I now come to the main theme of my talk — the necessity for making Indian industry globally competitive.
The first necessity is to spread education more widely among our people. Today, India is competing, with only half its manpower, with the rest of the world, — since half of the Indian population is literally illiterate. We must make education the priority of priorities. The real resource of any country today is knowledge. Instead of capitalists and the working class, we are today having knowledge workers and service workers. Even in America, the Morgans, the Rockefellers and the Carnegies have been replaced by professional managers. Today, the well established pension funds increasingly control the supply and allocation of money in developed countries. These funds own in the USA half of the capital of the country’s largest businesses. The pension funds are run by a new breed of “capitalists” — the faceless and anonymous employees who run the pension funds, and investment analysts and portfolio managers. As Peter Drucker observed, we are living in a new era which is both non-socialist and post-capitalist.
Investing in education is to the 1990s what nationalization was to the 1940s and privatization was to the 1980s — the universal panacea of the day. All thinkers are agreed that in our times human capital is the most precious form of capital there is. The skill and calibre of corporate manpower can never appear in any balance sheet; but it is widely acknowledged throughout the world that the greatest resource of a company is trained manpower. In a book published recently by the famous economist, Julian Simon, the human resource is rightly defined in the title of the book as “The Ultimate Resource”.
Among the nations of the world, India ranks very high in innate intelligence, but abysmally low in wisdom — what the ancient rishis called buddhi. This is both the cause and the effect of our total indifference towards education. The criminalization of politics and the deplorably low moral tone of our public life are the direct consequences of the failure to impart value-based education. When Indians are better educated, they will know how to behave better as workers and to discharge with greater responsibility their duties as citizens.
Liberty without accountability is the freedom of the fool. Our concept of freedom will remain an impoverished one, until it is rounded and deepened by liberal education.
Education is the rock on which India must build her political salvation. Our country will be built not with bricks but with brains; not with cement but with enlightenment. If we cannot afford education, we cannot afford to remain a civilized society.
Secondly, we must privatize the public sector undertakings. Privatization means that the majority of shares should be allowed to go into public hands, while the government may only retain a minority interest. British Airways was privatized, and the standard of service improved beyond recognition.
The Government of India has never understood that half-hearted reforms yield only half-baked results.
There are hundreds of public sector enterprises run by the Union government, and more than three times that number are run by the State governments. These public sector enterprises are the black holes, the money guzzlers, and they have been extracting an exorbitant price for our past doctrinaire socialism. India’s public sector earns a return of barely two per cent on the capital employed.
The British government is toying with the idea of privatizing even Air Traffic Control. In India, there is no political will to privatize any of the industries which are today in the public sector. The utmost the government is willing to do is to offer a minority shareholding in public sector enterprises to private parties, which means that control and management would continue to be in the hands of the government. The products and services offered by the public sector undertakings, — e.g. the coal mined by the Coal Corporation of India — are excessively expensive, with the result that many of the inputs in Indian industry are proportionately costlier than they should be. The inevitable result is that some of our end products are uncompetitive in the world markets.
Thirdly, the quality of service rendered by the public sector undertakings is pathetic, if not hopeless. India has vast infrastructural gaps. It has to add 100,000 mw of power capacity in the next ten years. It has to upgrade, both quantitatively and qualitatively, telecommunications network.
Take our telephone service which still continues to be the monopoly of the Union government. The Indian telephone service is undoubtedly the most inefficient in any important country of the world. But it has now reached a degree of inefficiency and corruption which is almost unbelievable.
Quite often, you have to dial the required number half a dozen times before you get a connection, and dead telephones and wrong connections are the rule rather than the exception. The most serious fraud is committed in those cases where an outsider bribes telephone employees to illegally divert to himself a telephone line and makes calls for which the bill goes to the registered owner of the telephone.
On the top of it all, service tax has been imposed upon every telephone call since last July. If there were a World Cup to be awarded to any government which has levied the most impudent and shameless tax, the Indian government would, without question, defeat all its rivals.
