same consequences.Quite obviously.The over-investment in the US was mainly in technology goods whereas in Japan it was in real estate. stimulus should go beyond the levels conventionally implied by baseline forecasts. it's never quite so clear-cut and all sorts of variations are possible. But it's increasingly turning out to be a philosophical and ideological divide between Hayek versus Keynes. policymakers in the US remain overly optimistic on future growth prospects and are thereby making the wrong assumptions in setting policy. For one.The Hayek or Austrian School followers believe this is payback time for the US economy as in a classic boom-bust cycle. the Keynesians believe the US can avoid Japan Redux because policymakers led by the Fed have been proactive. Alan Greenspan.In that regard the broad parallels with Japan are valid. as most other schools of thought . the US political system too is responding swiftly by both easing fiscal policy and tightening the regulatory framework to restore broken confidence. Excesses in Japan got built up on the manufacturing side and in the US excesses seemed to have stacked up on the consumer's balance sheet.Most economists agree that the Fed this time has indeed been quite proactive and real shortterm interest rates in the US have. And like then.So we will never definitively know till the end how the current US episode fully plays out.Every time though doubts surface on the effectiveness of policy.
But that won't detract from the primary debate. Strategic direction is more important today. And. But the damage to investors can be limited if positioned the right way. 2002 Is there any point in having a business strategy when the world changes from month to month? The customer may be king. There are several reasons for this. yes. Similarly. Forecasting is difficult. We're unable to forecast demand for products. In other words. The traditional view of demand forecasting is dead. he shatters several conventional management principles . you cannot predict how much of what you will sell. This process is different from forecasting demand for products. and forecasting.avoid Japan and the real economy still failing to respond. you may not plan for specific markets and products but you certainly can plan for competencies. The consumer can decide whether to buy or to withhold. especially after September 11. No company can avoid this.To again borrow from the movie. which in turn will be determined by the school of thought one believes in. and the shelf-life of existing management principles. C K Prahalad. This is not just because of 911 but due to convergence of industries and technology. Now. For example. Lots of people say they don't need strategy because they associate strategy with forecast and a three-year budget. You cannot predict demand but that's different from having a strategic direction. and volatility in markets that impact demand around the world. With co-mingling. The first 400 metres allows you to see the next 400 metres with greater clarity. It does not mean that you can avoid making continuous adaptation based on the new information on a short-term basis. For example. speaks on the relevance of strategy in times of war and strife. it will be more difficult to predict demand. Father of core competency. companies need to have a clear strategic direction and extreme level adaptiveness and responsiveness. the outcomes in a Keynes or Hayek type scenario are quite different. AUGUST 20. which revolves around whether pain can be mitigated or not (inflation or deflation both cause pain).Finally. every company needs to understand the implications of the internet. there was a time when a printer was different from a fax machine and a copier. strategic direction. As functionalities are intermingling. You know you have 26 miles to go.It's like running a marathon 400 metres at a time. There are several non-traditional competitors who play by different rules. with the convergence of industries and technologies. RUCHIR SHARMA Economic Times TUESDAY. Signs: "What one man believes will save his family". Is there any point in having a strategy when the world changes from month to month? A: We need to distinguish between strategy. increasing consumer discretion. I can have all three in one. for next three . but he's largely been ignored by most eminent management thinkers. a digital camera and PC are being substituted for a camera and film. More importantly. Power in the industrial system is shifting in favour of the consumer. What is the infrastructure that managers need to fully exploit this new medium? It is a new competency that firms must plan for and create. The nature of competition itself is changing. in the process.some even of his own Q: Companies are increasingly beginning to question the relevance of strategy. It's about providing a framework for managers to navigate through the fog of complex choices. Is such an exercise becoming less and less useful? The answer is.
I focused on global competition and global organisation. In the first phase. Q: Many companies outsource activities like HR. What they used to outsource five years ago is very different from what they outsource now. the subtitle was Balancing Local Demands and Global Vision. staffing and training. In this book. For example. for the first time. This culminated in the book Multinational Mission (co-authored with Yves Doz) I believe that it was an interesting book. So. We. Then in 1987. . They had a core group of people who were trained in the basic skills that are required to run a company and they were provided permanent employment. Industries are de-verticalising themselves because they realise that few of their skills are unique. Forgings is not a unique activity for automotive OEMs and can be outsourced. In a global firm you cannot avoid local responsiveness and neither can you ignore global integration. Consider custom software.But firms need a whole lot of ancillary capabilities that can be outsourced. if you will.over primary sources of competitive advantage. if your are GM or Ford. The key is not to follow fashion but to deeply understand your business. the tension between global integration and local responsiveness was explicitly raised. From 1978 to 1987. Even in outsourcing there's a learning curve. by segments. It's the same with companies in the US today.if not legal control . that was my preoccupation. your primary source of competitive advantage is in managing the employees critical to providing consistent service worldwide. and that you don't have to do everything internally. The challenge is not to the idea of outsourcing per se but what activities are outsourced in a company. We can call it glocal. Should companies outsource such activities? Also. where has your thinking moved? How have you evolved as a thinker? A: I tend to think of my intellectual journey in three phases. Is this not detrimental to developing talent which is a strategic advantage? A: For a long time. Are radical measures like outsourcing a good idea when you don't know what the core competencies of tomorrow could be? A: Outsourcing is here to stay. Japanese companies have done this. India could become a big source of forgings for global companies. For instance. For example. transnational or metanational. Q: One of the outcomes of your book Competing for Future and the theory of core competency resulted in an entire industry called outsourcing. Q: After the huge success of Competing for the Future. Smart companies must ask a simple question: what are the sources of competitive advantage? Firms must retain influence . why have a forgings plant? Companies are also learning. Should the training and HR be outsourced in a hotel chain? No. if you're in the hotel business. recruiting.years. There were a whole group of smaller companies which literally provided contract labour services to larger firms. This trend will continue. I expect the next big wave will be sourcing automotive components from abroad. the temp business is booming now more than ever creating a free floating population which belongs nowhere. in India. In fact. But in a different industry it would be fine. The essential tension remains. can become the platform for outsourcing more complex services than we did 10 years ago. Companies are learning how to protect their long-term interests.
Xerox or Motorola? That's what led to Competing for the Future. How can you create the same desire to compete? You don't decrease resources but increase aspirations. I don't believe e-businesses is dead. We introduced an internally consistent set of core concepts such as strategy as stretch. strategic intent . Unfortunately.the bottom of the pyramid and the consumer-centric industrial system will come together. There are 4. With the emergence of the internet. Q Critics say the IT revolution even caught Michael Porter by storm and that his theories are not valid in the light of the IT wave? . therefore. suddenly the bottom of the pyramid and the consumer-centric industrial system seem to come together. dotcoms rose to experiment: how can take traditional functionalities as well as new functionalities and deliver them in a fundamentally new way.able to take on larger American and European incumbents such as GM. strategic architecture and core competency as a way of leveraging intellectual skills. which is also the basis of a book (co-authored by Venkat Ramaswamy) is about co-creation and customer as a partner. How do these forces affect the way we compete and create value? That leads me to a consumer-centric view of the industrial system as opposed to the traditional firm-centric view.it's about creating a mismatch between resources and aspiration. So if you ask me if I've moved intellectually.All companies start small. you invent new ways to compete. All dotcoms were experimentations. To build an internally consistent system for helping the poor. will focus on the impact of major discontinuities such as the internet. Competing For The Future (co-authored with Gary Hamel) is about entrepreneurship in a large company through strategic intent . I'm in the third phase now. yes I have. deregulation of industries around the world.(it's not a strategy but direction). We are arguing a shift in how business will be done. Dotcoms have failed.5 billion people who are trying to be part of the free markets of the world and are not able to. So I believe we are in the cusp of evolution. We identified the need for experimentation at low cost. With economies like India. The second part of my research. What you see is only the tip of the iceberg. I think we tend to associate failure of dotcoms with the failure of Internet.My new research. I'm exploring market-based solutions. or derisking strategy if you will. many business models were not robust because they were experimenting.like Toyota. In a small company you have high aspiration and low resources. I'm focusing on one of the biggest problems of the world: poverty. Philips and GE. Q: Why is it that various manifestations of e-businesses are not delivering or have failed on their promise? A: E-businesses have not failed. I believe these two will connect .I decided to move myself into a zone of discomfort and decided to focus on a core issue: why and how are smaller competitors from Japan and Korea . in this phase. globalisation and convergence of technologies and industries. Canon or Samsung . I've been working on a strategy for the Bottom of the Pyramid. That book's not about forecasting the future but about leveraging resources in a unique way. The dotcoms challenged the older options. Sony. But today the internet has as much to do with very large companies who are using it to improve internal efficiencies and external efficiency with customers and suppliers. Over the last couple of years. Russia and China opening up. Core competency is nothing but accumulated knowledge.
