The Luddites have won for the moment, with their recent protests following the Indian government’s decision to allow FDI in the retail sector.

A mere 10 million owners of traditional and self-organised retail and wholesale trade have held a country of 1.2 billion people to ransom and thwarted progress. Their pyrrhic victory was achieved by evoking the fear of 40 million people associated with the sector, suggesting they would be thrown out of jobs and lose their livelihoods. This is a gross misrepresentation of facts.

It is yet another demonstration of how untruths can triumph when repeated often and loudly enough. India’s retail sector is destined to almost double in size in the next 10 years simply by keeping pace with growth — and with such high levels of growth, there is room enough for everyone.

Those who oppose the entry of FDI in India’s retail trade, thereby preventing the sector’s modernisation, are yet to explain how an expansion in business from US$450 billion to an expected US$840 billion will result in the death, demise, destitution and deprivation of this most resilient and intrepid group of traders.

A greater contradiction could not have been imagined, and can come about only in India where competitive populism seems to have trumped any rational discourse.

The other fear being purposely promulgated is the idea that India will go back to being a colony of foreign powers. This is done by resurrecting the ghost of the East India Company, which entered India in 1612 by asking for a trading concession from Emperor Jahangir. Those evoking such fears cannot be serious in arguing that India in 2011 is as vulnerable, divided, weak and inept as it was four centuries ago. India today is becoming a global power. It is actively striving for a permanent seat on the UN Security Council, and others are supporting it in this endeavour. A large number of developing and emerging economies look toward India as a model for their own development.

In complete contrast to this positive sentiment, there are those who would have us believe that foreign retail stores — selling food, toiletries and assorted merchandise — can outwit, outthink and outgun India’s leadership and elite. This reflects a very low opinion of Indian abilities. Can a country whose own people have such a poor opinion of themselves really rise to assume global responsibility? Can the BJP, avowedly a political party with strong nationalist sentiments, not see the stark contradiction in this fear of the foreigner and their exemplary nationalism? Indians have to show the world — and more importantly prove to themselves — that they can determine their own destiny. This will not be achieved by denying the progress that can come from working with foreign investors, but by acting with sagacity, foresight and resolve when and if foreign investors diverge from national priorities.

Those who have opposed the entry of FDI in multi-brand retail have done so without recognising that it is a sector dominated by a cash economy, with non-accountability and poor-to-horrible working conditions. The same class of traders, which is being pampered with all the political attention, does not bat an eyelid while cutting regulatory corners and flouting all rules and regulations — of which there is a plethora. These measures are largely meant to be ignored, and are used predominantly to generate rent for an army of government inspectors.

Perhaps these features of the unorganised retail trade make it attractive to those who would rather keep India’s cash economy and the country’s young people trapped in low-productivity and insecure jobs. It is a real pity that the otherwise active civil society and consumer welfare organisations choose to ignore the poor working conditions and anti-consumer welfare aspects of the unorganised retail sector.

It is also a pity that farmers’ organisations have not come out more strongly in favour of large-scale organised retail trade which will give them higher returns, better terms of trade and greater access to better farming practices.

The lesson from this unfortunate episode is that it is important for those who are advocating reforms for greater liberalisation and globalisation to also better organise themselves and take the trouble to present their case to the public. The setback to introducing FDI in retail trade strongly demonstrates that reforms can never be undertaken by stealth. A public case has to be built and propagated strongly to push back the Luddites.

Dr Rajiv Kumar is Secretary-General of the Federation of Indian Chambers of Commerce and Industry. An earlier version of this article was originally published here in the Hindu Business Line. 

1. Indian agriculture will benefit from retail FDI
2. India’s retail democracy and the ‘Luddites’
3. Is China or India ageing better?

For the foreseeable future at least, India will meet the majority of its energy demand with fossil fuels.

Renewable energy does not yet offer effective substitutes for oil in transport and power generation, despite marked improvements in hybrid transport technology and the steep decline of photovoltaic panel prices.

And in the current climate, crude oil prices are not likely to head below US$80 a barrel — despite growth impulses in Europe and the US weakening even further. The burgeoning demand for energy from large emerging economies such as China, India and Brazil will likely keep prices from softening any time soon. So India should come to accept the high hydrocarbon prices and focus more on improving power-generation and transport-sector efficiency, and energy conservation measures.

One factor that could change the short-term energy price scenario would be a possible break up of the euro zone. Such an event could sharply bring down commodity prices as demand collapses in Europe and its periphery.

This possibility is becoming stronger, with the markets seriously doubting the ability of European governments to implement effective measures that would reduce debt and re-ignite growth at the same time. As a result there has been unremitting pressure on sovereign bond offerings — with yields of Italian and Spanish bonds hovering dangerously close to the 7 per cent mark.

This issue was discussed at length during the recent International Capital Conference in Paris. French President Nicolas Sarkozy and other senior French leaders addressed the delegates on the evening prior to the conference. They suggested that the markets are acting irrationally, as Europe’s fundamentals are strong — and the markets’ predatory behaviour must be subject to stronger controls and regulations. But the day after President Sarkozy’s speech in defence of the euro, the markets rejected the full offering of German treasury bonds, with a yield of 1.98 per cent — higher than on US treasuries.

