Monday, October 29, 2012

Jaipal Reddy’s exit from Petroleum welcome. Why was Jayanthi Natarajan spared?

A country that aims to grow rapidly must love its businessmen. Instead we find in India today, a huge degree of suspicion and cynicism towards them. We often forget that it is businessmen who take risks and invest money creating growth for the country and jobs for its people. Of course businessmen expect to make profits and what’s wrong with that? If India has to cross the 10% GDP growth rate mark, it has to learn to respect big business. Instead, as the controversy over Jaipal Reddy’s transfer out of the Petroleum Ministry shows, almost ALL our political parties love to trash the corporate sector. The latest to join the fray of course is Kejriwal, the Joker (in the political pack). A few years back, it was Mamata. The Left looks distinctively dislodged from its ancient anti-business perch, overtaken by the newer socialists. And the BJP has turned completely socialist, opposing anything and everything that helps the corporate sector. My view is that Jaipal Reddy was a bottleneck to India’s energy security and was rightly shunted out. In fact, Jayanthi Natarajan, the other bottleneck towards growth should also have been shunted out.

The alternative to the private sector is the Government sector. And no matter what one may say, Governments simply don’t know how to do business. The Government sector is either corrupt or at the very least, downright inefficient. Public Sector Unit CEOs have little motivation to produce results, preferring instead to tow the Government’s interfering line. Capital is deployed not because it makes business sense, but because of pressure to fulfill some or the other Government objective. The stock markets are the best judge of corporate performance. Not surprising then that the country’s biggest bank by turnover – SBI – has a market cap of just Rs 1.45 lac crores on revenues of Rs 1.06 lac crores in FY12. ICICI Bank, the country’s number 1 private sector bank on the other hand has a market cap 85% of SBI’s at Rs 1.23 lac crores with revenues just 32% of SBI’s at Rs 33.5 thousand crores. SBI is saddled with nearly 3 lac employees, compared to ICICI Bank which has some 35000. Clearly, SBI is like the Government’s employment bureau. We’ve seen the same story with Air India which has no business to be in business. But still we prefer to rile against the private sector.

The two biggest communist countries of the past – Russia and China – have themselves switched to a largely capitalistic regime. Both countries have embraced businessmen and have encouraged them to flourish (in China’s case, its mostly foreign businessmen; the local industry is still dominated by PSUs). In any other country, RIL would be given a red carpet and its every demand satisfied. In India however, RIL is treated like its a monster. Don’t be surprised if RIL soon shifts headquarters to Hongkong or London. And takes it jobs with it. Fortunately, Veerappa Moily the new Petroleum minister has made sensible first statements – indicating he will try and get $50 billion of fresh investments into the sector. This is the right approach.

Not only is it necessary to respect and love our domestic businessmen, it is equally important to extend a welcome to foreign businessmen. A businessman who comes from a different country takes even higher risks. He doesn’t understand our culture and our political system. He has no idea of how strong or weak our legal system is. He has no way to know if his investment is going to be safe or not. Too many of these businessmen have had a bitter experience in some country or the other. If we have to become a magnet for global attention, we have to demonstrate that we love our businessmen. And yet, our politicians are loathe to FDI, be it in retail, banking or insurance.

There are a few states that have shown their love for businessmen. Most notable of them are Gujarat, Maharashtra and Haryana. All of these states have been business-friendly for decades. No matter what Modi may say, the industry friendliness of Gujarat predates him by decades. Maharashtra was the pioneer in industrialization; not surprising most of India’s businessmen call Mumbai home. What is encouraging is that of late, many other states have taken the lead in becoming industry-friendly. TN, AP, Karnataka, Punjab, Orissa and even MP and UP are now starting to understand the importance of being business friendly.

Of course there are bad businessmen just as there are good businessmen. We must cull out the bad from the good. A Satyam may have been a case of how businessmen can fraud their people and their shareholders, but for every Satyam, there are many Infosys’s and TCSs and Wipros. For every wrong coal block allocation, there are tens more that are done correctly and rightly. We cannot let the experience of a few bad businessmen cloud our opinon about the whole community.

In fact, the job of the government should be to unleash the animal spirits of our businessmen as the PM has rightly said. In the corporate sector, every department – be it finance or manufacturing or R&D or legal – works towards enhancing revenues and profits. It should be the same in the government. Every ministry must be evaluated on how it helped business grow. No one is saying that rules should be flouted. I am talking of making rules business friendly. If we want to welcome businessmen, we have to make our rules acceptable to him. Of course the government has to protect the environment and ensure that businessmen don’t exploit our people. But there is no reason to be over-worried about that. By making our legal systems robust and reliable, and by speeding them up, we can ensure that our people are protected, even as the businessmen are welcomed.

India presents a very sad picture in this regard. In terms of “ease of doing business”, we are way low down the pecking order. In terms of “time taken to start a business”, likewise. And in terms of the number of licenses required to start a business, we are equally poorly off. Add to this the government’s intervention in every step of a businessman’s journey, and we get the picture. Imagine if we could clean up our act, where would our growth trajectory go? It is very correctly said that India’s growth is despite the government, not because of it! If the Government becomes a player in ensuring growth, imagine what growth we would see. In this context, moving Jaipal Reddy out of the Petroleum ministry is the right thing to do. My  complaint is why Jayanthi Natarajan – the new empress of environment – wasn’t shunted out. In the name of protecting the environment, she has turned the tap off on development.

The real truth is that any minister who is a hurdle to economic progress must be shunted out. We have to love our businessmen. Not simply tolerate them. Actually love them. We have to roll out the red carpet for big industry. There is no shame in this. There is no reason to be coy. Today Jaipal Reddy lost his shirt. Hopefully tomorrow, Jayanthi will hers (figuratively speaking!).

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