it's not easy for people to identify the discontinuities and amplify weak signals and fully assess its implications. A lot of people who don't understand the spirit of the book (I call it superficial reading) say it's about forecasting. That single contribution is worth a lot. There are three ways of looking at the future. established scientists have been wrong. The dramatic change in the role of the consumer can be represented by five basic drivers: information. global view. For instance. It was not about forecasting. He got managers to pay attention to the soft issues that could provide the hard edge of competitiveness. economic development and information. This is happening in small pockets like GE. And we tend to assume the same person should be right about everything. The reason why its safer is that you're creating the future and not just reacting to it. The second approach is scenario planning. Q: On the book that you co-authored with Gary Hamel. we have to recognise that consumers' capacity for accessing information and networking among themselves and activism has changed. access. Since a manager cannot react fast to changing demand patterns he does forecasting. Please comment. Competing for the Future was about building a strategic architecture and establishing milestones and then making it happen. Tom Peters talked about the culture in the workplace as a competitive edge. and what would happen if it were at $5. but identifying a new pattern and seeing a business opportunity.A: Again. make things happen. This forces us to decentralise management a lot more so that people on the ground can make the choices. are not a passive recipient of what the companies do. we were not asking managers to forecast the future but to create it. your critics say that companies that spend time looking at 20 years out will never see it.and assuming that it's okay. Basically. holding stocks . . So can I put these two together and say that assisted living is a good business to be in? This is not predicting. you know there's an ageing population in India and that there are a large number of NRIs whose parents are here and have the money. 3M and Unilever. One is extrapolating from the past. This approach assumes the basic business model but examines the robustness of the business model. The book is intended to help companies identify new relationships to see new opportunities and. You can use it only as a reference at best. It's about creating the future not about predicting the future. There's concern over reducing the amount of time it takes managers to react. It does not take away anything from their significant contributions. Q: Is the changing nature of business making it necessary for managers to crunch reaction time to make businesses more nimble? A: Inventories have always been a substitute of managerial reaction time. as a consumer. Q: How will the convergence of technology and the internet change the way business is done? What's your new research all about? A: First. what could happen if oil prices were at $60. We cannot afford to spend capital like we used to. You. For example. For example.be it building excess capacity. This assumes that the future is like the past. All through the history of science. Money has always been an implicit substitute to quick reaction time .A: I don't know anything about that. we can build a pointer about what the future can be. therefore. When you have many discontinuities. we took a different approach. technology. Competing for the Future. Given the convergence of many interconnected driving forces like demographics.
This is not just because of the internet. consumer-oriented industrial system. Often the whole family rides together. These are the two problems I am working on as I believe they are the two big issues. Therefore. was there an attempt to build the Indian village of the 21st century? It's hot in Gujarat. Both will have huge implications on markets. It is a basic mode of transportation used to carry a wide variety of things from vegetables to milk. The other is to have the commitment to improve continuously. For example. The research focuses on developing a framework for thinking about value creation in a system where consumers can exercise their choice and value their experiences. experimentation and activism. Q: What issues do you explore in your new book? A: The book is co-authored with Prof. Venkat Ramaswamy. Q: How can companies boost productivity levels? A: A lot can be done by using simple tools. Q: How can companies decide what's competitive advantage today when you don't know . How can companies move to Next Practices? A: You cannot develop next practices unless you have a point of view of what will be the new sources of competitive advantage.Q: What advice do you have for Indian companies? A: The first is to improve the quality of management. Can we experiment and provide various fixtures that can make the vehicle safe. According to a recent study. Low labour costs are different from low productivity. Our book focuses on creating an experience-centric. you'll spend a lot of time on creating innovative experiences as others are focused on products. Second. None are rocket science but they are critical. Are there experiments with new materials and approaches to insulation and ventilation?. to benchmark and recognise where we are. consider the earthquake in Gujarat. Q: What is the next inflexion point in management thinking? A: Consumer-centric industrial system and strategies for the bottom of the pyramid.networking. Third. India ranks the lowest in productivity. which have already been tried and tested by ones competitors 10 years ago. In our rebuilding effort. That's critical.The question is: how can companies grow. Let's take a two-wheeler in India. A next practice starts with a point of view . I'm looking at the underlying infrastructure we need in terms of rapid knowledge creation and information infrastructure. If you believe experience-centric value will prevail. be profitable and create value if they do not experiment? We can do good and be profitable at the same time. it's also due to TV and wireless. Q: You talk of Next Practices as against Best Practices. increasing the willingness of managers to experiment and change existing business models and approaches to managing. Nature devastated lives.what the world can be like and not what it is. more productive and useful? There's a huge opportunity there for those who can provide these fixtures. We explore the basic revolution in the existing views on what's value and how you create value.
70 per cent of India will still live in villages.what will be core tomorrow? A: We tend to associate time with uncertainty. but I don't think so. All the data that Indian companies might need is there. The problem is one of interpretation. It is much more focused . We need a refrigeration platform to serve and connect the rural-urban markets. The flip side of it is that firms have to continually build new competencies. HLL's performance has failed to match its past performance. education and demographics. This is true around the world. Core competence has nothing to do with lack of diversification and complexity. few retail consumers are buying an Ambassador car. and not just on the top tier. The issue: core competency-led diversification is more durable than conglomerate diversification. Take 3M. Core competencies can become core rigidities in the face of discontinuities. Its core competencies are in adhesives. The same applies to food. Confronted with major discontinuities. Q: What strategy would you advise Indian companies to adopt? A: Become high-tech. Indian consumers have become price. That may still be relevant in some businesses but not in most. For example. Q: Is the theory of core competence in direct contrast with large diversified and unrelated businesses interests of companies? A: This is a persistent question in almost every interview in India. Q: How much does CEO personality impact a company's direction? Do certain CEOs follow certain projects because they are personal ambitions? A: You cannot remove CEO personality from the company. These infrastructures and the competencies to manage them cannot be built in a short period. HLL is increasing the priceperformance of each of these products. . We need to build distribution channels to tap the huge rural opportunity. Today. and analysts say that the kind of marketshare it has been enjoying in the past cannot continue? A: I don't think HLL can be dismissed as IBM. entertainment and everything else.In other words. The core competency in India during 'Licence Raj' was how to acquire a licence. People feel technology and innovation are expensive. Assumptions have a way of limiting how we think of opportunities. Examine critically the assumptions behind business models. Reducing price is not enough. Q: In the last few years. which has 60.and performance-conscious. Focus on a lot on the poorer segments of the population as a market. So we need to ask what the new opportunities are.000 products.it's focusing on some large categories and are doing extensions of large brands and upgrading all products. What's so complicated? Is the population of India in the next ten years unpredictable? The same goes for income levels. It has tremendous internal strength. and how to leverage them. coating and substrates. the performance has to improve along with competitive pricing. The company is repositioning itself and you can already see some of the results. Why? In the last 10 years. some core competencies can become a problem.