This should have caused alarm bells to ring and made Europeans sit up and take notice. But the mood at the dinner that evening was full of bonhomie and good cheer — in total denial of the market sentiment.

There seemed to be no concern at the possibility that markets are beginning to consider German sovereign bonds risky, and thereby perhaps accelerating the move away from the euro. This denial, it seems, reflects an apparent lack of ownership of the euro zone crisis, where every party expects the other to find a solution.

This could well be the bane of the euro zone. Everyone expects France and Germany to lead the fight to save the euro. But the two countries do not fully agree on a common approach, and differ significantly on two important fronts. First, how they view the European Central Bank’s role as the liquidity provider of last resort and second, the extent of fiscal cuts required to restore market confidence.

Germany is in a more dominant position but cannot be seen to exercise its influence to the extent required because of political reasons. While it knows the euro’s demise could also be its own undoing, Germany’s power and influence in such matters can only extend so far; it cannot effectively impose the discipline needed to restore market and investors’ confidence in the euro undertaking, for example.

While other members of the euro zone are not yet prepared to accept the situation, they may have to come around in due course. The markets, for their part, seem set on forcing a more expeditious solution — something neither Germany nor other members of the euro zone are currently prepared for. So, there is a time-sequencing problem that is leading to mounting pressure on the weakest links in the chain, which could snap at any moment.

There could well be a messy breakdown of the euro zone which the world should prepare for. For India, such preparation implies speeding up the stalled structural reform process. The reform measures that can be undertaken as executive action, and which do not require parliamentary approval, should be implemented as soon as possible.

Investor confidence also needs to be restored. India has to present a credible front in order to attract capital flows and prevent capital outflow in the coming period of heightened turmoil and uncertainty. The political class must recognise the dangers facing the economy and not let partisan interests prevent effective action. The lesson from Europe is that these are critical times. India should heed this lesson and prepare itself by pressing ahead with reforms and restoring investor confidence.

Rajiv Kumar is Secretary-General at the Federation of India’s Chambers of Commerce and Industry. A version of this article was first published here on the Hindu Business Line.

1. Coping with unprecedented urbanisation in India
2. The Eurozone crisis and prospects for India
3. Brazil, Russia, India, and China (the BRICs) throw down the gauntlet on monetary system reform

Pakistan’s decision to grant India most favoured nation (MFN) trading status opens up many potential benefits for both countries; existing trade arrangements will be improved and new opportunities will emerge as bilateral trade is normalised.

At present, a great deal of trade occurs via Dubai, a situation which is inefficient and fraught with illegalities effectively functioning as behind-the-border barriers to trade. Indian products that arrive in Pakistan through this process include tyres, auto components, pharmaceuticals, engineering products, pans, chemicals and some textiles. These sectors will benefit immediately. On the Pakistani side, cement, fruit and vegetables, cotton, some specialised textiles, and sports items — also currently arriving via Dubai — will experience a rapid boost. And these are only the existing sectors.

Intra-industry trade should increase as the MFN agreement takes effect, and a large number of multinational corporations will likely set up their plants to serve both markets. The export of petroleum products from India to Pakistan, for example, is one aspect of trade relations which will benefit from the new arrangement. Lakshmi Mittal, an Indian steel tycoon, is currently constructing a new oil refinery in the border city of Bhatinda in association with Hindustan Petroleum Corporation. It will eventually have the capacity to supply large amounts of petroleum products to northern Pakistan, meaning such commodities would no longer have to make their way up from faraway Karachi. This development should see a huge expansion in the number of new opportunities for trade and commercial enterprise in the region. Additionally, Bollywood films — a hugely popular source of entertainment in Pakistan — are currently all smuggled into the country, thus representing another potential area for development. Combined with Pakistan’s television industry, improvements in the bilateral trade arrangement will allow the media and entertainment sectors to undergo major expansion.

At present, there is some justified concern in Pakistan that its local industries will be adversely affected by a surge in exports from India. This is similar to the fears aired in India at the time of its FTA with ASEAN. Many Indians worried the nation’s rubber and edible-oil industries would perish. But in the case of MFN agreements, Pakistan can choose to formulate an exclusion list; it may prohibit imports of some particular products to begin with until the agreement’s impact becomes clear.

Significantly, the MFN agreement holds the potential for India and Pakistan to improve their connectivity with Central Asia. If Indian goods are permitted to transit through Pakistan, then the whole region will benefit. For example, the Indian state of Punjab is several thousand kilometres away from seaports, but farmers there and in the state of Haryana will be able to send goods to Central Asia if these are allowed through Pakistan, and the same for Indian textiles. The advent of MFN status will also help complete the implementation of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline, as a new environment of trust and cooperation prevails. The Iran-Pakistan-India (IPI) pipeline will be more difficult due to long-standing issues in the negotiations with Iran and, to a lesser extent, the US.

