Thursday, December 31, 1998

Times of India 1998 Columns

Can BJP a True Conservative Party January 20, 1998

The centre of gravity of Indian politics has shifted perceptibly to the right since 1991. At the same time the BJP is showing hopeful signs of moving into the moderate mainstream. This is an opportune time for the BJP to bring together the large number of decent, conservative, God fearing Indians of all types, who have been disenchanted for two generations with the irresponsible politics of socialism and subsidies, as much as with the cynical promises of an empty secularism. However, only by shedding its narrow sectarianism can it hope to offer the voter a responsible right wing alternative. A modern democracy needs a viable second party in order to have political stability. We have learned this lesson painfully in the last few years. The Congress, despite its waning popularity, represents a viable left of centre alternative. The BJP has the historic opportunity to become a stable right of centre party. We must accept the reality that only these two national parties can provide stability, and stop searching for third party coalitions. The BJP, on its part, must realize that to became a mainstream party it must rethink its identity. Rightist parties all over the world have only succeeded at the polls when they have distanced themselves from the fanatics and lunatics at the fringe. If it wants to find resonance with decent, sensible Indians the BJP must abandon the politics of hate and communalism. Indian intellectuals for their part, can no longer dismiss the country's largest political party as contemptible. The responsible thing for them to do is to begin a dialogue with the BJP and help it to discard its extremism and shepherd it into the mainstream. As a conservative party it is right and proper for the BJP to be drawn to tradition. But it should look to the rich, tolerant, syncretic tradition of India's past, rather than its own specious, narrow and sectarian version. A Hindu worships all dieties and the Indian mind is stubbornly eclectic. Buddhism disappeared from its birthplace partly because Hindus started to worship the Buddha as one of their Gods. A similar fate might have befallen Islam and Christianity had they not been more vigilant. The BJP should tap into the rational and worldly tradition of India's past. Most Indians have got it wrong in thinking that India's past is mainly other-worldly. Look at the marvellous animal stories of the Panchatantra, the love poems of Vidyakara, the realpolitik of Arthasastra, and the great Indian texts of astronomy, mathematics and medicine. Even the ancient religion of the Vedic texts is speculative and not dogmatic. This India is positive, upbeat and self-confident, in contrast to BJP's India which suffers from feelings of inferiority and hurt pride from recent domination by Muslims and British. To be a true right of centre party the BJP needs to demonstrate greater commitment to free markets and economic reform. The voter distrusts Congress' commitment, despite Mr. Manmohan Singh's historic achievement. No one has attempted to sell the economic reforms--least of all the Congress--as the right thing to do in order to to build a vibrant competitive economy which will do more for the poor than the tired, old socialist and populist solutions. The Swatantra Party attempted this task thirty years ago but its timing was wrong--the nation's centre of gravity was too far to the left. Today, Indians understand that the socialist party is over, that we need to dismantle controls, and that 5 per cent of Indian workers cannot hold to ransom the other 95 per cent. What should be BJP's economic agenda? Given its misguided commitment to swadeshi, it is impractical to expect it to drop it now. However, there is a vast area of domestic reform which lies untouched. The BJP should commit to: (1) sell or close the loss making public sector, (2) revise our socialist labour laws, (3) allow an entrepreneur to close an unviable business, (4) dramatically upgrade infrastructure, (5) work with the states to remove "inspector raj", (6) abolish actroi and substitute VAT in place of irrational state sales taxes, (7) repeal the urban land ceiling law, amend rent control, and have rational land use policies, (8) remove trading restrictions on farmers, including delicencing sugar and cotton, (9) dramatically improve the delivery of primary education and health, and (10) implement financial sector reforms, including opening insurance to the private sector. This is a huge agenda of domestic reform which does not touch the sensitive area of swadeshi and external reform. If the BJP can implement this ten point agenda, it will make a better and more competitive India. We can live without further external reform for the next 5 years--the WTO, in any case, will ensure that we do not reverse ourselves.


"In the arena of human life the honours and rewards fall to those who show their good qualities in action," wrote Aristotle in the Nicomachean Ethics. It is good to be reminded of Aristotle's words for we suffer in India from a bias against action (and in favour of contemplation.) Because the Brahmin always had the upper hand the author of the Bhagvadgita felt compelled to extol nishkama karma and the path of action. It is not often that a human worth is recognised but it does happen once in a while and it did last month, when one Satya Pal Dang was awarded the Padma Bhushan for a life lived for the sake of others. For a brief day it restored my faith in Delhi. Satya Pal Dang decided to light a candle when others were cursing the darkness. But he was different from other do-gooders who are so busy doing good that that they find no time to be good. Satya Pal is a palpably good man. The secret of his benevolence rests in a fellow feeling that puts him on the same level with the fellow who suffers. He has been lifelong communist. But unlike most communists, Satya Pal and his lovely wife, Vimla have lived their life in the trenches. In the fifties and sixties they organized industrial labour in Chherta, near Amritsar. For twenty five years they selflessly ran its municipality, and the community reciprocated by showering them with affection. In the eighties Sat Pal turned to fight terrorism in the Punjab through community action. Vimla created a successful campaign to rehabilitate the widows and the children of the terrorist's victims. Till today they remain on the hit list of the terrorists. Sat Pal, as the Punjabis call him, was born in district Gujranwalla in the old Punjab, in a village called Ramnager, which flickered briefly into history as the place where the British forces decisively defeated the Sikh army. It came to be known in our history books as the "Second Anglo Sikh War," and paved the way for a hundred years of British rule in the Punjab. Sat Pal came from an Arya Samaj family and went to the Government College in Lyallpur (now Faisalabad). There he won all the prizes. His family dreamt of a glorious career for him, until one day, to their horror, they discovered that their boy had become a Marxist and a card carrying member of Communist Party. It was a great blow to their bourgeois hopes of power, wealth, and prestige. Sat Pal was thrown out of college in Lyallpur for organizing