certainly. We survived that. but it's a different culture. The good news is we are ahead of everybody else. will they be able to manage a large distribution system? It's an open question. I've a new appreciation for what it takes to operate in unforgiving markets. The culture of distribution is different from manufacturing . I don't plan to teach full-time. Now that the company is reasonably positioned in the emerging market. Q: You took a two-year break from your teaching career at the University of Michigan to implement your own ideas at your company called Praja. music and film businesses have totally different logical underpinnings. Second. We're at the forefront of a new competitive space called Business Activity Monitoring (BAM). And in the last year-and-a-half. the changes in the marketplace were dramatic. which is an infrastructure company trying to evolve as a marketing company and also has mega Infocom ambitions? A: So far they're good at large-scale project management. Further. But small companies have to constantly worry about their own vulnerability caused by 'cash flow'. I expect to take some time to teach. I'm not saying it can't be done.Q: What are the issues in managing diversities by companies like those which are into businesses that have nothing in common with their traditional businesses? Take Vivendi.for one. Their competition is not as constrained. you're in a business you don't totally understand. You don't manage one facility. I expect the company to emerge as a leader in the new space of business activity and context monitoring. rethinking priorities given continuous changes in the market for high-tech software. Last year. Q: What do you have to say about conglomerates like Reliance. Was there a dichotomy between teaching and practice once you were on the other side? A: There's no dichotomy between what I teach and what I practice.primarily manufacturing of bulk commodities on a global scale. How do you manage the different cultures? There are two problems . you have to make thousands of connections of distribution chain (of dealers. I will straddle both worlds . We're offering a subset of our capability since the industry was not ready to invest.business and academia. I'm associated with the company. I believe it's easier to manage a portfolio of businesses that have strategic similarity rather than just a large number of businesses. Analysts and companies are catching up. the market for innovative technologies just collapsed. Utilities. Q: How different is running a business from teaching people to run businesses? A: I think I have a new appreciation for finding a right balance between consolidating and pushing ahead. Now. I wouldn't have had such a deep appreciation of technology as I have today if it had not been for my . 70-80 per cent of small companies just collapsed. I would say. We decided to de-feature our technology and bring a 'light' version to the market. We had to rethink our strategic direction and reposition the company. And. you can provide no clarity to direction. for example . They complete projects on time and at lower costs in a country with all the constraints everybody complains about.what went wrong? A: I don't know what went wrong with Vivendi. distributors and petrol stations).
where. and there is nothing to prevent those from including others' utility. Ignoble incentives arise even when markets and economic freedoms are suppressed. where my actions influence you but I do not take this into account in choosing the level of my action. It is possible for policy intervention to make someone better off without making someone else worse off. Since input is not perfectly observable. Andersen and now WorldCom have occurred in America's tightly regulated systems. Therefore. since monitoring cannot be perfect and prices do not convey all the necessary information. the incentive structure must reward performance relative to others and subsidise inputs. where I plan my action taking into account your future response to it. that of sophists. Even selfish maximisation must be embedded in a framework of morals. Which works better? The collapse in East Asia was blamed on their poor regulation and connection based market systems. But ironically. the manager his workers. Laws inspire creative means of avoiding them. the latter his bureaucrat. and openness are obvious prerequisites because any kind of power corrupts. Information imperfections imply that incentive structures have to be much deeper than just monetary. A principal has to motivate his agent: the shareholder and banker must motivate the manager. Competition. without too narrow a targeting of rewards to prevent a substitution away from vital non-observable activities. The voter must motivate the politician. Strategic behaviour can lead to conflict or coordination failures where everyone is worse off. all can result in market inefficiencies. But the positive aspect is that potential surplus exists.experience with Praja. where information available to market participants differs. unless there is internal motivation. for a number of reasons. modern research in economics is making the point that pure self-interested behaviour can make everyone worse off and contributing more potential ways to align individual interests and social interests. Markets left to themselves encourage greed It is sometimes feared that a market driven economy will replace "noble" incentives by monetary ones. the economy may be trapped in a low-level of performance. "The age of chivalry has gone. and strategic thinking where competitors aim to outwit each other feed this fear. encourage greed. To discover the structures that can bring out the best in people and societies is an active research area. or fear of punishment can contain the consequences of human greed. Finally there are coordination failures. rather than teaching people to think selfishly. Markets left to themselves. Perhaps as Burke wrote. economists and calculators has succeeded". depending on the structure of interaction. It must provide insurance or smooth returns. but it can also lead to cooperation. Externalities. Economists' models of utility maximisation. asymmetric information. motivate agents to work. economists are often thinking of workable ways to mitigate the extent and consequences of such behaviour. In India we know how morals were corrupted in the control regime. yet prevent them from . and strategic behaviour. But Enron. Reputation and trust. Agents retain some rent because their information exceeds that of the principal. however. Maximisation is only about the best way to achieve objectives. transparency.
JULY 02. some of the most valuable prerequisites are to have very . The problem is aggravated if the polity stimulates conflict among groups. Such changes will not only be about celebrating strength. For a sports to be an industry. Deep institutional change. Indian controls. Modern day sport in industrialised society is an industry. and establish beneficial cumulative expansions.keeping too much rent. It must encourage them to take risks. yet leave enough flexibility for them to adjust to unforeseen circumstances. But policies and market innovation can reduce the inefficiencies. A baker alone cannot raise his price. and sustainable re-distribution. yet prevent them from taking too much risk. works because of competition or the absence of power. Thus investments in education and infrastructure. monitoring. It must not give them too much discretion. 2002 Modern day sport in industrialised society is an industry. not human greed. and produce quality output. but saves me considerable effort. firms are risk averse and capital is under supplied because capital markets are incomplete. As it has in India where short-term transfers have harmed long-term growth. Markets will then release human potential. But the reverse of this is the problem of collective action. Variable rent or returns increases incentives to work. conflict reduces. since he is a tiny part of the market. To some extent. One key maybe using surpluses released to increase the return to developing human capabilities. while they allowed politicians and bureaucrats to obtain too much rent. invest. prices do not clear markets in order to provide incentives for individuals to obtain information. can trigger a shift to much better outcomes. (The author is a professor at IGIDR) ASHIMA GOYAL Economic Times TUESDAY. which alters incentives for the whole range of market actors. and their interactions. This decreases exclusion in a way that has benefits for all. Adam Smith's famous invisible hand embedded in a moral framework. as anything else Sports is a reflection of the values of society. But credible mechanisms to increase trust in society are required. They were often well meaning but their indirect effects were not foreseen. but lowers insurance.Football being one of the world's most popular sports is definitely a very well organised industry. If I stop it. As each free rides on the other everyone is worse off. Small changes make bigger ones possible. Fighting over the distribution of the cake can prevent it from growing. The good is under-supplied because everybody's business is nobody's business. it does not reduce the provision of the good. My contribution is a minor part in the provision of a social good. as the cake increases. Examples of market inefficiencies are: insurance premiums are too high because agents undertake risky actions. as anything else. Moreover. As groups seek favours for themselves the common good suffers. but also about equipping the weak and giving them many entry points into expanding opportunities. which will increase their rent. will further strengthen externalities. and administered prices destroyed public and private incentives to work hard.
Asian and World Sport. is the biggest defaulter. but the standards of football in India would reach its potential of being one of the best in Asia and realise the aim of qualifying for the World Cup by 2010. Hyderabad and other places. personally thinks that India has the potential to match the top footballing nations of Asia. seems to be in business simply for the heck of it. The All India Football Federation has also recognised the importance of TV scheduling and are already working on these aspects.I am optimistic and this is why I have invested in Indian football.There is no reason why people should be on the rolls of cash-strapped entities which are unable to discharge minimal contractual obligations. Indian sport. the standard of the sport will improve. very often. Dozens of public sector units owned by the Centre are so thoroughly bankrupt that far from making profits and declaring dividends. domestic cricket matches cannot draw crowds like matches between East Bengal. MAY 22. like the rest of the industrialised world. inevitably will follow the same pattern.There are a host of other defaulting PSUs. with dues of almost Rs 390 crore as of December last.Already football is definitely the most popular domestic sport in India.Moreover the organisation of the National Football League has made the sport popular in more centres like Bangalore and Mumbai and I am positive this trend could be spread to the North East. The NTC. Most employees have not been paid for months.The Industrial Disputes Act. Even though the Indian cricket team is well supported. I feel football in India definitely has all the potential of the making of an industry. fully one-fourth of the central PSUs are now in arrears. I am thus confident that football in India will soon be a full fledged industry.good TV coverage. long an umbrella organisation for sick private sector mills. they are unable to even pay salaries and other statutory dues like provident fund and gratuity.000 crore and more. 2002 Economic Times Public sector being a guarantor of job security is a myth The Centre.But then.As a result of these two. including the National Jute Manufacturing Company. I am sure we will have the support of industry to give Indian football its rightful place in Indian. and well planned year-round activity. We have had tremendous response from the sponsors and we hope with the support from the All India Football Federation. Mohun Bagan draw in Kolkata or Churchill V Mohun Bagan in Goa or FC Kochi V East Bengal in Kochi. Their total outstandings now add up to a scandalous Rs 2. The Asian Football Confederation also feels that India is one of the countries in Asia that could help raise the standards of Asian Football. A B Kashmiri WEDNESDAY. we could help not only football become an industry. even years.So much for the public sector being a guarantor of job security. In fact.The AFC secretary. Scooters India Ltd. This is a totally unacceptable state of affairs. we have thoroughly unreformed laws which nip in the bud any prospect of a functioning labour market. Heavy Engineering Corporation. et al. Mr Peter Vellappan. 1947 disallows .