Still, in order to build even greater momentum in the India-Pakistan trade relationship, India must liberalise its visa regime, especially for business people. This issue is even more urgent than the creation of better infrastructure. Pakistani business people should be able to obtain multiple-entry and free visas. At present, and this happens nowhere else in the world, Indians and Pakistanis only receive city-specific visas when travelling between the two countries. As a result, if a business person has a visa only for Delhi, it is not possible to travel to other commercial centres within India.

In regards to physical infrastructure, the Wagah border-control facilities must be greatly expanded. Specifically, sophisticated X-ray machines through which trucks can pass quickly should be a top priority, warehousing is needed at Attari, and several new train stations need to be built. On the Line of Control in Jammu and Kashmir, the government should also invest heavily in all forms of trade-enhancing infrastructure.

Pakistan’s granting of MFN status to India is an enormous opportunity. But some suggestions, such as the feasibility of Indian companies investing in or establishing steel plants and other large-scale projects in Pakistan, are premature. The biggest achievement likely to result from the two-way MFN is an increase in trust as trade begins to take off. After that, everything is possible.

Dr Rajiv Kumar is Secretary-General at the Federation of Indian Chambers of Commerce and Industry.

This article originally appeared as an interview transcript in The Asian Age.

1. New optimism in India-Pakistan ties
2. Improving India-Pakistan relations through trade
3. Wen Jiabao’s visit to India and Pakistan reinforces stability and neutrality

The Pakistan Commerce Minister’s recent visit to India, along with nearly 80 business delegates and high-ranking officials, will hopefully provide the platform from which commercial relations between India and Pakistan move into a higher trajectory.

This visit comes after three-and-a-half decades and follows a very successful round of meetings between the two Commerce Secretaries in Islamabad in April this year. These developments have, for once, taken the external observers of South Asia by surprise.

It was upon this progress that the Indian Commerce and Industry Minister extended an invitation to his Pakistani counterpart, which was readily accepted. The five-day visit, the official part of which ended on 30 September, with a dinner hosted by Delhi’s Chief Minister, will hopefully provide the platform from which Indo-Pak commercial relations could move to a completely new and a higher trajectory.

This hope is based on reading of the joint communiqué issued after bilateral talks by the two Ministers on 28 September.

The communiqué, one of the most clear and focused articulations of the intentions of the two governments, not only provides a realistic framework but also a strong political mandate for the officials to pursue liberalisation of economic ties between the two countries in a time-bound manner. Indeed it states that the two Ministers see the normalisation of economic and commercial ties as an uninterruptable and irreversible process.

This is unprecedented and holds out significant promise not merely for the two countries but also for the entire South Asian region and could have even wider implications. The current sequence of events, which includes a planned follow-up of official talks in November, should give reason for being more hopeful.

The way forward is now clearly laid down. On India’s side this will include a relaxation of the present visa regime, especially for business visitors, and the removal of as many non-tariff barriers on imports from Pakistan as possible.

There is also an ever-increasing demand for Indian visas by Pakistanis wanting to travel to India, not only for business but also for tourism and family reasons.

During my recent visit to Pakistan in July, I noticed a predominance of good sentiments towards Indiain business and civil society. India needs to encourage and strengthen these sentiments as much as possible. The current visa regime, practiced by both sides, which permits only city-specific visas, and requires compulsory reporting to the nearest police station, is a travesty not seen anywhere else (except perhaps Palestine).

This must be discarded as soon as possible. Security concerns, which are of course very relevant and important, can surely be taken care of through the use of better technology and greater focus on surveillance and intelligence.

On the Pakistani side, there is now a strong demand by the business community to move from the present regime of bilateral trade being conducted, shifting it to a negative list, which would be in conformity with South Asian Free Trade Area (SAFTA) provisions.

It is also hoped that Pakistan will grant India Most Favoured Nation (MFN) status as a part of the roadmap to normalise economic ties. It was heartening to see the confidence of Pakistani businessmen, who now do not suffer from any fears of being eliminated by their Indian counterparts, and who repeatedly said that they were eager to compete for the larger share of the Indian, as well as their own, domestic market.

The Indian Commerce and Industry Minister has also accepted an invitation to visit Pakistan in February 2012. Let us hope that this visit, unlike high-level visits planned earlier only to be aborted due to unfortunate events, will not only go ahead but also mark the culmination of successful negotiations on normalisation of economic and commercial ties. This will, no doubt, change the face of South Asia, bringing the region into a new period of stability, peace and prosperity.

Rajiv Kumar is Secretary-General of the Federation of Indian Chambers of Commerce and Industry. A version of this article originally appeared here in the Hindu Business Line.

1. India and Pakistan: what the most-favoured-nation decision means
2. Wen Jiabao’s visit to India and Pakistan reinforces stability and neutrality
3. China-India ties: Wen Jiabao in India – making nice slowly

The Supreme Court of India seems to have created a crisis after imposing a large-scale ban on iron ore mining in the Bellary district of Karnataka.

Although the Supreme Court has subsequently allowed the public sector entity National Mineral Development Corporation to continue operations, its imposition of a ban on iron ore mining in Bellary remains an extreme step. The decision was meant to demonstrate the Court’s anger and disappointment at the gross violation of rules and environmental laws by miners in the Bellary region, show the Court’s resolve to bring these rapacious and illegal operators to book, and push the government into taking corrective steps.