a strike. He shifted to Government College, Lahore, where he joined the circle of famous leftists--Rajbans Khanna, Romesh Chandra, Surinder Sahgal Inder Kumar Gujral (Yes, Inder Gujral!). There he also met Vimla, who was also an ardent activist. In that charmed circle, Vimla was admired for her good looks, her deep convictions, and her glamorous background. Her father worked for the BBC; her mother had been trained in Italy in the Montessori teaching system; all her brothers were communists. Her mother taught at Sir Ganga Ram College, headed by the famous Miss Chattopadhyay who was connected to the nationalist movement through her sister, Sarojini Naidu. They used to meet at the Indian Coffee House in Lahore and listen to the poetry of Iqbal and Faiz Ahmed Faiz. But Mijaz was their favourite, and Sat Pal used to recite his famous lines: 'Tere chehre pey yeh anchal / bahut hi khub hai lekin / tu es anchal se ek parcham bana let / toh accha tha.' It was natural for the brilliant Sat Pal and the vivacious Vimla to fall in love. I happened to lunch with Sat Pal and Vimla a few months ago in Chherta. After lunch, Vimla brought out an album of photographs of their younger days. One of the pictures was taken in a Bengal village. It showed Sat Pal and Vimla, two idealistic faces, helping out during the terrible famine in 1943. "After returning home from Bengal we raised a lakh of rupees for the starving victims." said Sat Pal. Another photograph showed Vimla in Prague in 1947, where she had gone to attend the first World Youth Festival. There was triumph in her eyes. She had been elected Vice President of the World Federation of Democratic Youth. Her self assured smile conveyed the wonderful confidence that she felt as a youth leader at the peak of the international communist movement. She had every reason to believe that right was on her side, and they would rule the world. Stalin's genocides had yet come to light. Nor had the Soviet tanks moved to crush freedom in Prague one spring morning. How was this innocent face peering out in sepia tones to know that her God would turn out to be false? What was never false, however, was Vimla and Sat Pal's life long fight against injustice and poverty. Their small share of happiness exists because they ceased to think of themselves.


No one reads Arthur Koestler any more. But in the forties and fifties Koestler was a powerful, iconoclastic, intellectual presence. First, he destroyed the communist god in his celebrated Darkness at Noon. This was at a time where everyone was, at least, a socialist. Then, he visited India and Japan and punctured the myth of Eastern spirituality in the The Lotus and the Robot. The Indian government was so put off that it banned the book--but only after everyone, who was going to read it, had, in fact, read it. Koestler wrote munch nonsense in the book, but there were great moments of insight as well. In it, he compared India and Japan--"the most traditional and the most 'modern' among the great countries of Asia." He is worth another look today, because we are embarked on the same brave journey to join up with the global economy that Japan took forty years ago. Japan, with all its troubles, is regarded as a great nation capable of defining the future of the world. India is still perceived to be puny, mostly irrelevant to the world's material destiny. It need not have been so. Our paths diverged in the fifties. When Japan decided to become an exporting nation, we decided to close our doors to trade. Japan was optimistic that it could compete in the world economy. We were pessimistic. It was a high risk decision for Japan because its earlier efforts had not been successful--"Japani maal" meant inferior goods. But Japan showed the courage of a Samurai whereas our Brahmins in the North and South Block played safe. Koestler found that India and Japan had similar social structures, based on the family with its clan extensions and a caste hierarchy. In both societies the old sought respect from the young; the male dominated over the female; teachers were meant to be venerated by their pupils; conformity was valued more than individuality. Both approached Reality intuitively rather than rationally and empirically. Koestler also noted important differences between the two. Japan's caste system was fluid; India's was rigid. A Japanese commoner could pass into the Samurai class by adoption and marriage. Rich moneylenders often bought Samurai status for their sons by marrying them to the daughters of the Samurai during the Shogunate. When the feudal economy changed into an industrial economy, the new entrepreneurs and the zaibatsus became the adopted son-in-laws of the feudal state. In India, inter-marriage and even inter-dining between castes in unthinkable, especially in the villages. This is because caste is sanctioned by religion and is part of one's dharma. In Japan, caste is a matter of social hierarchy, to be dealt with pragmatically. In India authority has a religious character. The guru imparts spiritual darshan by his presence; the sensei imparts wisdom, but it is of a worldly nature. The Indian is careless in dealing with society but he is careful in dealing with the deity. In Japan it is the reverse. The Japanese non-chalantly claps his hands at the Shinto shrine to attract the attention of the gods, but in matters of social etiquette he is watchful, elaborate and punctilious. He knows thirty-five ways to wrap a gift parcel, and his worst tragedy is to lose face in society. The Indian is full of religious anxiety; the Japanese worries about prestige. The Indian thinks that sex is only for procreation; the Japanese understands that sex is also for recreation. The Indian is consumed by guilt over masturbation; the Japanese thinks it a casual pleasure, almost like smoking. The Indian woman is a temptress who saps a man's strength; the Japanese woman is a provider of manifold pleasures. The Indian child is deluged with affection and his education starts late and remains lax. The Japanese child is subjected to strict social conditioning from a very young age. Koestler's insights have obvious implications for national competitiveness. Japan's secular spirit explains, for example, its love affair with technology. Indians, in contrast, are less curious about how the world works. It is fashionable for India's policy-makers to wring their hands, and moan that Indian companies do not invest in R & D. Lest we forget India was lost to the Mughals at Panipat in 1526 because of Babur's superior technology. Eleven months later Rana Sangha and the Rajput confederacy also succumbed at Khanua to Babur's superior cannon. The fault lies in our caste system. Brahmins used to be the only educated persons, who had little interest in the world. Nor did they like to dirty their hands. The artisans, who could have made technological advances, were uneducated. But now there is hope, for the 1991 economic reforms have unleashed the long-suppressed commercial energies of the Indian people. Everyone wants to be an entrepreneur--especially the sons of the Brahmins. India is in the midst of a social revolution, similar to Japan's redefinition of its merchant class during the 1868 Meiji Restoration. It is no longer comptemptible to be a Bania or to work with one's hands.