capital and land all lie idle. stricter control of non-developmental expenditure. large and persistent fiscal deficits remain. and refocusing of subsidies.There are some tentative half-measures to hike the upper limit to 300 .By contrast.An end to the state monopolisation of these sectors is crucial to permit new. Despite several years of fiscal consolidation effort. AUGUST 15.Reforms to further opening up of the economy to trade and FDI are crucial if India is to sustain high rates of economic growth. given the legislative paralysis in Parliament. and may severe disadvantages (especially the politicisation of key investment and employment decisions of the enterprises). it seems that India's political system is more than ever in consensus about the basic direction of reforms. China's experience suggests that while workers in the Chinese state sector are accorded generous job guarantees. But the actual legislative changes seem some way away. since the government has no particular comparative advantages in running these enterprises. more than a decade after the launch of the reform process. EDITORIAL Economic Times THURSDAY.000 . Many of the SOEs are inefficient and loss-making.or 1. currently around 33% of GDP (Centre and states together) will need to be brought down substantially as a proportion of national product in order for India to achieve its reform goals of macroeconomic stability and long-term rapid growth. especially when the PSUs are unable to pay even salaries ? The Centre ought to press for an attractive VRS package nonetheless. Government dissavings at the federal and state levels need to be reduced through cuts in. in India.India's average tariff rate of 27 per cent vastly exceeds the average tariff rates of the other economies.retrenchment in units employing 100 or more workers.But where would the money for the VRS come from. without express permission of the state. Privatisation of these enterprises is also desirable in most cases.What are the areas it needs to focus on? Significant reduction of fiscal deficit is the first order of business. privately owned firms to introduce competition and higher productivity into these sectors. which is rarely if ever given. improvement in the tax ratio through deepening reform of the indirect tax regime and stronger tax enforcement.This would be a cheaper option than running up statutory dues while labour.Privatisation of India's state-owned enterprises (SOEs) is critical. This is also better for workers than holding IOUs from PSUs that are bankrupt and likely to remain so. India also displays continuing high barriers to foreign direct investment in contrast to most of the fastgrowing Asian economies. workers in the non-state sector do not receive guaranteed employment.workers.If India has to become an attractive destination for FDI and a major platform for labour-intensive manufacturing exports. once .India's overall government spending.The better option then is for these PSUs to offer VRS benefits. so that those made redundant in most companies can seek severance pay and allowances and try their luck elsewhere. paying if need be from its coffers. 2002 Reforms have to grow up Today. reforms in India's labour laws and exit policies are extremely essential. workers in both the public and the private sector.
employed, cannot be laid off without governmental permission. As a result of liberal hiring and firing policies in China, there has been rapid growth of employment.Formal sector employment in China has increased dramatically, from 95 million in 1978 to 158.5 million in 2000. India, by contrast, has experienced a meager rise from 22.9 million in 1978 to 27.9 million in 2000, of which 19.3 million are employed in the public sector. India has so far made little progress in commercialising the key infrastructural sectors. In power, for example, most electricity continues to be a public-sector monopoly, run by state electricity boards (SEBs).Almost all of the SEBs make losses and some are even unable to pay for coal or the power they purchase. Tariff reform is crucial. Privatisation of power generation, and the conversion of SEBs from electricity providers to market regulators would come next. Power capacity will not be expanded until the SEBs are fundamentally overhauled or eliminated.There is no doubt that geography heavily influences economic performance. Both in China and to a lesser extent in India, the real economic success has come in the coastal provinces/states, which can take advantage of export-led growth.The interior has done much less well. GDP growth in the hinterland has lagged behind the coastal states by several percentage points per year. There is a vast amount of economic reform that can be carried out to improve conditions in rural India, especially in the Gangetic valley.There is no reason for expensive and counter-productive charity for the northern states, and still less any case for holding back the fast-growing coastal regions.In India, Tamil Nadu, Maharashtra and Gujarat have the potential to grow as the fastest growing Chinese coastal provinces of Fujian, Zhejiang and Jiangsu.Perhaps the key step in the Gangetic plain is to improve the most basic infrastructure so that the vast rural populations can take part in more rapid national economic growth.While China's hinterland has lagged behind the coastal regions, the Chinese hinterland too has enjoyed rapid economic growth.The state governments need to adopt a strategy for rural India, in which there will be a reliable infrastructure supplied at commercial prices rather than given for free. The government's commitment, both at the national and state level should be that every village will be assured at least clean water, a road to the regional market, reliable power, and minimal telephone service; but that every village will be responsible for covering the commercial costs of those services on a normal user-fee basis. In particular, Bihar, Uttar Pradesh, and Orissa are in desperate need of reform.On the political front, while there see-ms to be some degree of consensus on the basic direction of reforms, however, there have been instances when the parties have supported reforms when in power, and opposed them, when in opposition. An important aspect of the unfinished agenda should therefore be wide dissemination of information and debate about the necessity of reforms, which should include a frank discussion on some its temporary negative consequences and ways of ameliorating their impact.In conclusion, a decade of opening of the economy has produced new dynamism, most dramatically in the information technology sector, but in others as well. The new technologies (information technology and biotechnology) give new opportunities for economic and social development.The reforms implemented so far have helped India attain 6%-plus growth, however, should India be able to implement these remaining reforms and re-orient governmental spending away from inessential expenditures towards
high priority areas of health and education and infrastructure development, then it is very likely to attain and sustain even higher rates of economic growth. Nirupam Bajpai FRIDAY, JUNE 07, 2002 Economic Times
Should agricultural subsidies be stopped?
Excess is definitely not success when it comes to India's wheat exports. On the contrary, the fact that India has been exporting wheat on a scale large enough to trouble major wheat exporters such as the US is a sign of crisis in Indian agriculture.Instead of celebrating the 'achievement' of exporting three million tonnes of wheat over the last 18 months, our policymakers should concentrate on a strategy shift. India's wheat exports ride on subsidy.The export price is less than half the Food Corporation of India (FCI)'s economic cost. In fact, the export price is equal to or lower than the price at which grain is sold through the public distribution system (PDS) to those below the poverty level.Since the grain comes out of FCI's stocks, parts of which are more than five years old and have degraded owing to poor storage, a lot of the exported grain ends up as cattlefeed, although some brave souls are reported to be mixing Indian grain with adequate quantities of superior grain to produce flour fit for humans. It is crisis indeed when the government subsidises foreign cattle and those who eat them, even as domestic consumption gets squeezed on account of high prices.Ratcheting up procurement prices year after year is the root of most problems in the food sector. Since FCI offers the best price, the bulk of marketable grain in areas where procurement takes place is sold to the government.As food stocks mount, the loss due to damage and pilferage increases, along with other costs of carrying the stocks. This pushes up overall costs and puts upward pressure on issue prices from the PDS.High issue prices depress offtake, leaving yet more grain with the government and pushing up the food subsidy bill. This comes in handy to justify high import duties on grain - consumers would desert FCI for cheap imports.The way out of this tangle is to limit procurement to the needs of the buffer stock and benchmark domestic production to international efficiency norms by liberalising imports. Then India's farm output would diversify and turn competitive.Outlays spent on subsidies could be used for productivity boosting investment. Export success in such a regime would be worth celebrating, not exports riding on subsidy and forgone domestic consumption. (This article, dated June 12, 2002 has been taken from a Times of India Publication)
Should important services like transport be left to market forces?