The economic losses resulting from the continuation of the ban on private sector units could be enormous and aggravate the slowdown that has already gripped the Indian economy. Nearly 21 million tons of steel-making capacity located in Karnataka is dependent on local iron ore supplies. Of the total production in Karnataka, which provides 24 per cent of the country’s iron ore output, 75 per cent comes from the Bellary-Hospet region. Shutting down the Bellary mines will force a closure of the steel plants located in Karnataka, as they can neither use the low-grade ore from Goa, nor bring in the required quantities from Jharkhand or Chhattisgarh as the transports costs are too high.

The closure of Karnataka’s steel plants will result in huge commercial losses to these companies, but the far bigger impact will be on the loss of production and employment in downstream industries such as automobiles, consumer durables, machine tools and engineering products. The direct employment loss alone could cost around 80,000 jobs, with hundreds of thousands of other jobs being jeopardised in downstream industries.

The government stands to lose Rs 100 billion (US$2.17 billion) in revenues and commercial banks could suffer an asset deterioration of up to Rs 500 billion (US$10.85 billion). Even after excluding other relatively minor losses to railways, state governments and utilities, the negative economic impact of a continued ban on mining in Bellary may be too large for the economy to absorb at this stage given that investors’ sentiment is already frail and global conditions are uncertain. The ban, if continued, will bring the Indian economy to the edge of an avoidable precipice.

In imposing the ban, the Supreme Court is presumably acting on the basis of its past experience. The Court saved Delhi from choking to death from noxious transport exhaust fumes by insisting on a cut-off date for the introduction of compressed natural gas in public transport vehicles. This created a mini-crisis with Delhi’s transport system grinding to a halt for a few weeks. The necessary executive action then followed.

The Court realises that India follows a practice of ‘management by crisis’. Far from acting in anticipation of emerging situations, action is postponed until time has virtually run out. This creates avoidable pressures and incurs unnecessary costs.

But given the predominant culture of management by crisis, the Court, acting on practical logic, has again decided to create a crisis — one which is far larger in its coverage and impact than stopping the Delhi public transport system in its tracks. Executive action will hopefully follow.

Can India really afford such repeated crises? And are they really a necessary condition for generating the required policy response and action?

The impending crisis will extend to all mining, including iron ore, coal, bauxite, copper and other minerals. This would result in India foregoing the use of its very large reserves of these natural resources that are essential for industrialisation and growth. Such an outcome would be disastrous. India would have to import massive volumes of these minerals, putting unsustainable pressure on its balance of payments, rendering its industries uncompetitive and generating a massive loss of employment.

The Court would do well to put together a group of relevant experts and industry personnel to find a way out of this impending disaster. There are two practical steps that could be taken. First, immediately establish three technically-competent and independent regulators, one each for iron ore, coal and other minerals. These regulators, by drawing up the necessary regulations and enforcing them strictly, will de-politicise the sector and minimise violations of environmental laws and the rights of indigenous peoples.

Second, the government has to ensure that its policy framework attracts large, organised, technologically well-equipped and socially- and environmentally-conscious mining companies which are more susceptible to public pressure and less prone to corrupt and illegal business operating practices. Such companies could effectively develop those mineral reserves which lie either under forest cover or lands populated by indigenous peoples without causing environmental or social damage.

There are some elements in the draft mining law, as it exists today, which could have the unintended effect of driving out large and organised miners from the sector and encouraging those who are rapacious and have zero concern for indigenous peoples rights or the environment. As it stands, the law will only result in India being unable to take advantage of its own natural resources. This will effectively deny India its natural advantage simply because of an inability to jettison the culture of management by crisis.

Rajiv Kumar is Secretary-General of the Federation of Indian Chambers of Commerce and Industry.

1. North Korea’s mining prospects
2. Indian economy hardly misses a beat
3. Chinese interests in Pacific nations: mining ventures in PNG

Anna Hazare’s movement against corruption in India confronts the government and threatens immobilisation of the parliamentary process.

There are those who see this state of affairs as the consequence of some kind of foreign plot. Maybe not; but I wonder if those who see foreign influence on Anna Hazare’s movement realise how close they are to the truth.

Global trends now unfolding have a major influence on our social and political realities. Not of course in terms of the rather silly charges of conspiracy and the hidden foreign hand but in a deeper more structural sense. Hazare’s movement, aided and abetted unwittingly by the ruling establishment, has pushed all other burning issues to the background and now threatens to wipe out the monsoon session of India’s Parliament. This is, indeed, a great pity. The hope was that this parliamentary session would be used for pushing forward the slew of important legislation which is long overdue. This is the only way to reverse the perception of policy drift in India and help get the economy back on a high-growth track.

The real cost of political turmoil is ultimately borne by the people, whose livelihoods are destroyed by it. The industry, with its focus on the threat to global competitiveness due to avoidable uncertainty and loss of production, has a direct interest in ending the stand-off.