"There is an eternal dispute between those who imagine the world to suit their ideas, and those who correct their ideas to suit the realities of the world," wrote Albert Sorel. It is this problem which is at the heart of Mr. Shanti Swarup's attack on me (TOI, 27/2). He accuses me of trivializing the modernisation vs westernisation debate in "Culture Complexes" (TOI, 9/12/97). He may well be right, but I think the real difference between us is that he has fallen into Sorel's trap in believing that the world fits his obsolete ideas, rather than in understanding a changed reality. I sometimes ask myself why is it that so many Indians, especially intellectuals, hate the market. There are two reasons I can think of. One, is that no one is in charge in the market economy and this causes enormous anxiety. The second reason is that we tend to equate the market with businessmen. Since we think that businessmen are crooked we tend to transfer this negative image to the market. Hence, we feel the need for the heavy hand of government to keep the market in line. Because the market is invisible nothing one can say will convince people that the market is morally blind--that it is merely an arena in which people buy and sell. We forget that the market is, in fact, the best ally of the ordinary citizen, because it forces businessmen to compete. It is like democracy, in this respect, which forces politicians to compete. This suspicion of markets is magnified when it comes to the global marketplace, for there truly no one is in charge. Hence all our anxieties get multiplied and for this reason MNCs, FIIs, become obvious targets. And to diminish the anxiety we take comfort in Hindutva and the familiarity of swadeshi objects. Mr. Swarup and I agree that to be modern is to subject our ideas, and attitudes, as well as our production methods and systems to the test of reason and experience and retain what is tenable and shed what is not. In light of the experience of the last eighty years, it is clearly irrational and unmodern to retain our attachment to socialism (despite the historical irony.) The problem with socialism is of performance, not of faith. If socialism had worked we would all be socialists today. It was the noblest vision that man even had--to build a compassionate society which would wipe away poverty and oppression. Alas, every time it was tried it led to statism and oppression. That evidence is no longer in dispute. A series of controlled experiments were conducted in the last fifty years on a scale that is the envy of every social scientist. Germany, Korea, Vietnam and China were sawed into two and capitalism was installed in one part and socialism in the other. In every case the capitalist part not only out-produced the non-capitalist one, but it also delivered freedom and opportunity. Yet most Indians do not accept the market economy. Even my mother, who thinks that socialism was the work of the devil, believes in "fair" prices and "decent" wages. Although she accepts that people must earn vastly different salaries in order to give incentives for performance, she complains that there is now too much greed in our society. Like most educated Indians she does not think, as I do, that better results will be achieved if people shamelessly follow their self-interest in the bazaar rather than lofty moral principles. Mr. Swarup says that Japan is a poor example of a modern society. He may well be right from the perspective of the five per cent well-fed, upper middle class Indians. But for the majority of our countrymen, who live degraded lives in desperate poverty, Japan is a modern utopia, which has delivered unparalleled prosperity, education, health and welfare to all its citizen--all of this in a couple of generations. Japan has its flaws, to be sure. But so does every society. We Indians, who are at the bottom of the heap on any scale of human welfare, would do well to put ourselves in the shoes of our less fortunate compatriots before we pass judgement on other nations. Mr. Swarup has written much nonsense on the obsolete technology of MNCs, which keeps Indian firms permanently dependent. It is the usual gibberish from the over-active minds of the "dependency school," which has no basis in the real world and shows a total lack of understanding of how companies operate. An MNC, like any company, invests in order to succeed in the market place, and it will employ whatever technology it takes to win. If it employs old technology against a competitor with the latest technology then it clearly shoots itself in the foot. MNCs have no interest in neo-colonial constructs. Mr. Swarup has not addressed the main issue in my article: can one be modern without becoming Western? This is unfortunate, for if he had then he would have truly furthered the debate on modernization.