ISSUES OF ECONOMIC governance are back in focus with the Tamil Nadu Government deciding to restructure its transport corporations. An important change that the Indian economy has undergone during the last decade has been the gradual, but unmistakable, transformation that has taken place at the level of economic management. At stake in this process is the concept of the welfare state. Essentially a post-World War II phenomenon, the welfare state was conceived on the need for an intervention by Governments to prevent market failure. Specific areas of economic activity that engaged
attention the world over were education, health and other public services. India's postIndependence, Nehruvian economic thinking had also internalised the concept to ensure that the newborn nation was on the track to growth with equity. The recognition of public goods and services, their importance in economic development and their effectiveness in economic management were by then globally accepted. Consequently, India's management of services was marked by a flurry of Government controls, resulting in the creation of public sector undertakings in several areas of economic activity. Public transport is a case in point. While attempts to bring the transport services under some form of control began in the country as early as 1915, it was a decision taken in 1950 that made an effective intervention into the market to provide for a properly coordinated transport network. Since 1950, when the Road Transport Corporations Act was passed, 70 State road transport undertakings have been created all over the country. The increasing role of road transport is highlighted by the fact that its share in surface traffic movement has increased since the 1950s, when it handled 20 per cent of passenger traffic and 11 per cent of freight traffic. Present estimates place these figures at 80 per cent and 60 per cent respectively. The country's State road transport undertakings, with a combined fleet of more than one lakh buses, provide mobility to more than 65 million passengers every day and employment to eight lakh people. The growth of this sector, however, did not mean its finances were healthy. In the red for quite some time now, during 1999-2000 these undertakings spread across the country incurred a total loss of around Rs. 2,000 crores, forcing States to embark upon restructuring exercises. One dominant line of thinking has been privatisation. The factors that resulted in losses to the State-run transport corporations are several and include causes that are both internal and to the system. The sharp rise in modes of personalised transport is an important factor that cannot be overlooked. The switchover from public transport to two-wheelers, for instance, was also propelled by the availability of several financial lending schemes. This, combined with internal failures such as the tendency to utilise State transport corporations as easy avenues for providing employment, irrational fare structures and rising costs of fuel, meant a steady drain on their finances. The present efforts at restructuring public transport should be seen in their entirety and not merely from a financial point of view. Suitable changes in related fields are also called for. Needless to say, an efficient and successful public transport system will have a considerable spin-off in terms of lower pollution levels and reduced crowding. The answer to the public transport conundrum lies not in dismantling the system totally, but in revitalising it through rational and economic decision-making, while maintaining equity imperatives. Given the importance of public transport in daily economic activity, Governments should not abandon their task of providing affordable and efficient services. Declining financial health, most of which can be corrected through systemic changes, should not be held out as a reason to expose such essential services entirely to market forces. Hindu editorial May 22, 2002
Should PSUs be divested through strategic sale or public offer?
Disinvestment process has been controversial ever since it had been launched. The disinvestment process as per global trends should have begun in the early 80s.But we were late in starting the process and it didn't take off for almost a decade. It is proved
if acquired by MNCs. Steal a few hundred crores and you become an industrialist. which recommended the shutting down of some weak banks.As the experiences of Japan . when one MP pointedly asked Mr Singh about the antecedents of a member of the prime minister's advisory council.And it is doubtful if these loans would ever be paid back.Disinvestment in the oil sector through a strategic sale may pose serious problems. efficiency and global competitiveness by building the necessary infrastructure.beyond doubt that there are no reasons for the government to be in business in the present scenario. their promoters rarely do.However. Of course.But. 2002 Economic Times Steal a few lakhs and you're a criminal. Or so it would seem from finance minister Jaswant Singh's recent statement in the Rajya Sabha that "nonperforming assets of Rs 83. SEPTEMBER 11. the nation may be taken for a ride during most crucial periods.000 crore is loot and not debt". rubbing shoulders with the high and mighty of the land. Still. We have enough foreign exchange reserves.In case of disinvestment of units holding strategic value being acquired by some MNCs. Steal a few hundred crores and you become an industrialist Steal a few lakhs and you're a criminal. Old banking hands are fond of recounting an anecdote about an industrial association's expert committee. it's long been a subject of wry humour that while Indian companies may frequently face financial woes. The government doesn't need to sell its gold to reward bad and inefficient organisations like UTI & IFCI or to subsidise 20 million upper middle class and richer sections who hold units in UTI. Nor should the 'contribution' of politicians be overlooked. there is a strong case for disinvestment through public offer since there may not be any such dangers. during any war in the future where they would be guided by the government where the holding company is in operation. there is no justification for the government to disinvest and use the money to meet its revenue deficit or to subsidise non performing inefficient and bad organisations.whereupon the recommendation was dropped. The disinvestment process adopted by the government lacks vision and is procedural and revenue centric. It was subsequently pointed out that the banks had turned sick because of huge loan defaults. all he had to say was that the PM was considering the issue. which means most of the funding in case of strategic sale comes indirectly from the government. The proceeds arising from strategic sale or through public offer must be used to strengthen the economy: its capacity.Nobody sells valuable assets and keep the garbage inside the house. J D AGARWAL WEDNESDAY. Financial institutions and public sector banks have been used for years to channel money to friendly industrialists.Strategic sale itself suffers from weaknesses and at times it is counter productive. In many cases of strategic sale the funds used come from public sector banks in the form of loans. The disinvestment process should also focus on disinvestment in loss making units rather than profit making units so that the level of subsidies given to them are reduced. and never mind if it ever got repaid. and the list of defaulters included members of the expert panel .
this sorry saga of bad debt reflects poorly on some of India's most high-profile companies. The future lies with glocalisation All opportunities carry risks. This problem is sought to be addressed by the Securitisation and Reconstruction of Financial Assets Bill. if need be. the Kecamatan Development Program was launched in 1998 to side-step corrupt provincial governments and channel funds directly to villages.In the 1980s. In Indonesia. Where these conditions are missing.But at the grassroots level it can empower those who have long been supplicants before statism. execution. from both the Old and New Economy. enormous improvements have occurred. as also on their influential friends who conduct corporate battles under the guise of political campaigns. it would further enhance their stature . not appointed. though they remained silent when some commentators queried whether companies would themselves apply the same yardstick to customers who failed to pay up. But several Indian companies. monitoring and maintenance of projects meant for their benefit. If they were to openly voice their support for the Bill.Global experience of localisation has been very mixed. Indian lenders have long been handicapped by the fact that it is almost impossible to take action against defaulters. Globalisation has created unprecedented opportunities and unprecedented risks too: remember the Asian financial crisis of 1997-99. Localisation can spread the benefits of globalisation to the grassroots.But where these conditions are met.Over 90 per cent of World Bank social fund . and project costs have fallen 20-30 per cent. It works only if rulers are serious about shifting power from the top to the bottom. 44.0.Communities should participate in the design.000 community-managed projects have benefited 2.Local governments must be elected. over 95 per cent of funds reach the poor.and South East Asia have shown. an ailing financial sector can very quickly wreck the entire economy.apart from doing the economy a good turn. succeeded in the 1990s by switching to a bottom-up approach. not national capitals. Communities have been empowered. The response of some chambers was to seek a distinction between 'wilful' and 'non-wilful' defaulters. long the graveyard of anti-poverty schemes. is still a boon. Some examples:North-East Brazil. The fact is.5 million of the poorest families. Benefit-cost ratios exceed 3. Creating local governments is not enough: corresponding administrative and fiscal reforms are needed to empower communities with real authority and resources. Officials must be made accountable to communities they serve. localisation often fails. donors introduced social funds in countries where money routed through governments was typically wasted or stolen Social funds financed projects suggested by communities.Developing countries must take prudential steps to cope with volatility. which would allow creditors to take control of the debtor's assets and replace the company's management. It covered 10 million people within 3 years. and greatly improved outcomes. It is now being extended to another 20-30 million people. are widely respected for faithfully adhering to the norms of corporate governance. But globalisation. warts and all. Does decentralisation have the same potential for change? Not at the macro level.
In Zimbabwe. Then a new chief minister created an education guarantee scheme. But spectacular gains have been recorded sometimes through community participation. and family incomes rose from Rs 12. and is being copied by other states. Examples:Traditional top-down reclamation of saline farmland in Uttar Pradesh yielded indifferent outcomes.Poverty has fallen and agricultural productivity improved faster than in any other state. Effective irrigated area increased half a million hectares. called CAMPFIRE.If any 40 people demanded education.082 annually. detect and treat the disease. Water rates were too low to finance maintenance. provided a hut for schooling. Village water and sanitation committees were elected.000 hectares. So local communities and district councils were made partners in a new program. the government paid the para-teacher's salary. panchayati raj is not a proven recipe for success in India.292 elected water users associations to help rehabilitate and manage the irrigation system.River-blindness. and paddy yield rose 10 per cent. Then in 1993 a new project organized 46. Kerala. Literacy in the state shot up by 20 percentage points in the 1990s.065 to Rs 20. In Andhra Pradesh. Panchayati Raj is supposed to shift authority and resources to local governments.500 beneficiaries to plan and manage reclamation. centralised managed failed to check poaching of wild life. A new bottom-up approach called Swajal was then attempted. and the revenue shared with communities and local bodies.887 maintenance works at a cost of just $ 28 million. once threatened the sight of 34 million people in 11 West African countries.Hunting quotas were sold to hunters. and empowered to choose from a menu of water supply options.projects succeeded against 76 per cent of all projects. Madhya Pradesh. and chose a local person to be a para-teacher. often unlinked to local governments.000 hectares were reclaimed against the target of 48.Aerial spraying by donors was supplemented by community action to distribute medicines. Andhra Pradesh. Within 18 months. The approach proved so successful that it is being .This approach worked brilliantly: 69. The result: wild life boomed.He made this politically palatable by creating 10. The Bank is now scaling up social funds into community driven programmes in Africa. In Madhya Pradesh. This approach is now being extended to another 150. But most state capitals have sabotaged such a shift.00 hectares. But this is a special case of communist-controlled localisation.Overall. Its eradication has been arguably the biggest development success in Africa. In six weeks in 1998 the associations completed 22.The beneficiaries had to contribute to capital costs and pay user charges for maintenance. the irrigation system was silted and run down by the 1990s. Decentralisation has produced major gains in Bengal. which now had a stake in checking poaching.000 schools came up with 1. where hamlets were often too small to qualify for government schools. 26. no teachers wanted to serve in remote tribal areas. a disease spread by blackflies.In India too. This approach is now being extended to malaria control. not replicated anywhere else.Real local empowerment has been achieved only in a few states? West Bengal. experience of decentralisation has been mixed. Rural water supply by the state utility failed in UP. The village committees themselves maintained the projects.8 million students. Then a new chief minister tripled water charges.