India should at this time be making extra efforts to ensure that its domestic investment climate remains attractive, its institutions are seen as robust and accountable, and social and political stability is maintained. Those who have delusions of creating a Tahrir Square in Delhi are doing the nation grievous disservice. The global economic and political situation is ominous. Stock markets all over the world, including in India, reflect extreme nervousness about short-term prospects both in Europe and the US. These two economies, which account for nearly half of global output, are spluttering and in real danger of grinding to a halt. Nearly a quarter of the young population in major European countries is presently under-employed or unemployed and in the US long-term structural unemployment is close to a fifth of the working population. These are frightening numbers in countries which are not accustomed to such sharp divides within their populations.

Europe with its under-capitalised banks, stubborn fiscal deficits, rising public debts, ageing populations, slowing growth and widening political divisions is virtually on the edge of a calamitous precipice. The US recovery has pretty much ground to a halt and the expenditure cuts forced by the belligerent right wing of the Republican Party will not help matters. Housing prices remain stuck at their lowest since the Lehman crisis and fears of a double-dip recession are now more widespread than ever before. The worst prognostications, by the indefatigable Paul Krugman, seem to be coming true. But not only are his recommendations for greater public expenditure ignored, the Tea Party stalwarts are forcing cuts when they will hurt the most. The downgrading of US debt, stagnant consumer spending, persistent unemployment, and massive slowdown in corporate investment have stymied prospects of a quick and robust US recovery. All this does not bode well for the US economy which may get worse before it gets any better. With the trans-Atlantic economies barely keeping their heads above water, the centre of gravity of global economic activity, investors’ attention and job seekers’ searches, inexorably focus on Asia — including South Asia and India.

These global trends are directly and strongly related to Anna Hazare’s movement. With dimming economic prospects in the West, investors are looking with greater interest at investment prospects in emerging economies like India. This translates into demand for, and greater pressure on, achieving more transparency in rules and procedures that affect investment. India is just beginning to realise the higher governance requirements of attracting greater volumes of FDI into the country.

More importantly, the Indian elite no longer has the scapegoats abroad permitting them to ignore the corrupt, dysfunctional and over-bureaucratised governance systems at home. They have finally focused on the need to get things right at home. Indian industry, having expanded, globalised and become more exposed to best international practice over the past two decades since liberalisation also speaks more freely and cogently against corruption and crony behaviour.

The global explosion in information and social networking has taken firm root and blossomed in India. Facebook, Twitter and the internet are all global phenomena that have been successfully Indianised. The middle class now has unprecedented means to express its frustrations and mobilise public opinion around its interests.

All these factors, directly and intrinsically linked to globalisation, strengthen and reinforce Anna Hazare’s movement. Rooting out corruption and the generation of private rents from public patronage requires systemic change — not merely a single bill as the protestors demand, howsoever well it may be crafted.

Rajiv Kumar is the Secretary General of the Federation of India’s Chambers of Commerce and Industry.

1. Anna Hazare: Power play over setting up of ombudsman
2. The US in Southern Asia: power versus influence
3. India’s new foreign trade policy: Old wine in new bottles

The recent pilot’s strike in Air India has once again brought into focus the state of India’s public sector enterprises.

An Air India board member has suggested that not much is gained by apportioning blame at this stage because the patient is already suffering from cancer. Equally, though, we should agree that with cancer only surgery works and homeopathic or ayurvedic approaches will not.

The fundamental problem is the lack of policy clarity toward state-owned enterprises (SOEs). The rationale in the Nehruvian era was to establish industries as SOEs because the private sector was incapable of running them, given its own frailties. This made SOEs complementary to the private sector in the country’s development and modernisation agenda. Subsequently, the rationale was changed for the Indian state to control the ‘commanding heights of the economy’ allowing it to steer the economy in the desired direction. This model brought economic stagnation of the 1960s and the 1970s from which the economy broke out only after the reforms of the early 1990s. This saw the share of the private sector increasing across the entire spectrum of economic activities. There was unfortunately no intellectual effort to provide a rationale for SOEs in the dramatically changed domestic and global context with the demise of the Soviet Union, the emergence of Chinese form of social capitalism and the growth of dynamic domestic entrepreneurship. Consequently, since 1991, the great majority of our SOEs have continued to exist without a clear rationale, devoid of a sense of national purpose and with the proverbial Damocles sword of privatisation and creeping disinvestment hanging over them.

Air India, like other SOEs, suffers from this fundamental existential malady. It is not only unfair, but also dishonest and disingenuous to expect them to perform satisfactorily under such circumstances. The fact that some of them, like NTPC, ONGC, BHEL, GAIL, EIL, SBI, and a handful of others continue to turn in sterling performances despite this mortal handicap is only a testimony to individual brilliance in some cases and the prevalence of hidden or overt subsidies or government’s implicit guarantee for their survival.

It is therefore gratifying to note that Mr Ravi, who has just taken over as the minister, announced his commitment to make a success of Air India. It is also equally heartening to note that he has not constrained his options of achieving this success within the framework of public sector ownership and management. Both options of privatising Air India or handing over the management to a private sector strategic partner must now be on his table. While looking at these options, the Minister should tackle headlong the emotive issue of keeping Air India afloat simply because it is the so-called national carrier. A sick national carrier does not bring any glory to the country. Other domestic carriers, such as Jet and Kingfisher, which are becoming well known globally, do the country equally proud.

