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BW Businessworld

Twenty One Years

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I am fed up with Arvind Kejriwal; with the Robert Vadra—Haryana government—DLF shenanigans; and screaming anchors. When India has to face myriad challenges, nautanki tamaasha has been the staple menu for weeks on end. May I, therefore, use this opportunity to reflect on the past 21 years? On 24 July 1991, when Manmohan Singh concluded his first Budget speech with Victor Hugo’s words: “No power on earth can stop an idea whose time has come”, the economy was in tatters.
Inflation was at 13 per cent. The combined fiscal deficit was almost 11 per cent of GDP.

Entrepreneurship was stultified by a pervasive environment of industrial licensing, public sector reservations, a dysfunctional anti-monopolies law, severe limitations on use of foreign exchange and over 900 products reserved for small-scale industries. We had a peak tariff of 350 per cent, an average import duty of 87 per cent, and quantitative import restrictions. Poor lending and income recognition, along with inadequate provisioning of bad debts led to a weakened banking system. A hugely over-valued fixed exchange rate had rapidly weakened our balance of payments.
Soon, non-resident Indians began to withdraw their dollar deposits and international banks stopped lending to India. Suddenly, our foreign currency reserves barely covered two weeks of imports.
The reforms of the Narasimha Rao government in its first two and half years let loose huge entrepreneurial energy that was straining at the leash. No doubt, our reforms are far from perfect.

Some sectors have been more reformed than others; some not at all. Yet, none can doubt the enormous strides that we have made. Consider this. Between 1991-92 and 2011-12, India’s real GDP has grown at a trend rate of over 6.6 per cent per year. What it means: barring China, no country with a GDP greater than India has grown faster. We could have done better. Yet, we have almost trebled our real GDP in 21 years.
The single dominant factor that explains this growth is entrepreneurship across the length and breadth of India. Here are some facts regarding listed companies:
•Sales and other income of all companies listed on the BSE increased 22 times from Rs 1,65,903 crore in 1991 to Rs 36,37,987 crore in 2011.
•Profits after tax increased 46 times — from Rs 7,948 crore to Rs 363,882 crore.
•Thanks to consistent capital market reforms, the market capitalisation of companies listed on the BSE rose 101 times from Rs 6,75,880 crore in April 1991 to Rs 6,85,81,336 crore at end March 2011.
The story of entrepreneurship is wider. It is of an increasing mass of successful but unknown entrepreneurs. People involved in car, tractor and motorcycle dealerships; selling mobiles, data, SIM cards and white goods; property developers; salons where saas and bahu go to experiment with hair colouring. You see entrepreneurs everywhere — devoid of caste, creed and business royalty.
In such a milieu, there are four worrying trends. The first relates to our population. We talk of ‘demographic dividend’ without acknowledging its challenges. By 2020, there will be 251 million children between zero to nine years. Can we take care of their health, nutrition and early learning? Another 248 million will be from 10 to 19 years. What about their schooling and training? And there will be 239 million between 20 and 29 years. Where will they get the skills to secure jobs in a rapidly digital world?
My second worry is about the spatial differences in development. I wrote about this earlier — of the two India’s to the west and east of Kanpur. The poorest districts are in Jharkhand, Bihar, Chhattisgarh, Orissa, south-east Maharashtra and parts of Assam. Not surprisingly, there is an almost perfect link between such districts and Maoist insurgency.
The third concern relates to the three resources we need to use in a balanced way to generate greater growth and employment — spectrum, mineral resources and land. Decisions regarding all three are stuck in such deep ruts that it will need serious vision as well as political capital and courage to decisively move forward.
The fourth worry is the gradual resurrection of the permit raj. Most of it is coming through judicial interventions, audit observations and by executive actions per se, based on a belief that civil servants do not get punished for creating shackles, but can be incarcerated for crafting growth-oriented reforms.
These are serious concerns. Yet, looking back to 1991, India has it in her to continue growing. All we need is our entrepreneurial energies be allowed to thrive. And our democracy.
The author is chairman of CERG Advisory. 


(This story was published in Businessworld Issue Dated 05-11-2012)