There is a concept in Yoga called one-pointedness (Ekagrata in Sanskrit.) Successful governments, like successful companies, have an uncanny ability to be one-pointed, while seeming to do hundreds of things in the routine of the day. One such government was Deng's in China; another was Thatcher's in Britain; and going back a couple of generations, Churchill's government during the Second World War was an obvious example of Ekagrata. All these governments had focus and purpose. Not since Nehru's days have we had such a government in India. The only lesson to draw from our recent unhappy election is that the Indian voter has given no party the right to pursue a controversial agenda. A mandate, so fractured between provincial, local, caste and religious identities, can only mean that the ruling coalition will have to govern through consultation, compromise and consensus--both with its allies and with the opposition. The BJP certainly does not have a mandate for hindutva or swadeshi. Hoerver, this does not mean that it can't govern purposively. There is a vast unfinished agenda of economic reform. Much of it is uncontroversial, but it does require commitment and will power. To debottleneck infrastructure, for example. But if I were to select only one point on the reform agenda, and make it the one-pointed purpose of the new government, I would unhesitatingly choose education reform. Eliminating illiteracy will do more for the average Indian than almost anything else. An educated work force will give Indian companies competitive advantage in today's workplace which demands a "knowledge worker"; it will raise the backward castes far more than reservations by making them employable. It will lead to better governance as the voter becomes more responsible. It will liberate Indians--as Epictetus says, "only the educated are free." Of all the parties, only the BJP took the trouble to define a vision and program of education reform in its manifesto. It spelled out an outstanding program in 21 steps with which no sensible Indian can disagree. If only it would now implement it with Ekagrata it would make India an efficient and compassionate society. The BJP document emphasizes both the quantity and quality of education. It promises to deliver "near complete functional literacy in 5 years" by mobilizing societal participation and progressively raising spending from 3 to 6 percent of GNP. Its reform package includes a massive expansion of vocational training in high schools in order to build employment skills; teach agricultural studies in rural schools; create incentive for attendance in primary schools through mid-day meals and free test books; involve NGOs in the expansion of primary education; introduce an anti-cheating law (with safeguards against abuse); provide autonomy to colleges and universities and academic freedom to scholars; select 10 to 20 centres of higher learning and make them world class; preserve traditional knowledge and skills; provide low interest bank loans for meritorious students; expand ago-industrial and technical schools with the help of industry; and remove gender disparity. The main deficiency of BJP's program is its silence on teacher re-training, which is the single most important step in raising the quality of primary education. This retraining, as Krishna Kumar says, ought to focus on the child's view of looking at the world and develop curriculum materials which employ local resources and reflect the local milieu of the child--i.e. make education less bookish and more relevant. Even more crucial however, is to bring teachers back into the classroom. Jean Dreze and Amartaya Sen noted in their recent book, India: Economic Development and Social Opportunity that in the four districts they studied in U.P. two-thirds of the teachers were chronically absent. Panchayati Raj offers an opportunity to bring the teacher back into the classroom. The 11th schedule to the Constitution has placed primary education under the panchayats. In theory, this means that the local community and the parents should be able to hold the teacher accountable. In practice, however, this is not easy because the grip of the state education departments is very tight and will not be easily loosened. One solution is for Doordarshan to telecast primary education classes in different languages in the mornings to supplement the teacher's input. Electronic education can raise the quality of education and moderate absenteeism (but it cannot replace the teacher.) In our enthusiasm for primary education, however, we should not fall into the trap of de-emphasizing higher education. Our experience of the past six years, since the reforms began, is that cheap, educated, wired professionals represent our true competitive advantage in the global economy. The common element of all successful developing societies, regardless of the type of economic policies they pursue, is elementary education. If the next government achieves only one thing--a revolution in primary education--it will find, to its happy surprise that it will be voted back to power. If this is not the stuff of politics, then what is the point of politics?


Literature is about passion. But so in business. How else do you explain the insane behaviour of otherwise ordinary, sensible Indians who have pulled out all their hard earned savings from the bank in order to start a business and chase a dream. Don't they know that nine out ten business close down after twelve months? Even since the Revolution of 1991 I keep running into these mad heroes.. The most remarkable feature of a vibrant, healthy economy is the very high failure rate of its entrepreneurs. Success in business goes against the odds. In India, there is also the indignity of having to grovel before and bribe a dozen inspectors .Thus, an entrepreneur has to be a gambler or a lunatic with a fundamentally impaired judgement about life. Some will call this courageous, others stupidity. But it is passion at the root which inspires this behaviour. These entrepreneurs are as mad as our medieval Rajputs from Mewar who went to battle time and again, when they knew in their hearts that defeat was their only prize. The opposite of this big chested behaviour is bureaucracy and statism. The bureaucrat is cold, calculating, risk averse and mean hearted. The entrepreneur is decisive and in a hurry; the bureaucrat is indecisive and likes to delay things. No wonder the bureaucrat hates the entrepreneur's passion. Although bureaucrats are mostly found in governments, there are plenty of them in big companies as well. Large companies tend to become enormous socialist enterprises and have to be periodically shaken up. This has been happening in America where large companies have been viciously downsized during the last decade. Many large Indian companies face a similar fate. Those companies who are able to destroy the disease of bureaucracy will emerge competitive and successful in the future. The others will face extinction. We Indians have got so used to bureaucracy over the past 50 years that we are horrified at the loss of jobs in our big public sector companies. We forget that a couple of thousand Englishmen ran India before 1947. We don't know what it is like to breathe the free air of a non-bureaucratic society. My grandfather used to say that sometimes he felt freer during the British Raj than under the "licence raj." Statism is bad no matter where it is found --whether in the public or the private sector. On the othe hand, we must celebrate our chaotic entrepreneurial bazaar economy, whether in Delhi's Chandini Chowk, or in Bangalore's Silicon Valley or Bombay's Dalal Street. What is common to all three places is the risk taking passion of entrepreneurs? Why does one entrepreneur succeed while the other nine fail? That is a mystery. But Peters and Waterman came closest to unravelling it In Search of Excellence (unquestionably the best book written about business.) They said, successful enterprises exist for their customers, treat their employees like decent human beings and they innovate constantly. When I left the corporate world four years ago I was Managing Director, Worldwide Strategic Planning at my company's headquarters in America. There I saw a lot of bureaucracy in my office. I saw very highly paid executives in their plush glass tower offices pass weighty memos from the left side of their desk to the right side of their desk. The most important lesson that I learned in my job is that a strategic planner should not be a planner. He should be a "discoverer", in Henry Mintzburg's words, "who pursues wildflowers in the fields". He should constantly seek new ideas sprouting here, there and everywhere. Whether inside the company or without, he should latch on to the most promising entrepreneurial possibilities and fertilize them. A good strategic planner should look for experiments that have been started by others, and like a good venture capitalist nurture them. He should focus the company's resources and attention to these innovations. Good companies like Hewlett Packard and Cisco Systems do an outstanding job of acquiring these small experimenters. This is what the wise Austrians, Hayek and Mises called the discovery process in a capitalist economy. As we approach the 21st century we in India must re-evaluate our old ideas about business. We were taught to think of our banias as black-marketeers and profiteers. We must shed these cliches, just as we must cleanse our minds of the statist bias in our thinking. Max Weber got many things right about the ethic of the entrepreneur, but he missed the notion of passion. Fortunately, the internet has levelled the playing field for our entrepreneurs. Many of the huge, hierarchical MNCs, who strike such terror in the hearts of our Bombay Club, are faced the same threat of extinction unless they reinvent their business and make them less hierarchical and open. As new players to the global game, we can take heart from the fact that in the next 25 years the way that business is done will change so dramatically that and whoever can forsee the changing needs of the market will go to glory. No MNC has a head start. Any mad, passionate Indian entrepreneur can write his own future.