Even if the airline was privatised but maintained its iconic Maharaja symbol and name, it would for all practical purposes still be seen as India’s national carrier. The only real difference would be that government departments would not with impunity hold back the payment of their dues to the company as they presently do with the Rs 800 crore being held back for payment of VVIP duties and Rs 200 crore owed by the defence department. And most importantly, the airline will not be at the beck and call of political leaders and senior officials with schedules being changed and passenger reservations being cancelled simply because the exigencies of official travel. This has been the one of the most debilitating features that makes Air India an undependable carrier, resulting in its declining market share, which sank to a pitiable 15 per cent in April 2011, despite its the airline having the largest fleet by far.

No short term or patchwork measures will now suffice. All these have been tried earlier and without success. The airline has to be run as a modern corporation freed from the burdens imposed by its 14 trade unions, the false assurance of unlimited support from the public exchequer and a management that has virtually zero accountability for its performance. Outright privatisation is perhaps impractical in the given political conditions. A way forward could be to make the airlines a cooperative venture of all its employees with the government giving it the initial thrust by cleaning the financial slate by restructuring its debt. The employee cooperative could well join hands with a strategic management partner and link their own take from the company to its actual performance. There is no other way forward in my view. It may even be better to shut down the airline during the time it takes for such a surgical solution rather than incur a loss of Rs 57 crore each day. As we know, cancer requires surgery and strong post operative medication. Trying out grandmother’s remedies will only prolong the agony of a terminally ill patient and make for a sorry and costly spectacle.

Rajiv Kumar is the Director General of the Federation of Indian Chambers of Commerce and Industry. An earlier version of this essay appeared on Businessline, 14 May 2011.

1. Should Indonesian airline Merpati be privatised?
2. Waiting for G20: India upbeat one year later
3. India faces the harsh reality

A recent world-wide survey of popular support for capitalism reveals that 67 per cent of the Chinese strongly support their variety of capitalism.

The delicious irony is that China has emerged as capitalism’s saviour! Surprisingly, in the US, the holy land of free market capitalism only 43 per cent (if my memory serves me right) were positive about capitalism and this has declined perceptibly in the last five years. Not unexpectedly, in France, the support was the lowest with a mere 37 per cent in support of Adam Smith’s construct. It would be a good idea to conduct such a survey in India, twenty years after the 1991 reforms. Being an ardent supporter of reforms and one who thinks that we are doing ourselves a great disservice in India by not pushing the reform agenda forward more vigorously, I am sure that such a poll will show strong support for a more open and decontrolled economic system.

The reasons for the delicious irony of Chinese topping the list of capitalism supporters, were on display in abundant measure during the BRICS summit that concluded in Sanya on Thursday. Sanya is a coastal town at the southern tip of Hainan, a part of China which until 1990 was a backward and under developed and, in Chinese folklore, the end of the world. There is some substance to the folklore because I believe that even after 1949, Hainan was used as a place for exiling undesirable social elements just like the Andamans were used for kala paani by the Indian colonial government prior to 1947.

Hainan has been transformed in the last twenty years. Sanya is a bustling sea-side resort with broad perfectly surfaced boulevards, a shore line that compares favourably to Mumbai’s, gleaming silver beaches with manicured greens lining them, and perhaps more hotel rooms in all categories of hotels than both Mumbai and Delhi or even the two put together. The piece de resistance is the 308 km Hainan East Ring high speed railway that opened on 30 December 2010 and covers the 210 km between Sanya and Boao in 45 minutes. The train ride is smoother, quieter and overall more comfortable the comparable TGV in France or the Shinkansen in Japan, which until seeing it I would have refused to believe could be bettered. The Chinese Railway proudly tell us that up to 2105 the country will have 16,000 km of high speed railways, with the first having started only in 2007. Since then, in around four years, these high speed trains have already carried more than 600 million passengers! And the Shanghai to Beijing line has not even started operating. When it commences operations in June 2011, this 1318 km railway, will have the capacity to carry 80 million passengers one way at 350 km per hour.

Chinese people support their form of capitalism simply because it has delivered and promises to deliver in the foreseeable future as well. The greatest achievement has been to lift more than 400 million people out of abject poverty in three decades through economic growth at breakneck speed.

The most remarkable feature of Chinese capitalism is the complete blurring of the distinction between the public and private sector. The two work completely seamlessly under the overall regulatory gaze of the Chinese Communist Party. This can be seen in the case of companies like Huawei and ZTE, who despite their public sector ownership operate truly like commercial, profit maximizing enterprises. But the best micro-example is Hainan COSCO Boao Co. Ltd, founded in 2006 as a subsidiary of China Ocean Shipping Company (COSCO) which is an undiluted state owned enterprise. COSCO Boao is very private sector in all aspects. It owns the Sofitel Hotel and the International Convention Centre where the Boao Forum is held and three other properties including a golf course. Its owner/executive greeted all participants with more enthusiasm than any proud hotel owner himself and yet at the same time showed due deference to the Party and government functionaries present. In the case of COSCO Boao, which wants to ‘… turn itself in to a leading comprehensive tourist enterprise group that is famous in the world and first-rate in China’, there is no telling where private sector ethos and practices end and public sector control and accountability begins. Chinese capitalism delivers.

