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Business Commentary/Dilip Thakore

Emerging government-industry partnership is a good omen for economy

The Bharatiya Janata Party has recently tamed its capricious and unreliable ally, the All India Anna Dravida Munnetra Kazhagam of former chief minister J Jayalalitha through the simple expedient of exploiting the differences in her coalition opposition in Tamil Nadu. With that bachelor Prime Minister Atal Bihari Vajpayee has bought the breathing space to attend to the needs of the slowing Indian economy.

With the monsoon having been more than generous precipitating heavy flooding in several parts of the country, the economic growth forecasts for the fiscal year ending March 31, 1999 are gloomy.

Industrial growth is below expectations and several sectors of industry, notably the automotive (cars and trucks) manufacturing industry, are confronted with a severe demand recession, setting off alarm sirens in upstream and downstream industries.

With the monsoon causing depressions in the Bay of Bengal and showering the countryside over-abundantly, crop damage has been considerable; the onion harvest of August-September has been virtually swept away impacting the inflation indices in an ominous portent. Indifferent industry and agriculture growth has adversely affected the services sector in which hitherto high rates of growth provided encouraging evidence of the increasing sophistication of the Indian economy.

In these circumstances it is highly unlikely that GDP growth targeted at seven per cent this fiscal will exceed five per cent. Indeed, there is a danger of the economy slipping into the 3.5 per cent 'Hindu rate of growth' which characterised the Indian economy from the mid-sixties to the mid-eighties.

Confronted with this dismal scenario, the Vajpayee government's response has been imaginative. In August, it announced the formation of the prime minister's council on trade and industry comprising the prime minister, the finance minister, deputy chairman of the Planning Commission, the PM's principal secretary, the Cabinet secretary and some of the biggest names in private industry including Ratan Tata, Kumaramangalam Birla, Mukesh Ambani, Suresh Krishna and Parvinder Singh among other business leaders.

On September 18, the council held its first meeting in New Delhi. Unlike most government-industry interface meetings which degenerate into gabfests or a forum for the recitation of industry woes, the first government-council meeting resulted in a purposive and positive outcome which augurs well.

The council has constituted six task forces -- each headed by a can-do captain of industry -- to draw up action plans with the objective of putting the economy back into the seven per cent GDP growth per annum orbit and to attain the long-lost exports growth rate of 20 per cent per year during the next three years.

These task forces will draw up action plans for the food and agro-industries; capital markets and financial sector; knowledge-based industries; service industries, and for administrative and legal simplification.

Industry reactions to the first meeting of the council are positive. Unlike previous government meetings this meet will definitely have an impact as we were heard better and could express our views better since we were a small group, commented Ratan Tata to the media.

The creation of the council is important because it is perhaps the first formal acknowledgement by any government in post-Independence India that a government-industry partnership is a necessary condition for economic growth and development.

Under Fabian socialist and Marxist dogma which permeated government, academia and the intelligentsia for the past four decades, private sector business and businessmen were constantly monitored with extreme suspicion and subjected to the imposition of licences, permits and quotas at every stage of the production and marketing process.

The economic liberalisation and deregulation initiative of 1991 signalled a break with India's socialist anti-business past. The formal creation of the council is a further step in the direction of the jettisoning the nation's socialist legacy.

Moreover, the sectors of the economy which will receive the concentrated attention of each task force headed by a corporate leader have been well chosen. Improved productivity and conservation in Indian agriculture, revival of the capital market, boosting the high-potential infotech and service industries and simplifying stultifying legal and administrative procedures are the prerequisites of the revival of the nation's economic growth momentum.

It may be a coincidence that the food and agri-business management task force is the very first to be mentioned. If so it is a happy one because as has been reiterated on numerous occasions in this column, the Indian economy is not likely to really gather growth momentum until and unless the agriculture sector is sufficiently commercialised and its wastage is sharply reduced.

It is a crying shame that though India is the world's second largest producer of fruit and vegetables, barely two per cent of its horticulture production is processed and that almost 40 per cent of it goes to rot because of marketing infrastructure inadequacies. One hopes the task force on the food and agri-business sector will unequivocally recommend the top priority status for India's pathetically small and over-taxed processed foods industry.

The growth of this industry is the prerequisite of better farm gate prices for primary producers and the elimination of the huge waste which is a characteristic of agriculture in this country.

But this is not to say that the jobs of the other task forces are any less important. The capital market -- especially for primary issues -- is languishing; the nation's much-touted infotech industry has a barely two per cent share of the global market; the service industries -- particularly tourism and banking -- are chained by poor infrastructure and technology, and economic administration and laws are complex and outdated.

All these sectors of the economy need attention, and fast. Quite obviously the Prime Minister's Office has identified the critical growth sectors of the economy with considerable care.

Thus far the Indian economy has not been hard hit by the economic contagion which is sweeping southeast Asia and which has recently laid up Russia. But this is more due to luck than foresight. Both government and Indian industry will need to move ahead with caution and circumspection if the economy is not to plunge into a full-blown recession. And it is reassuring that a beginning has been made towards doing so in tandem.

Dilip Thakore