There is nothing like a good nuclear bang to focus the mind. As we begin to adjust to living in the post-bang world we must ask ourselves what is important to us as a nation. What are our national goals? Where does the bomb fit into our objectives? The BJP wants us to be counted and respected in the community of nations. That obviously cannot be a goal, for respect is the result of something that we achieve. Military power, however, can be a national objective. But history teaches us that unless military power is backed by economic power it cannot be sustained. Russia has many atom bombs; Japan has none. But the world respects Japan. We too have discovered to our chagrin that the atom bomb has not won us the respect of the world. The reason is that it is not backed by economic stature. On the contrary it has made us a laughing stock, and put us in the company of rogue states like Iraq, Libya and North Korea. Even our best friends, who do not condemn our atomic tests, regard us with sad puzzlement. Our national goal could be to achieve a certain quality of life for our people. Or it could be to socially raise the lowest castes. Or to achieve harmony between different religious communities. But I believe the only sensible goal for India has to be economic. Economics is not everything, but it has to be the most important thing in a country where one third of the people live degraded lives of unimaginable poverty, and another third live in constant anxiety about making ends meet. If we agree to define our goal in economic terms, there are many ways to express it--in terms of employment, inflation, productivity, as a poverty index, competitiveness, literacy, exports, and so on. Generally, economists like to express it in terms of growth. That is not a perfect way, but it is better than any other. When an economy grows strongly, a lot of good things seem to happen it. High growth creates jobs, slows down inflationary pressures, raises tax revenues of the government, which can be wisely invested on schools, roads, electricity, and on poverty programs. If we agree on economic growth as our national goal, then we must be prepared to measure all our actions against this criterion. We must also eshew the temptation to have multiple objectives. Nations, like companies, are most effective when they are one-pointed. We must evaluate every action of every politician and bureaucrat by asking, "does it promote economic growth?" For example, law and order, speedy justice, political stability--all good in themselves--also promote growth by creating a sound climate for investment. Can the bomb promote high growth? It can, conceivably, if it helps to reduce the defence budget on the grounds that conventional forces can be cut once there is a nuclear deterrent, and the savings are plouged into infrastructure. But this is a specious argument. The experience of the last fifty years shows that no nuclear country has been able to cut its conventional arms. Spending on nukes has invariably been an add-on to the existing defence burden of the country. In fact, the bomb will push us into a costly arms race, escalating our defence expenditures and deny funds for economic development. Does the bomb offer any other benefits? The bomb could possibly have furthered our security if Pakistan did not have it. But how does it help if both sides have the bomb? It only makes the subcontinent a danger spot. To this the BJP responds with the classic deterrence argument. It is that the unthinkable horror of a nuclear disaster will deter self-interested, non-suicidal leaders on both sides to even start a conventional war. And thus, it will, paradoxically, promote peace. The empirical evidence in support of this argument is that none of the members of the nuclear club has fought a war. While this argument has some logic, I believe the logic of disarmament is far greater. Meanwhile, the sanctions are going to hurt. They are going to succeed in denying funds for our power plants, roads, ports, and drinking water programs. Foreign companies are also going to think twice before investing. A potential German investor is reported to have said, "Why should I invest in India? It might blow up and with it my factory." It is true that Pakistan's pain will be greater. It is also true that American companies will suffer more. But how does this help the Indian child who can't do his homework because of load shedding? The budget was our great hope. But that hope is also dashed. A bold, reforming, growth oriented budget would have dramatically changed global sentiment in India's favour. In the end, our rulers have to remember that our national goal is not to prove anything to the world or to our enemies. It is to improve the lot of our people


There are three kinds of companies, according to Professor Birch of M.I.T. He calls them elephants, mice, and gazelles. The elephants, of course, are the large Fortune 500 companies like General Motors. At the other end are the vast majority of tiny enterprises in the bazaar--retail shops, restaurants, and services. These are the mice. The third are the gazelles, which start small and grow extremely rapidly through innovation. Microsoft, Intel and other high tech companies are examples of gazelles. Sometimes gazelles create entirely new industries, as in the case of Federal Express or UPS, who have pioneered the courier industry. Professor Birch's research shows that 70 per cent of the new jobs in the United States have been created by the gazelles. And its worth noting that the US has been extremely successful at generating employment--having created 26.4 million jobs in the last two decades! The elephants have not added to employment; in fact, they have downsized in the past decade. Neither have the mice: for every new one that comes up, another usually dies. The gazelles eventually become elephants, but on the way (as they ride the "s-curve") they create enormous number of productive, high quality jobs. Successful economies, thus create conditions for the gazelles to come up and to succeed. In India, we too have had our gazelles--Reliance, NIIT, Jet Airways, Titan Watches, Infosys, Ranbaxy, to name a few. Our challenge as a nation is to find the small entrepreneurs who have a vision and a dream, and who will be the gazelles of tomorrow. Once found we have to make it possible for them succeed. This is not easy. For the scarcest resource in any society is entrepreneurship. And four out of five entrepreneurs fail. So it is a real art to find the one who will succeed. How do we find and nurture the gazelles of the future? And who should do it? Clearly, the government should not. It should be kept as far away from them as possible--it does not understand business and it will only succeed in killing them. The answer is venture capitalism. Many of America's gazelles came up through this path. Venture capitalism is a risky business. It consists in spotting a potential winner from among a large number of business start-ups. A venture capitalist doesn't go into business himself. He looks for a young person with an idea, and offers to provide him or her with capital (and management help) in exchange for a share of future profits. Since banks are risk averse and won't lend to a young person with an idea, every entrepreneur is always short of capital and welcomes a