In contrast, even in the case of a few designated PPP projects, Indian capitalism operates with strongly entrenched divisions between the public and private sector. There is still a lack of trust between them and the belief that only one side is acting in national interest. This must change much faster than is happening at present if India is to fulfil its national potential. Both sides are perhaps at fault. The government continues to believe that it is the sole repository of wisdom and protector of national interest and thus has the blanket authority to ignore private sector views, chastise it occasionally and generally subject it to overt authority. Private business in turn oscillates between either being a meek supplicant or wrongly believing and proclaiming that the government simply does not matter and the growth will happen despite it. It is time that a more mature, trust-based and mutually accountable and respectful relationship was engendered between the two sides, Failure to do so will result in retrogression that will be damaging to national development goals.

Rajiv Kumar is the Director General of the Federation of Indian Chambers of Commerce and Industry. An earlier version of this essay appeared on Businessline, 16 April 2011.

1. Vietnam’s state capitalism and the rise of Southeast Asia
2. Greek lessons for India
3. China’s India war: How the Chinese saw the 1962 conflict

The corruption that has been corroding India’s economic and political system over the decades now threatens to derail the India growth story. It has perhaps already become systemic and according to the pessimists the rot is so deep and widespread that it is beyond repair.

Such pessimism, I think, is both undesirable and also unwarranted. While the rot is undoubtedly extensive and seriously damaging to brand India, it can still be reversed and the system saved from its pernicious impact.

Today we are free from the earlier forms of petty corruption that characterised nearly all aspects of daily life in India. We do not have to pay bribes for securing an industrial licence, phone or gas connections or a railway ticket. These are but a few examples that highlight that liberalisation, combined with rapid growth, has eliminated many varieties of corruption and rent seeking that were due to widespread supply shortages and policy-introduced rigidities. While the industry and the middle classes clearly suffer far less now from corrupt practices than in the pre-reform period, the poor still continue to suffer as a result of extensive mal-governance that characterises the delivery of public goods and services in nearly all parts of the country.

The onus for this corruption is clearly on the state and central governments. This needs to be tackled urgently as mal-governance is arguably the most important cause for the worsening internal security situation.

The main sources of corruption today relate to either the allocation of scarce resources like land, spectrum channels and minerals or to large scale government construction or procurement contracts. In all these cases the government at various levels, and especially in the higher echelons of public authorities rather than petty officials, is involved and implicated. On the other side of these transactions are either a new breed of fortune seekers or the larger corporations — not the small and medium sized entrepreneurs, who instead have to fend off the inspectors who harass them, ostensibly to enforce non-enforceable statutory provisions. A new form of crony capitalism can be observed in the various scams that have unfolded over the latter part of 2010 in which a new class of entrepreneurs built a strong nexus with corrupt politicians and succeeded with the active connivance of bureaucrats.

The question must be whether there can be a push back against this crony capitalism in a situation where all the major constituents of our social fabric seem to be tainted. The media, judiciary (including its highest ranking members) and civil society organisations — the institutions we look to for fighting against entrenched vested interests and corruption — are sadly themselves often implicated. This allows the unscrupulous to argue brazenly that no one has the moral authority or right to hold anyone else to account. One is tired of hearing the worn out cliché about everybody being naked in the bathhouse. It is shameful that this hollow argument is now routinely bandied about to justify indefensible acts of audacious corruption. Let us hope we are not yet a society or banana republic which has come to accept corruption as normal, let alone glorify it.

It is important that all major stakeholders in the country pay greater attention to self regulation and to weeding out the rotten apples from within their midst. In this context the initiative taken by the Indian Administrative Service Association in Uttar Pradesh several years ago to identify the most corrupt within them is commendable and points to the right direction. It is a pity that the initiative seems to have withered away. It is important that laudable initiatives like this are mainstreamed and receive institutional support and encouragement.

There is an attempt now to shift the entire blame for corruption on to Indian industry, and there is growing talk in the public domain of an ethical deficit in the Indian corporate sector. India Inc cannot, of course, deny that a few of its members are party to corrupt transactions. It needs to be remembered that for every payee of a bribe there is a receiver as well.

There is some basis for optimism on this count. FICCI (the Federation of Indian Chambers of Commerce and Industry), the oldest industry association in the country, recently released a resolution which amongst other things stated that, ‘Given FICCI’s roots in nationalism, we are deeply concerned about the potential damage to brand India and the India story due to brazen acts of corruption by a select few. To preserve India’s robust image and keep the growth story intact, FICCI calls for transparency, accountability and probity in our system of governance. We urgently need rules and regulations that do not allow rent seeking. Therefore, FICCI believes that anybody found indulging in corrupt practices, either as payee or recipient, must be punished summarily in a fast tracked process [emphasis added]‘. Let us hope that other industry associations will follow this lead and also establish some self regulatory mechanisms like an ethics committee that will lay down norms for their members and ensure their compliance. This will give India Inc the high ground from which it can demand higher standards of probity and accountability from the political and bureaucratic establishment and other social groups.