execution and maintenance has often improved outcomes and reduced costs. and so was unfit for high office. his reforms were well-intentioned but too timid and half-baked to work. On assuming office. they suffered no additional penalty at all. harnessing both social capital and entrepreneurial talent. The Planning Commission said no more than 15 per cent of Plan assistance could be deducted in this manner. SWAMINATHAN S ANKLESARIA AIYAR [ SUNDAY. water and sanitation associations. Even if a project is centrally run. Never before has a minister been sacked on the ground that he did not make money at all. He . and elite capture of benefits is common. NTPC and others. the Railways. 2002 8:39:07 AM ] The power ministry should cut off supplies to all the defaulting SEBs Even cynics were shaken when Shiv Sena supremo Bal Thackeray ordered power minister Suresh Prabhu to resign on the ground that he was too honest. Localisation is still an experiment in progress. So joint forest management was attempted with 2.More than 849. We know less about it than about globalisation. NTPC and BHEL as deductions from Central Plan assistance to errant states.000 hectares of forest are now regenerating under improved management. he found that State Electricity Boards (SEBs) owed an enormous sum of almost Rs 30. Yet Prabhu sought to solve the problem through a fresh set of commitments. or even increased subsidies. where users take over from the state. We are used to the notion that politicians should resign if caught extorting bribes. The suppliers levied penal interest of two per cent per month on overdues.I think community participation is best understood as a form of privatization. After this.Coal India Ltd. making users communities partners in planning. the states crossed the 15 per cent limit. Empowering communities can be more important than empowering local governments: the latter can sometimes constitute a new statism.Community participation seems to work better than mere decentralisation. But the SEBs ignored the penalties as blithely as the dues. For many years. GAIL. Soon.000 crore to various suppliers . which got a share of forest produce. though not always. some overdues were recovered by Central suppliers like CIL. This was more than the entire GDP of some countries.666 village forest committees. The future lies with glocalisation. They then went back and did nothing. This surely proved that commitments made by financial and moral bankrupts had no value.Forest Departments in Andhra Pradesh could not check grazing and felling in forests by locals. since both represent empowerment. education associations and micro-credit societies all deliver. JUNE 23. BHEL. The results are good because a callous bureaucracy is replaced by users with a stake in success. Many supporters of Prabhu moan that the power sector reforms he championed will now be shelved. In fact. But we cannot go back on either. At many official meetings. Voluntary associations have a social glue that villages or districts sometimes lack.Water users associations. Villages are often not united communities but battlegrounds between different castes.expanded into all-India scheme.Community empowerment confers property rights on associations of citizens. the states agreed to slash power subsidies for farmers and check theft.
for Rabi Rai. any machinery from Bhel.'' Did the pieman keep supplying pies month after month.proposed a scheme whereby states that agreed to reform could convert their overdues into bonds. violence . If he cut off supplies to the SEBs. You cannot treat this as just a commercial matter. The states will promise anything for a little cash. I think Prabhu must have realised a fundamental truth. why should they ever pay up? They will stop only if they find that they cannot get any coal from Coal India. and forced politicians to lower these. If after this. sack corrupt linesmen. they still defaulted on fresh dues. impossible to sack corrupt linesman. any power from NTPC. and crack down on theft. could Prabhu have believed that the Central government would get tough with its own coalition partners who ran so many states? When I first talked to Prabhu on this subject. After all the most elementary principle of commerce was ''No payment. State governments claim it is impossible to charge farmers realistic rates. urban riots can be a solution. Said Simple Simon to the pieman Let me taste your ware. will it pay up. these would be deducted from Central Plan assistance without any ceiling. convened to mark the conclusion of the golden jubilee celebrations of the country's Independence. which they were not paying anyway. In fact. SWAMINATHAN S ANKLESARIA AIYAR Economic Times AUGUST 25. I said he was ignoring the obvious solution: cut off supplies to all the defaulting SEBs. I haven't any.But if supplies to the SEBs are cut off and irate citizens riot. Said the pieman to Simple Simon. Only when it is forced to bear the full consequences of non-payment. Only an honest man can be foolish enough to believe that rogues will reform so easily. the states will at last find it politically expedient to reform. 2002 The presidential form is not suited for India PRESIDENT K. Narayanan. He voiced his concern over the declining standard of decorum and debate in the Lok Sabha. there is not the slightest reason for states to reform. farmers have rioted against higher power rates. R. for he knew that to ignore default would be to induce further and further default. By now. and then return to politics as usual. could Prabhu seriously have believed they would suddenly start paying all future dues to suppliers? And if they failed to pay. ''Simple Simon met the pieman Going to the fair. Holding similar views. If. a former Speaker of the Lok Sabha. while levying imaginary penalties on Simple Simon? No. it has major political implications. he said. they can keep getting supplies without payment. The same logic applies to the states.'' Every child in kindergarten knows this from Mother Goose. Often in the past. Prabhu is afraid of riots.They would also be forgiven part of the penal interest. he said. many states would be plunged into darkness. Show me first your penny. But surely that is the problem. frayed tempers. because of politics. while addressing a joint session of Parliament. no supply. He hoped this would induce states to pay all future dues. They will at last find it politically feasible to raise rural tariffs. As long as the issue is treated as political. Said Simple Simon to the pieman. impossible to stop power theft. and there would be riots. echoed the feelings of a majority of Indians. Indeed. Prabhu told me I was being unrealistic. A polity that cannot stomach an honest power minister also cannot stomach the thought of paying its debts honourably.When so many cannot even pay staff salaries on time.
some of the leading political parties. organised by Nivedan. prior to the last General Election. The "muscle-power" used was certainly not that of the police or paramilitary forces. please remember that as per an Election Commission Report. there were 40 MPs facing criminal charges in the last Lok Sabha and 700 such MLAs in the different state legislatures of the country.criminalisation of politics. Q) Your reference to the Vohra Committee Report boiled down to an allegation that some of the MPs won their elections leaning over the shoulders of the crime syndicates and the mafia! A) I was not alleging. Also. I am making a statement about a general trend and not about individual MPs. about seven years in advance of the Bombay blasts which were allegedly engineered by underworld dons Dawood Ibrahim and Memmon brothers. who informed that his agency had prepared a report on the nexus between the Bombay city police and the underworld wayback in 1986. I will refer to the N.. Since rules do not permit election expenditure of that scale. I stated an unpleasant fact in public interest. "all that money" must be coming from grey/black sources. Who. could have provided the kind of money needed these days to contest Lok Sabha elections? You must be knowing that the figure these days runs into several crores. A) Well. how can one deny something that has been telecast live a number of times? In any case. The vacuum created by the disarray in. CBI.N. Contesting and winning of elections was associated with the use of muscle-power. Romesh Dutt interviewed him over the issue of parliamentary decorum and current standard of debates in the Lok Sabha. Everyone knows it.. a local voluntary social organisation. and use of unparliamentary language in the Lok Sabha are a logical sequence of the criminalisation of politics. As a matter of fact. No? It was not merely a question of use of mafia money. . Rabi Rai believes that the world's largest democracy is today threatened by the powerful crime syndicates and mafia. The Vohra Committee Report recorded the statement of the then Director.in the Well. engaged in focussing attention on regional and national problems. which was tabled in the House sometimes after the infamous Naina Sahni murder case. In order to answer your question properly. I will have to outline the "hows and whys" of the process of criminalisation of politics and politicalisation of the criminals. considering that it concerns the privileged members of the country's apex democratic institution. The former Speaker was in Solan some time back on an invitation to preside over the "August Kranti Diwas" function. also threatens the democracy. anytime. A) Not at all. What has caused this downward slide? A) I will answer that in three words . Q) This is a strong statement. who wield a formidable influence over the country's politicians. which was that of a self denying person totally dedicated to the nation till at least the 70s. bureaucrats and law enforcement agencies. if not the disintegration of. You know it. do you think. Excerpts: Q) The public image of an average MP. has taken a beating. some of whom can rub shoulders with the world's greatest parliamentarians anywhere. Vohra Committee Report. I get your point. Q) But ascribing criminalisation of politics to falling standards.
