I happened across a recent interview of Deepak Parekh, Chairman of HDFC, who after the exit of Ratan Tata is being projected as the elder statesman of corporate India. Asked about three key things that the government should focus on in 2013 for the economy to look up, he said,
Three key things I would suggest the government to focus on in 2013 are kickstarting investments, reducing the fiscal and current account deficit and putting big projects on the fast track. We need to reignite the investment cycle. India is desperate for fresh capital; we need to start new projects and raise our capital spending. There is a fear of not getting land, approvals and power for any big investment. This climate must change; investors would come out and invest only in a stable environment.
Second, India needs to reduce its fiscal and current account deficits. The budgetary fiscal deficit target was set at 5.3 percent of the GDP, but we are heading to close somewhere around 5.9 percent, with rating agencies already threatening us with junk status. So the government must ensure that sufficient revenues are generated... besides disinvestment, which may bring in another Rs 30,000 crore — an amount the government has also asked PSUs like RCF, Oil India and NTPC to raise in 2013... Third, and a critical step, would be to fast-track existing projects that have been stuck due to shortage of raw materials or lack of environmental and other clearances.While reading the three priorities, I could not but avoid getting the impression that he was talking about the three most important things for corporate India, and not the Indian economy. A straight translation of the three priorities of this corporate leader would come out as - more liberalization, rolling back subsidies, higher infrastructure investments, aggressive disinvestment, lowering interest rates, and expediting land acquisition and environmental clearances.
The poverty, even brazenness, of such an exhortation is stunning, especially from someone who is projected as a highly credible voice from corporate India. There is a difference between acting as a spokesperson of corporate India and being a senior and important statesman, who claims to contribute positively towards shaping the future of India. Sure, many, but not all, of these reforms are critical for economic growth. But all of them are policies that are much more important for corporate India.
What about policies that are important for the rest of India? I would believe that these are policies that address more fundamental issues of improving governance, state capability, job creation, social safety net, and so on. In no way am I arguing that one set of policies are more important than the other. But the assumption that what is good for corporate India is also good for the rest of India is clearly untenable. We have enough recent evidence that economic growth and business profitability does not automatically translate into jobs.
But there is nothing surprising about Deepak Parekh's advice. What is surprising is how much opinion space these people occupy in discussions about India's future. When was the last time that a corporate leader called for a universal health insurance system or a national social safety net? Who was the last leader from corporate India who had something sensible to talk about improving India's pathetic state capability? It is no good to repeat ad-nauseam about the distortions caused by NREGS and thereby advocate its scrapping without offering suggestions about what can be done to address the critical underlying challenge of providing some form of employment guarantee to the millions affected by India's latest period of jobless high GDP growth.
The views of corporate India and much of the commentary on reforming subsidies and government welfare systems is condescending and see them as undesirable. In fact, subsidy, of any kind, has become a four-letter word for this part of India. I say this because, if we are genuinely talking about reforming subsidies, about increasing its effectiveness without compromising on objectives (dare I say that there is a reasonable consensus that atleast some of the subsidies should stay), we cannot so flippantly talk about reduction of fiscal deficit without also alluding, atleast in brief, about how to achieve that. Only once we start thinking about these issues will we really begin to eschew making such brazenly partisan remarks.
Merely parroting reduction of fiscal deficit or roll back of subsidy in general terms without making even a passing mention of how to do it (of course, nowadays, everyone has the magic pill - cash transfers!) is a reflection or either ignorance or partisanship or political posturing, all of which are undesirable. In one snapshot Deepak Parekh's comment captures the increasing disconnect between one part of India, obsessed with business confidence and India's investment image abroad, and the majority, who form the rest of India and who struggle to eke out subsistence livelihoods and have social and health indicators that would shame even sub-Saharan African countries.
In purely economic and business sense, this is complete short-sightedness, a desire to maximize short-run returns. Corporate India needs to realize that its long-term success has to be built on the prosperity of the vast majority of Indians. Their deprivation is a recipe for political disorder that will seriously undermine macroeconomic stability. The very climate of business confidence and external investment image will be the casualty.
Just consider this. Amidst all the recent scandals of crony capitalism, the mainstream debates have conveniently overlooked the fact that its responsibility cannot be confined to government and politicians alone. Corporate India, including some of its leading names, played its murky, equally abhorrent, part in these scandals. In a more just world, many of these "captains" should have been languishing in jails. In fact, it could be logically argued that the politicians and officials were only responding to the actions of corporate groups, who realized the massive fortunes to be had by subverting the rules of the game or the prevailing policy frameworks.
It requires no great insight to argue that corporate India should have done the same level of soul-searching and introspection that it was demanding politicians do. Disappointingly, there has been little talk about this. I cannot remember any major corporate leader talking about the need to shine the torch lights within corporate India itself.
I am not surprised since many of modern India's corporate fortunes are built either on the graft-greased props of the earlier license permit raj or the current crony capitalism. Crony capitalism may deliver short term windfalls, but is not sustainable. Similarly, image boosting reform gymnastics cannot make India better than it really is. Corporate India would do well to realize.