The tax on telephones is called a service tax. As a matter of fidelity to the English language, I suggest that the service tax on our telephones should be called “disservice tax”. It is a long time since the Indian telephones last rendered any service to the long suffering public. What a dramatic change there would be in the field of telephones if the government monopoly were ended. Competition is the only answer as in other areas of the public sector.
Also read: Capitalism is the bedrock of all economic progress. Socialism is a parasite: KD Valicha
Fourthly, strangulating controls have, to a considerable extent, been relaxed. But the top-heavy bureaucracy still continues to function. The Indian governmental machinery has been likened to some prehistoric monster incapable of intelligently controlling itself. The general impression has been that the Indian bureaucracy is the most obdurate and most inflexible the free world has ever known. As I have said before, there is a persistent tendency in India to have too much government and too little administration; too many laws and too little justice; too many public servants and too little public service; too many controls and too little welfare. The licence raj has been dismantled, but the inspector raj still lives on. I am aware that all this is changing but the rest of the world is changing much, much faster.
We must stop frittering away our people’s time and energy in inane, unproductive, useless activities. The tax system has reached the point where its tangled mass helps nobody. India’s tax system is a nightmare. To call the Indian Income-tax Act a national disgrace would be to err on the side of under-statement. Even the last four Budgets which changed the fiscal and economic laws beyond recognition, were cluttered with about 600 amendments which serve no purpose other than create work for the legal and accountancy professions.
Fifthly, we must drastically change our labour policy. Lee Kuan Yew, the wisest statesman of our times, had a point when he said that the main reason why India has not progressed as fast as the other countries of the East, is that all emphasis is on liberty while there is no regard for dedication and discipline. The Finance Minister had promised an exit policy but no action whatever has been taken in that direction. India will find it impossible to compete with the rest of the world so long as the law forbids even a humane exit policy and prohibits closure of a unit without the government’s permission. Our labour unions live in a thought-free zone. For reasons which are painfully apparent, they are stoutly opposed to the government offering even a minority shareholding to the public in nationalized industries.
Sixthly, if there is any one political factor which is bound to impede the forward economic march of India, it is the resurgence of the age-old curse of casteism. History will record that the greatest Himalayan blunder of India in this decade has been to encourage casteism by making rigid reservations for employment under the state in its infinite variety and for admission to educational institutions, on the basis of caste. Ever since Mr. V. P. Singh began to use casteism as a political weapon, India has been paying the highest price any country has ever paid for democracy. Reservations in different States have already resulted in the substandard replacing the standard and the reins of power passing from meritocracy to mediocrity.
Unfortunately, the calibre of politicians in India has reached an all-time low and intellectual pygmyism is the order of the day. There is already a scramble among State politicians to vie with one another in prescribing larger reservations. Reservations of the type sought to be made in different States can be allowed to prevail only by scrapping what Chief Justice Mahajan called “our sublime Constitution” and by promulgating a backward Constitution for a backward nation. It would not be too much to say that one of the policy imperatives for creating a globally competitive Indian industry is to change our policy of shortsighted political expediency, adhere to the clear mandate of the Constitution, and prevent the States from pursuing the suicidal policy of casteism. Verily, India has an unusual talent for self-destruction.
Lastly, the government must make sure that the fruits of liberalization reach the masses. This is the most important lesson which India has to learn from Mexico. Our inflation must be brought down from 9.9 per cent to a level where it hurts the lower classes less. For instance, the price of food articles has risen as much as 55 per cent since the economic reforms began in July 1991.
This essay is part of a series from the Indian Liberals archive, a project of the Centre for Civil Society. This essay is excerpted from a booklet published by the Forum of Free Enterprise, based on the 12th TA Pai Memorial Lecture delivered by Nani A Palkhivala on 17 January 1995. The original version can be accessed here.