It is a sad commentary on the state of Indian society that such an important and indeed a historical resolution by the country’s premier industry association received barely a passing mention in the media.

Rajiv Kumar is the Director General of the Federation of Indian Chambers of Commerce and Industry.

A version of this essay was first published in Business Line, New Delhi.

1. Quiet revolution against corruption in India
2. Corruption eating at India’s democracy
3. Corruption in India: Bad or worse?

Last year has indeed been a rollercoaster year for India. The high point has been India securing a firm place on the high table of global governance.

The process started with the G-20 summit in November 2008 and culminated in the second half of this year that saw the heads of government of all five Security Council members visiting Delhi. The six months between July and December have been unprecedented with India hosting the prime ministers of the UK and China and the Presidents of the US, France and Russia. Even more importantly, except for China, all other leaders recognised India’s claim to be a permanent member of the UN Security Council. This was also endorsed by Japan and Germany, themselves candidates for permanent membership of the Security Council. According to the world, India arrived on the global arena in 2010.

Unfortunately the domestic situation contrasted sharply with the external environment. Despite the sustained strong economic performance, the year will be remembered for its lows of scams and scandals. It will be remembered for corruption becoming systemic and threatening not only the country’s brand equity but its economic prospects as well. The second half of the year, which saw the country hosting the world’s top leaders, witnessed a series of sordid deals, unprecedented in their scale and audacity. These included the corrupt mess of the commonwealth games; the scandalous nexus of the powerful in brazenly grabbing prime land in Mumbai in the name of the country’s martyrs in the Adarsh housing society case; and to top it all the most audacious, gigantic and ‘in your face’ flouting of all governance norms in the case of the 2G spectrum allocation. The under belly of the Delhi Durbar was exposed to the global gaze by the publishing of the infamous, ‘Radia’ tapes, that revealed not only the chicanery and back stabbing shenanigans of the country’s power elite but also the depth of the rot that has set in to our administrative machinery. Anyone observing the domestic scene would have found it extraordinarily difficult to believe that India was getting prepared to occupy a place on the high table of global governance. What an irony that all this went on under a government headed by someone whose integrity and honesty is beyond any doubt!

Is there any way to bridge this chasm between global expectations of India and its apparent incapacity to deliver on its potential?

There is thankfully hope still, embedded in some of the structural reforms that have been already put in place. These include the freedom of the press that has spawned a vibrant, vigorously competitive, if at times a less than responsible electronic and print media. This is reinforced by the right to information, the UPA (United Progressive Alliance) government’s single most important contribution to the our republic’s institutional framework. Right to information empowers the citizen and the press and increases system accountability.

But perhaps the most important driver for taking India to its rightful place in the global community is the dynamism and vigour of its entrepreneurial class and the corporate sector with its vast army of professionals and the concomitant expansion of the middle classes. The unshackling of this entrepreneurial energy with the reforms in the early nineties and its further nurturing by the National Democratic Alliance (NDA) government has ensured that India’s economic performance will continue to be satisfactory and keep it attractive to foreign investors and exporters. Yet, given the governance deficit, the economic performance will remain only satisfactory and below optimal. For the country to achieve its true potential rate of economic growth and generate the necessary employment opportunities, the government will have to play its role and bring the delivery of public goods and services, like law and order and corruption free administration, to acceptable levels.

Today we have to guard against slippage that could threaten or constrain the private sector’s ability to strike a good deal and push forward with investments when it sees an opportunity. There is talk of curbing the right of a firm to merge with another or divest its holdings to foreigners in the pharmaceutical sector. This is fraught with the danger of bringing back the omniscient government which only breeds inefficiency and kills enterprise. Environmental fundamentalism and a regime of ‘go and no-go areas’, especially when applied with retrospective effect, creates uncertainty and vitiates the investment environment. Unbridled populism or ideological bias should could result in mining laws that make scientific mining all but impossible and drive out serious investors, leaving the field open for the unscrupulous miners. They work in a nexus with the politicians and with impunity damage the environment and trample on the rights of the indigenous people while feigning to observe all the statutory provisions that in the first place are flawed and not amenable to honest compliance.

For the first time since 1991, there is a real danger today of pro-private sector reforms being reversed. As might be expected, the reason given is to achieve pro ‘aam aadmi‘ growth (Hindi for ‘Common Man’) and to safeguard national interest. This is dangerous rhetoric which must be resisted. It is time therefore for all of us, who want India to emerge as a global power over the next three decades, to give up opportunism at all levels, however attractive the reward might be. We need to prevent a reversal back to the seventies style populism and exert maximum pressure for carrying forward the reform agenda that is palpably stalled. Complacency will be fatal.

Rajiv Kumar is Director General of Federation of the Indian Chambers of Commerce and Industry, New Delhi, and was formerly President of ICRIER.

An earlier version of this essay appeared in ‘Business Times’.

This is part of a special feature: 2010 in review and the year ahead.

1. India’s moment of truth
2. India: sustaining high growth needs new reform momentum
3. China and India: High on octane, low on clean