Sucheta Dalal :Budget bill blues (29 April 2002)
Sucheta Dalal

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Budget bill blues (29 April 2002)  

The Confederation of Indian Industry (CII) should be gloating. Newspaper reports suggest that its Annual Conference in Delhi probably had more parliamentarians and ministers at its venue than the Lok Sabha on the day the Finance Bill was introduced. It led to the unprecedented embarrassment of a government not being able to pass the Finance Bill for want of a quorum. A pathetic 17 out of the 545 MPs were present in the House that day against the required minimum of 55. The CII, which is perpetually lecturing government on how it should function and is now busy evaluating an alternative government formation, should pause to introspect. Between them, CII members probably fund at least four times the Lok Sabha quorum for passing a bill. They should now ensure that the attendance of MPs in the Lok Sabha is at least as much as their attendance at industrialists’ parties. CII and its members cannot whine about non-existent policy making and the lack of governance if they don’t push policy makers to attend Parliament.

The turning point At a CII brain-storming on the manufacturing sector last fortnight, two of the most insightful speeches were made by Ravi Venkatesan of Cummins India and Scot Bayman of GE International. Both have successfully walked the talk. Venkatesan’s impressive presentation outlined the difficult learning process that went into re-building Cummins to face globalisation and competition; Bayman spoke about how GE’s Indian operations produce globally competitive products. At the core, both had two sets of advice—first, focus on people because only meritocracy gets results; and second, stop expecting much from the government and learn to operate within various constraints. Although both run successful companies, there is an interesting difference in the timing at which they stopped looking for policy changes and began facing up to reality. Bayman says that way back in August 1995, GE recognised that government had no real plans to initiate tough action to support industrial growth. GE initiated ‘a mid-course correction’ in its India strategy and turned its resources towards establishing a lower cost structure in its manufacturing businesses. On the other hand, Venkatesan, who returned to India in late 1996 after a long stint in Cummins US says: ‘India appeared to be the promised land in those days with the real possibility of becoming a global manufacturing hub’. What Venkatesan saw was probably the afterglow of a reform process well after it had stopped. The question is, would the pain of corporate re-invention have been much less for Cummins had they been faster in spotting the exact point when reforms ended and altered strategies to fit the new reality.

Wither Indian manufacturing? Although CII’s kick-off session on the manufacturing exhibited the small number of Indian success stories in manufacturing the verdict on the theme question was obvious. No, Indian manufacturing was not likely to turn into India’s core competency in the near future. In fact, as Venkatesan says ‘data generated by the Tatas indicates no fundamental or significant revival in manufacturing demand for 5 years’. Which means that the corporate sector better get ready to tackle the multiple problems of bad governance, political uncertainty, a weak economy, low demand, bad business environment and above all the threat of global competition for several years to come.

Cheating on IPOs Recent investigations by the National Association of Securities Dealers (NASD) only prove what Indian investors have suspected about new fangled gimmicks such as book building and discretionary allotments. They are all skewed to favour a select few. The NASD of the US is now probing the biggest and the most blue chips investment bankers on charges of alleged cheating in the underwriting of hot technology stocks. The names include J.P. Morgan Chase, Goldman Sachs and a unit of FleetBoston Financial, all of which could face civil charges for asking excessive commissions from big investors who were allocated shares in over-subscribed initial public offerings in 1999 and 2000. Further, Salomon Smith Barney, of the Citigroup is being questioned about the reports issued by its star telecom analyst Jack Grubman. The investigation is looking into a possible link between what Grubman was telling Salomon’s investment bankers, how he was compensated and drafts of research reports. Unfortunately, in similar situations, Indian regulators continue to be overawed by big names.

Tailpiece: ‘Globalisation is a lot like Formula 1 racing. To win you need a Ferrari and a Michael Schumacher behind the wheel. We are unlikely to win with Ram Lal driving our trusty Ambassador. The answer is not to rush out and buy a Ferrari; changing the driver is far more fundamental. Michael Schumacher can do better in an Ambassador than Ram Lal in a Ferrari’: Cummins India chairman Ravi Venkatesan.
-- Sucheta Dalal