through official patronage. You must not forget that one of the greatest parliamentarians ever to adorn the Lok Sabha was Madhu Limaye. documents relating to the security of the country could be exempted. or disintegration of. coalition or minority governments at the Centre. Q) Could the lack of proper education on the part of certain otherwise clean MPs.Q) You have established that a certain nexus existed between the politician and the mafia. Legislation must be enacted to guarantee. the mafia expected to multiply their investment manifold. also be a contributory factor towards the fall in the parliamentary standards? A) No. Women. Such a step would automatically check the mafia's efforts to promote and establish the nexus between them and persons in power and authority. lead to a belief in certain political quarters that the parliamentary system of democracy had failed in India and the American system of presidential form of democracy was more suitable to our peculiar . particularly those relating to the expenditure of public money. the entry of tainted men in the Lok Sabha and legislatures posed a definite threat to the future of democracy in the country. in your opinion. It would be pertinent to recall here that the Official Secrets Act. the people's right to information. cannot be overemphasised. The ceiling on election expenditure must be realistically fixed and necessary infrastructure should be raised to ensure that no candidate transgresses the prescribed limits with impunity. Of course. if by education you mean college and university education. How does this affect parliamentary standards? A) You see when mafia dons started realising that their money and muscle-power could get even pygmy politicians elected. At the same time. The grassroots worker must be enlightened about the working of various democratic institutions. Q) You said something about the threat to democracy posed by the disarray in. would be less susceptible to the inducements offered by the underworld. in 1923. Q) What. we must undertake electoral reforms. care must be taken to ensure that this exemption is not misused. Empowerment of women through reservation of seats in the Lok Sabha and state legislatures and other public fora would also play a significant part in curbing the influence of the crime syndicates. It was a well-known fact that the mafia did not invest any money in bribing officials and politicians simply to keep the latter in good humour. Considering the fact that some of the crime syndicates had international connections. the established political parties should start imparting a comprehensive. Any such amendment must be solely aimed at providing the requisite degree of transparency in the working of the government. leave aside the "standards of debate and decorum". who was not even a graduate. the history and culture of the country as also about the particular ideology and programme of his party. by nature. currently in force in our country. The need to amend it in the light of present-day requirements. The common man must be empowered to examine all kinds of public documents. was enacted by the British to keep prying Indian eyes away from their misdeeds involving the loot of our national resources. in real terms. holistic education to their cadres. This would ensure the emergence of enlightened political cadres. At least. they themselves decided to either field their fellow-travellers or. After passing on large sums of money as bribes. in some cases. The coming into power of insecure. even themselves. some of the political parties. are the remedies for the malaise outlined by you? A) First and foremost. A) Successive coalition governments fell after the Indian National Congress lost its premier position. which would be trained to facilitate the smooth functioning of democracy.
as it has a single major religion. The then British Prime Minister knew that members of the House of Commons would tear him apart if he did not press for Profumo's resignation. In formal terms. we.the Presidential. one can impeach a President. as that is not always possible. Thus we believe it is acceptable for doctors to follow much lower standards of care in public hospitals than in private practice. through an ex-post process of restitution and assignment of responsibility.conditions. however. parliamentary and dictatorship. at what cost and effort! Independent attorney. Herein lies the threat that I had talked about at the beginning of the interview. Those who were advocating replacement of the parliamentary system with the presidential system could. In a country of over 100 crore people. in the 60s. be for the imposition of a virtual dictatorship in the country under the garb of a presidential form of democratic government. The United Kingdom was rocked by a sex scandal involving the country's defence minister.However. Imagine enforcing the writ of a single man on people so numerous and belonging to different regions. just to establish that his country's President indulged in behaviour unbecoming of a person of his stature. I would like to emphasise the fact that presidential form of government is apt for a country like the USA. above all. Or that products supplied to intermediate users (non-consumers!) are somehow less important than those used by 'consumers'. However. a population less than that of India. Profumo.Each affected group has been vociferous in asking for exemption from its provisions.Contracts are best suited for circumstances where interaction can be foreseen and contingencies evaluated. the rule of a single person could prove to be disastrous. Recognising the importance of this idea in effective market functioning. restores incentives and promotes efficiency. the President of our neighbouring country Pakistan. had to fish out millions of dollars in addition to his valuable time and energy. Kenneth Starr. The state is above the law? The Law of Torts is an essential element of a market economy. that we soon began correcting this aberration! From the very start. a well-designed liability regime with a system of compensating the victim at the cost of the negligent injurer. The Profumo example powerfully drove home the merits and demerits of various forms of government . decided that we needed to strengthen our law of torts and sought to enact a Consumer Protection Act. instead of seeking to expand and strengthen its reach. tort law provides the necessary balance. religions. with quibbles like: who is a consumer? should the act extend to doctors? to municipal services? and so on. somehow implying that its members have a greater right to be negligent. Of course.This essential principle is easy to establish and has been the cornerstone of law and economics. we have sought to limit its application. castes and ethnic groups. Incidentally. several areas of concern remain. simply because tort law complements contract law in regulating human interaction. in a rare moment of rational thinking. was also named in that scandal but nothing happened to Ayub Khan. But. in reality. and primarily the same ethnic stock and. He resigned virtually overnight after a public hue and cry.It is to the credit of the courts that they have resisted many of the more pernicious forms of these arguments. At this point many learned colleagues will argue that the application of a fast track procedure . so unused are we to thinking rationally. since he was a dictator. Experience has proved that the American system was less accountable to the people directly.
rather than dodging it. not prosecution. then they should not be used at all. and Latin America increased their share of world exports by 1 per cent each. Second.It is perverse to argue that for the same function. director. Witnessing the debates. officials are exempted from civil liability. Africa. proportionate to the harm done. Barbara Stocking. says a report by development agency Oxfam. Notice that the standard I outlined above was one of 'negligence'. East Asia.like the CPA needs to be limited. he could do no wrong.If they are defective. one cannot escape from the feeling that attempts to limit faster procedures stem from the need to protect turf .In fact. sought to extend the concept to protection even from the process of investigation. 2002 Trade can help the poor If South Asia. JUNE 04. and also divinity as a source of law. as opening up consumer courts to all types of product liability and civil negligence cases will flood the courts and reduce the benefit to small consumers.This argument is flawed for two reasons.Over the years we have abandoned kings. Oxfam. however.This argument is completely perverse: if the fast track procedures are good. Finally my friends in public service say they need protection because otherwise they will be targeted by frivolous law-suits. and hence doctors in public service. was in India recently to promote its 'Make Trade Fair' campaign. She explained to Vikas Singh and Rahul Shivshankar why it is vital that developing countries continue to seek greater market access: . The principle of liability should depend on the nature of responsibility and care expected in the action and should be unrelated to the commercial basis of the transaction. and applies to individuals in other walks of life as well. Recognition of this basic principle. the resulting gains in income could lift 128 million people out of poverty. then they should be applied to all cases rather than be somehow limited to some 'deserving set'. The only effective remedy is imposing costs on such behaviour. T C A ANANT Economic Times TUESDAY. Moral hazard or abdication of duty is an inevitable aspect of human behaviour. municipal authorities and just about all other functionaries operating in our expanded concept of 'instrumentality of state'.The remedy for prevention of frivolous or vexatious cases is to speed up the process and impose realistic costs on such petitioners. but elected representatives are loath to surrender this royal privilege. The principle of 'sovereign immunity' protects civil servants. It arises in English Common Law from the notion of divine rights of the King: since the King was like God. even if we accept the principle of immunity for sovereign function. it is legitimate to question the rationale for the application of such an archaic principle in a democracy. First. It is important to realise that the object of immunity should be to protect from liability. The two problems with this argument are that it leaves open the question of how we are to protect ourselves from their abdication of duty. the mindless expansion of the definition of 'State' has meant that in a wide sphere of public activity.Thus a public servant committing harm in the course of his duty is protected from liability in any case. is essential. a private individual is liable but not a state functionary. the principle of sovereign immunity is itself a contradiction. We have.