backer. When the business takes off after three to five years, it usually needs another dose of capital to fund expansion. By now, the business has built a track record of profits, and the sensible thing is to take the company public, and raise the expansion capital through the stock market. This is also the opportunity for the venture capitalist to book his profit, sell his shares, and exit from the venture. And look for another gazelle to nourish. In the past few years, a number of successful businessman have asked me for advice on philanthropy. Typically they say, "I have made my money and I am not getting younger. What I should do? Where should I donate my money?" When businessmen think of philanthropy they usually think of temples, hospitals, schools and scholarships. These are good things, but I generally turn them in the direction of a good NGO, because I find they are doing a better of social uplift than private charities. But now that I think of it, spotting and nourishing gazelles would be an excellent form of philanthropy. What could be a better idea than to provide seed capital to a young person with a dream, and thereby create lots of productive new jobs in the economy and build competitiveness at the same time? There is not an entirely new idea to India. Some business communities--notably, the Jains in Gujarat--provide risk capital to youngsters in their clan, with the understanding that they will repay it later in life. In the 19th century there existed a similar support system for Marwari youngsters, who went off to Calcutta from the villages of Rajasthan. These young men learned to do business as apprentices in existing Marwari firms before setting out on their own. They also lived together in dharmashalas, and at night they would recount their exploits of the day. Thus, they learned from each other's mistakes and these dharmashalas became their Harvard Business School. Many people will argue that venture capitalism is not philanthropy, it is business. Call it by whatever name--but if you agree that entrepreneurs are one of scarcest resources of society, that they generate productive jobs and wealth for our country, then spotting and nourishing gazelles in one of the best things that we can do in India.


It is the height of our monsoon season, but the damp, humid air is filled with a middle-aged conservatism, which paralyzes our corporate life into inaction. A dogged resistance to change is compounded by the lack of cohesion at the top of our companies. That Indians don't make good team players is a well known fact. A Swiss manager of a multinational company, who has been associated for many years with its Indian subsidiary, said the other day that a sure way not to get action is to put two talented Indians on any task force; they will never agree with each other and brilliantly argue the proposal to death. There is also the story of two Indians who meet in New York and decide to form the India Association. When a third one arrives, they form a Tamil Association; with a fourth comes the Bengali Association. And so on, until there are 15 regional associations and the old Indian Association is forgotten. One day some one has the "brilliant idea" to join the regional associations into an Indian Association. So back they go to square one. It's a funny story, and it makes us laugh, but it also illustrates the divisiveness in our character. Take any institution in India--scratch the surface and you will find factionalism at the top. Whether it is a university, a hospital, a village panchayat, or a municipal board, it is beset with dissension. What is the cause of our divisiveness? Is it our diversity? Is it the caste system? It cannot be caste alone for even in the most homogenous Marwari companies brothers, uncles, nephews incessantly fight with each other. I have observed this problem in family-run business, public sector enterprises, even multinational subsidiaries. I think it is serious enough for businessmen to be concerned about it. To some extent, jockeying for power exists in every company, everywhere. It is natural for directors to build empires, quarrel over turf and squabble in board rooms. But in good companies around the world these conflicts are contained so that they don't hurt competitiveness. In India, I fear, they tend to spill out, and when they do the effect is devastating to younger managers. Not only do they get caught in the cross-fire, but also they tend to emulate this damaging behaviour of their seniors. It is an old problem. Every schoolchild knows that foreign invaders were able to conquer India because our armies were not united. According to Arrian, Porues lost to Alexander in 326 B.C., partially because of poor co-ordination among his generals before the Macedonian phalanx. "While the defenders of the Punjab were brave...(and) each man fought to the death...(the soldiers) were unable to make a mass movement in concert with their brethren of other corps." Similarly Babur's victories at Panipat and at Khanua (against the Rajput confederacy led by Rana Sangha) are partly explained by the divisions in Indian society and poor co-ordination on the battlefield. Although the Marathas had more cohesive armies, they too suffered because some sub-castes armed themselves against others. The British Empire professionalized the Indian armies. And after 1947 the Indian army has been "an island of discipline." Despite that, however, there have been problems between generals in the battlefield. In the 1962 Chinese War, the commander of the Fourth Division at Se-La confessed that "private animosities, personal weakness and in many cases lack of mutual confidence among the commanders...led to disaster." In even the wars that we won--1965 and 1971--there were major failures of co-ordination, according to General Harbaksh Singh and Sukhwant Singh. Harvard Professor Steve Rosen states in a new book on India's armies, "The only justifiable conclusion is that in 1965 the Indian Army displayed low levels of cohesion within infantry units, which led to their early collapse in battle; low levels of cohesion among infantry units which affected their ability to co-operate on the battlefield; and perhaps even lower levels of cohesion between tank and infantry units." Does poor teamwork have to do with our character and personality? Psychologists he tells us that the Indian male is exassively indulged as a child by the mother and the female relatives and he lacks a close identification with the father. He tends to submerge his identity within the family, and this results in a weakly developed ego. When he grows up, he tends to have hierarchical or dependent relationships, rather than good, co-operative relationships with peers based on equality. This is an interesting hypothesis but it needs broad empirical data to validate it. Is it a problem of trust? Where people spontaneously trust each other there is a high degree of co-operation and lower transaction costs. Does our caste based society makes us suspicious of non-kin? My economist friends has no patience with this theorizing. They say that once there is sufficient competition in the Indian market, and companies are fighting for survival, then you will get excellent teamwork. I hope they are right. Meanwhile, businessmen ought to be aware of the problem and do something about it.