Activists favour labour standards. it was set up during World War II to ensure that ordinary people did not suffer from famine in a war situation. but that doesn't mean there's anything wrong with trade. a lot of people show that they are really concerned about the way trade rules .of agricultural subsidies in the north. you also have to change policy at the national and international level. Almost half our funding goes into tackling development issues in 80 poor countries. Above all else. What kind of reforms would you like to see at the World Trade Organisation? We are really concerned that the processes at the WTO become much more transparent. There may be some people who talk about opting out. where steel import curbs have been imposed? I agree we've really got to get some movement in the US and the European Union. the local factory owners in turn will squeeze their employees. and we need to work on them to change their position.It would be nice if everything was open and fair. we believe trade can help poor people. consumer pressure works.Why has an agency better known for humanitarian work taken up the issue of fair trade? Oxfam has a long history of campaigning and advocacy. and we're going to keep adding to that pressure. Unfair trading rules may be hindering that right now. to really make a difference to the lives of poor people. A number of big companies say they don't allow poor working conditions or sexual harassment at their own workplaces. developing countries see them as a trade barrier. The reason for this trade campaign is that you can't just work on the ground. Developing countries are working on capacity-building. So. we will be pushing for scrapping . Remember. More and more consumers across the world don't want to be associated with firms that use sweatshops. it's really up to corporates to pay a fair price for what they are getting. There are imbalances in all sorts of power relations and rules and regulations. Aren't you preaching to the converted in India about fair trade? What is Oxfam doing in the United States. Where does Oxfam stand? We are pressing companies to do the right thing. making it worse for the workers. Equally.or at least reduction . around the world. but it's not like that in the real world. and the issue of compulsory licensing in countries where people can't produce their own generic drugs. We tell them that if corporates press down very hard on the prices they pay suppliers. it's not considered very respectable to be associated with such practices. but can't check what's happening down the supply chain. Because internationally. But we can only get change if. Aren't you worried that your report may end up encouraging anti-trade campaigners? Let me make it clear. but we are not sure they understand the implications of everything they are signing up for. but that's unrealistic. We will work right through the next round of negotiations to ensure that it lives up to its billing of being a 'development round'. You really have to see how to make the system work better. and we have to try and switch those a bit. It's in their own interest to do so. globalisation is a reality. We're also a development agency. For example.
Shipping .A small example: Indian exporters and importers have to pay war risk premiums for ships visiting India. and we'll be focusing on specific issues like commodity prices and labour rights. We have to keep pushing. But how about also telling them to simultaneously create social safety nets and improve infrastructure? Certainly.One of my reasons for coming here was to talk with some ministers. Murasoli Maran. and it would be very arrogant of me to come in for a few days and get into this area. That is really not our business. But we are not going to get into the middle of a debate between two governments. But that doesn't mean we haven't been campaigning on such issues before. We didn't have deep conversations about internal Indian policies. For example. trade on its own will not get rid of poverty completely. If you're trying to encourage producers. I had a very good dialogue with your commerce minister. You're urging governments to embrace free trade. You have to work on education and basic infrastructure like electricity. As I understand it. it doesn't happen overnight. of different communities and religions living together. What we are looking at is how ordinary people are affected. our campaign on the cost of drugs was obviously linked up to the patents issue. and came well before the free trade campaign. and health minister C P Thakur. and governments recognised that their people didn't like what was going on. because we saw it in the case of the campaign to reduce debt for developing countries. Economic Times. and we will look at long-term peace-building there. One of the problems I've been hearing about during my visit here is the high amount of taxation at state borders. We will do humanitarian work on the ground in Gujarat. We are doing relief work in the refugee camps in Gujarat. the UK government is very concerned about the situation. We saw mass mobilisation. From my perspective. starting to come apart. economic and social rights. I don't feel I know enough details. and they can discuss some of the areas we might like to focus on. It's dreadfully sad to see a country that has historically had a good experience over thousands of years. MAY 07.This particular campaign is aimed for the next three years. But it could be something we could take up with our staff in India. We have some confidence that we can actually achieve change. We've got to get people mobilised.work. because I don't know enough. Every tiny cost disadvantage can mean a loss of big orders. This is why jingoism can be rather costly. particularly female labour rights. Of course. which is why we've put the campaign on the Web. then you could at least open your own markets a little more. But we are not going to get into who is right or wrong. water and roads. Did you raise the issue with the Indian government?No. What's Oxfam's reaction to Gujarat? Oxfam stands for all people being equal and having basic human. 2002 War rhetoric is misplaced in a country like India which is trying to globalise its economy Competition in the global market-place is fierce. it was very helpful to talk about the WTO processes as the Indian government saw them.
we will have to wait and see. Even if the Indian exporter absorbs the additional cost. The 1992 scam is a classic example. but how does it justify deployment in Punjab and Rajasthan? The BJP's problem is that it wants to play to the domestic gallery by threatening war. One need look no further than to the series of financial frauds that have come to light in the past few months to understand why we need a complete overhaul of our present system. but in ending that alienation internally. We would urge him to get to work on the proposal in right earnest. after close to eighteen months. Economic Times editorials AUGUST 01. 2002 What we need to reduce scams is better regulatory bodies Is the Finance Minister serious about setting up a Serious Fraud Office? We sincerely hope so.The solution lies not in jingoism. long-winded litigation. But since it's an idea that has been mooted in the past as well and nothing much has come of it. without expecting any help from Pakistan towards that end. The government claims that keeping troops on full alert on the border is necessary to check attempts by jehadis to sabotage the coming Kashmir election. you cannot threaten war to satisfy the domestic audience and expostulate when a foreign audience takes your rhetoric seriously.companies having been hard hit by the global recession offer rock-bottom freight rates and are in no position to absorb the war charges.Costly.Hiten Dalal. the cost of jingoism becomes high. Not so. with no tangible benefit at all in security. We created the problem in Kashmir by alienating local people. Add the impact of war risk on foreign investment. we have .Alas. Indian shippers to the US have to pay an additional $35 for every container loaded or unloaded at most major ports. a judicial system where it can be years before cases are finally disposed of. Whether it is the stock market scam where all we have. it wants to upbraid the US and other countries for putting travel advisories against visiting India and war risk insurance premiums. Some will argue that the problem is not BJP jingoism. only one of the major accused has been sentenced . incompetent prosecution and. he will still be at a disadvantage compared with exporters in other Asian countries with no risk of war or force majeure. What explains this dismal record? Sloppy investigation. it is a significant disadvantage.So these are passed on to Indian traders. of course. Harshad himself was also convicted for misappropriating around Rs 39 crore from Maruti Udyog Ltd. the end result is known. this might have been a negligible burden. but he was in appeal against that conviction when he died. is a half-baked JPC report.Threats to do so impose rising costs on the economy. In a seller's market. In addition.In the ten years since the scam came to light. In any case. The war premium ranges from $25 to $50 per container for various destinations.In today's buyer's market. or the investigations launched by the DCA.Perhaps this represents a case for deployment in Kashmir itself. but the continued infiltration of militants into Kashmir from Pakistan. bombing a few training camps in Pakistan can have absolutely no significant impact on militant infiltration. Simultaneously. at the end of which the prime accused are either let off scot-free or are handed trifling punishments.
EDITORIAL TIMES NEWS NETWORK MONDAY. Imagine the powerful impact that the picture of the once powerful head of Adlephia Communications. The proposed SFO must deliver on that and for that to happen. This is the sort of thing we need to see in India as well. AUGUST 05. it must go in tandem with a complete reform of the judicial system as well. We don't need another. are relatively toothless and suffer from an appalling lack of independence. There can be no more powerful deterrent to fraud than the sight of a fraudster being handcuffed and led to jail.regulators who are none too competent.Contrast the distressingly low rate of conviction secured by the CBI with the 71% conviction rate secured by the UK's Serious Fraud Office and it is apparent why we have had so little success in tackling financial fraud. 2002 . John Rigas. We have enough toothless tigers. being treated like a common criminal would have had on anyone contemplating tweaking the system for his own ends.
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