There is a palpable sense of excitement in the Indian bazaar. From Pathankot to Burdwan and Bikaner to Tellicherry young people everywhere are galvanized and are flocking into the new computer schools of NIIT, Aptech and others. These are the hip places to hang around these days. It is even more thrilling than the last time around, almost ten years ago, when the STD/PCO booths first arrived in the towns and villages across India. And now, if this government has its way, the bazaar will soon experience a third information revolution when internet kiosks begin to offer the world wide web at local call rates. All of us remember the wonderful things that happened when STD first arrived in our bazaar. Mothers could suddenly speak to their sons working across India and the world. Apple farmers in Himachal began to make harvesting decisions based on a quick call to the wholesale markets in Delhi and Bombay. My father could consult a doctor in America from a village in Punjab. We suddenly experienced the empowering nature of communication. We could make things happen on our own, without depending on the government. The second revolution was even more significant. In the mid-eighties a few entrepreneurs saw what the government did not: that the world was changing and no one would be employable without computer skills; that the market had a huge and growing appetite for IT professionals; that our schools and colleges were still creating an army of unemployables. NIIT and Aptech stepped into this vacuum, and began to offer computer lessons in a few cities. They were immediately successful, but they could not cope with the demand. Smaller companies entered the market, but they could not deliver the quality. Since NIIT and Aptech did not have the capital or the human resources to expand across the country, they hit upon the idea of franchising their schools (like McDonalds and Titan watches.) They looked for entrepreneurs in small towns who had the space and the capital, and they made them their partners. They helped their partners to design the schools and buy the computers. They selected and trained their teachers and conducted exams under their watchful eye. Soon there were NIIT and Aptech centres flourishing even in the smallest towns. Today these centres are training quarter of a million students a year. The secret of their success lies in attention to detail and consistent quality. On May 22, the Prime Minister announced a task force on information technology. By June 9th the task-force had posted a background paper on the net, inviting reactions from the public. On July 5th the task force published its first action report on the website. On July 15th the Finance Minister announced a sweeping IT tax package which has electrified the industry. On July 30th the cabinet cleared the time-bound action plan of the task force. On August 15 the PM is expected to announce that Internet access nodes will be available through private providers at all district headquarters at local call rates. Thus, the Indian bazaar will soon add another three letter word, PTC (Public Teleinfo Centre), to its vocabulary, and every schoolchild will have access to a PC and internet as easily and ubiquitously as his access to the chaatwalla. In fact, many of the STD-wallas will upgrade to become PTC-wallas. If this PM does nothing else but implements the full IT Action Plan, his place in history is assured. India's rank on the Global Competitiveness Report will leap upwards instantly. What our schools and colleges could not do the great Indian bazaar has done it. The bazaar succeeds because the businessman knows that his existence depends on his customer. If he offers courteous, cost-competitive service, the customer rewards him. The shopkeeper shows you a hundred sarees even if you don't buy one. Your thali arrives in three minutes flat in the Udipi restaurant. Compare this to buying a railway ticket, or paying your telephone bill or dealing with the linesman of the state electricity board. The government companies are monopolies where the customer is a nuisance. Many large Indian companies also behave like our public sector. But there are a few companies, like HDFC and Sundaran Finance, who offer unparalleled service, and they are rewarded. There are only three ways that a company can achieve competitive advantage--with superior products, or superior costs or superior service. Indian companies are primarily focused on superior costs to help them compete in the world market. But this strategy is vulnerable to devaluations in competitor countries. And our companies are at least 20 years away from offering superior technologies and products. So their only choice is to offer superior service. I tell every Indian company with global ambitious to learn from our bazaar and adopt a superior service strategy. The beauty is that it is practically free compared to the other two strategies. But it needs every employee to acquire the mindset of the Indian bazaar.


This BJP government is finally beginning to make some solid and sensible moves. Its new I.T. policy has electrified the computer industry. It has unilaterally opened imports of two thousand products from our neighboring countries-it is the boldest action taken by an Indian PM for freer trade in the subcontinent. It has settled the self-destructive dispute with Maruti. It is taking quiet decisions in power, telecom, and the privatization of PSUs that should soon bear fruit. The bad news, however, is that it is constantly having to fight swadeshi forces from within, who are playing the same negative role that the leftists did in the last government. Its proposal to open up insurance (permitting 26 per cent foreign ownership) was shot down by swadeshi hard liners in the cabinet. A pity, for this single action would have done more to turn foreign sentiment in our favour than anything else. Those who espouse swadeshi would do well to remember Aditya Vikram Birla, the most dynamic Indian entrepreneur of his generation. During his short 52 year life, Aditya built 70 factories in six countries and notched up Rs 16,500 crores in sales and Rs.1500 crores in net profit, fully half of it emanating from overseas. He became the world's largest producer of viscose staple fibre and palm oil; the world's third largest maker of insulators and the sixth largest of carbon black. What is more significant is that Aditya Birla was the first Indian to have faith in globalization, which he once described as follows, "We produce staple fibre in Thailand, for which we buy pulp in Canada. This fibre, made in Thailand, is sent to Indonesia for converting to yarn in our unit there. This yarn is then exported from Indonesia to Belgium, where it is made into carpets, and finally the carpet is exported to Canada!" We should pause and reflect that Aditya Birla was an Indian, and yet India does not figure in this global value added chain. Why? The reason is simple--our economy was closed. Our rulers had decided to follow swadeshi. Instead of promoting exports, they wanted our swadeshi industrialists to substitute imports and make everything at home. For four decades we practiced swadeshi and denied our people access to new knowledge, new technologies, new ways of organizing business, and a chance to participate in the enormous expansion in global trade and investment which brought prosperity to country after country in the second half of the 20th century. Thus, we deliberately suppressed growth and sacrificed two generations to a misconceived ideology. This tale of missed opportunities is enough to make one weep. If Aditya Birla put his trust in the world economy he was rewarded in seeing his foreign enterprises become globally competitive. There was little swadeshi protection in Southeast Asia and his companies in Thailand, Indonesia, Malaysia faced savage competition from the Japanese, Americans, and Europeans. Because he was confident, he did not run away from competition. He chose to fight and he won in the end. Ruthless competition was the school which taught his companies to become strong. What pushed Aditya Birla out of India were Mrs. Gandhi's damaging policies. It is sad irony that at the very time that the countries of East Asia were beginning to open up and liberalize, Mrs. Gandhi turned inwards. Her brand of swadeshi socialism also suited the bureaucracy nicely. Aditya Birla once recalled that he was invited to be a director of a foreign company, promoted by his own joint venture. "My becoming a director would have resulted in foreign exchange inflow to the country, from director's commissions and from substantial exports of goods from India. But I needed to get permission from our government. For nine months the permission was not forthcoming. I finally went to meet the concerned officer, who said, 'Mr. Birla, we could even prosecute you if you accepted the offer to become a director of the foreign company!' Imagine my embarrassment with the foreign company's board of directors who were unable to comprehend why it would take anyone nine months to accept a directorship. Finally the permission came, but after a heavy drain on precious management time." Aditya Birla contrasted this situation with the Nissan Corporation, which gives serious thought to any suggestion that saves even 0.6 seconds of a manager's time. Here in India, man-years are wasted to secure trivial permissions which should not even be required. Take another minefield-our company law. The text of India's company law extends to over 500 pages and consists of 658 sections. In Thailand, company law is covered in thirty-four pages; in Indonesia seven pages. Aditya Birla was ahead of his time in globalising his business, but today's swadeshi proponents should remember that theirs is not a new idea. It has been vigorously practiced in India for four decades with incalculable harm to two whole generations.


"Indians are among the brightest people on this earth," said a German statesman recently. "Yet India can't seem to take advantage of the global economy. Why can't they understand that there is only game in town? Those who learn to play it will enter the 21st century; the others will be left behind." No nation in modern times has grown rich or economically strong without becoming a successful trader. No developing country has lifted its economic growth without exports. India's finest years since Independence were 1994, 1995 and 1996 when its economy grew seven per cent a year. It is not surprising that exports also boomed, increasing twenty per cent a year during those three years. India and China had the same level of exports in 1994, around $13 billion. Today, China's exports are over $150 billion and India's are languishing at $33 billion. This explains why the world respects China and not India. This is why Clinton goes to China but ignores India. Everyone knows that East Asia's miraculous success was built on exports. Export-led growth transformed Japan into an economic superpower and put teeth in the four Asian tigers. But few realize that to be top exporter you have to be a top importer. And India has always been bitterly antagonistic to imports. This partly explains India's failure with exports. The world's top 15 exporters are also the world's 15 importers-and virtually in the same order- -according to the WTO. It makes sense: the more output you want, the more input you need. If you want to export toys, you need to buy raw and packing materials, machinery, and computers. If these are not available at home, you need to import them. "But we have always allowed imports for export purposes," say the bureaucrats. That's true. But our systems and procedures are so hostile to imports, that they break the back of any honest exporter. One back-broken exporter told me that "only stupid people export from India." A second reason for our export failure is our damaging SSI policy, which reserves 800 products for the small scale industry. These are simple products like garments, toys, shoes etc. But they are precisely the one's where we have a competitive advantage with our cheap labour. The Far East countries, built their export success on these same products. The global economy needs these products in large quantities but our SSI policy inhibits large volumes. Nor can our SSI exporter compete with large companies from the Far East, who have large plants, financial muscle, marketing and distribution networks. At CEO of Procter and Gamble India we tried and failed to make India a sourcing base for one of our products. However, the cost of the high technology machine exceeded the SSI investment limits and $500 million in potential exports were lost to India. For these and other reasons the Abid Husain Committee has recommended scrapping small scale reservations. But this has not happened. Meanwhile, China's exports of toys, garments, small appliances has risen from $3 billion in 1985 and $70 billion in 1997 whereas ours has gone from $2 billion to $14 billion in the same period. According to the 1996 World Investment Report, as much as one third of all trade now takes place within transnational firms, and another third between transnationals and other companies. The bulk of world trade is not the export and import of finished goods but a highly complex exchange of components among the subsidiaries of multinational companies based in different countries. UNCTAD data shows that U.S. multinationals exported 40 per cent of the sales of their subsidiaries in 1993. It was high as 64.4 per cent from developing countries of Asia and 84.9 per cent from Malaysia. However, it was only 4.1 per cent from India (in 1986). Multinationals do not export from India because it is still not a good place to do business. MNC's are willing to put up with our inefficiencies when it comes to the domestic market but they won't risk their global business to the uncertainties of our red tape, corrupt customs officials, congested ports, and unionized dock labour. Hewlett Packard seriously looked at India for globally sourcing print heads for its ink jet printers. But it picked Malaysia instead because it was more reliable. HP wanted a turnaround time of 24 hours from order to shipment; the best India could do was 5 days. Our red tape and poor infrastructure scared them away. The truth is that every politician, bureaucrat, and customs officer has tried his hardest to kill exports. If India wants to win the game and become a successful exporter, it must open imports, reduce duties and non-tariff barriers; it must scrap SSI reservations; it must improve infrastructure--especially port handling; it must--cut red tape permits, and discipline customs officials. Thus, it will become better place to do business and MNC will begin to export from India