Matching Realities and Aspirations

Leaving aside fixing the 'mountains' such as land acquisition, NPAs, etc., here are some thoughts on systemic focus and action.

Shyam Ponappa    |   February 1, 2018

There’s an upbeat sense from the annual Economic Survey, and indicators such as soaring stocks and official statements.Yet, the ground realities don’t match because of gritty facts such as not being able to pay electronic tolls on a national highway near Delhi though the Bharatiya Janata Party (BJP) controls local administration1, Korean steel giant Posco abandoning a huge investment last year after struggling for over a decade, two public sector divestments, Bharat Aluminium Company and Hindustan Zinc, mired in difficulties2, or the hobbling state of services such as electricity and telecommunications despite short-term consumer benefits from lower prices, and so on. Another aspect is that so many college graduates, including engineers, law students and MBAs, compete for low-end government jobs such as peons in state governments. Clearly, something beyond talkfests and episodic discussions is needed. Leaving aside fixing the “mountains” — the land acquisition act, non-performing assets (NPAs), high component taxes — here are some thoughts on systemic focus and action.
Fix infrastructureWith rare exceptions, our governments do not appear to recognise a clear priority to fix infrastructural deficiencies. After national security and maintaining law and order, correcting critical deficiencies of infrastructure in all its forms needs to be an all-out priority. This is a basic requirement for citizens to function effectively and live well. Without infrastructure one cannot function anywhere near full capacity, because of having to spend time, energy and resources dealing with problems of living and hygiene arising from the non-availability of adequate water and sanitation, inefficient travel and logistics for employment, education or health care, communications, dysfunctional equipment because of power shortages, and so on.Instead, some misconceptions in policies and practices appear to be broadly accepted as driving factors not only in the government, but also to some extent in the public perception. One is that all foreign direct investment (FDI) is a panacea for our ills and aspirations. The second is the idea that for services such as water, electricity and communications, the public interest is best served by the lowest consumer prices for those who get such services, regardless of sustainability. Issues such as access to services for half the population living outside urban areas, high and consistent quality, sustainability, and minimising environmental impact appear to be less important criteria.

The Panacea of FDI?There’s no question about the need for foreign investment, but uncontrolled FDI, particularly at our stage of development, is inadvisable. One wonders where these forms of the erstwhile East India Company and/or winner-take-all might lead. And does it matter, as long as consumers enjoy good living, defined as access to material comforts at low prices? To see why it does matter, consider these parodied scenarios, with apologies to Jonathan Swift’s satirical A Modest Proposal3.A Modest Proposal for 100% FDI — A ParodyImagine how well all consumers could do, this time without leaving the other half out, if we invite the likes of (indicative list, in alphabetic order) Amazon, Facebook, Google, and Microsoft (with guarantees of compensation if there are sudden policy reversals, which we are prone to) to use all unsold and unused spectrum to provide connectivity and digital services pronto. They could put in so much investment to get to year five on day one a couple of years or so out, even Reliance Jio might pale.Don’t want Americans? Why not invite the Chinese and Huawei? We might get even better deals in digital services from the world leader in 4G and beyond.

Not to mention the attendant benefits from associated companies to keep consumers happy with smartphones, air conditioners, refrigerators, air purifiers, TV sets, cars, two-wheelers, and so on. There will also be power plants, aircraft, and trains, fixing all three sectors with one swipe. Some impediments would have to be removed of course, such as allowing power plants to come up, electricity lines to be laid out, spectrum to be used, land acquired, changes in labour laws, and so on. As for employment, there could be plenty of local assembly, manufacturing and distribution from all of the above, provided we willingly submit to some regimentation in our lives.

Alternative: Fix The Basics & Do It Ourselves

We have to fix the basics to help ourselves and make FDI succeed in our interests. We need priorities in objectives, as everything cannot have the highest priority. Even more difficult is getting experts and practitioners to work out detailed process plans, evaluating alternatives with realistic simulations, and so on. It takes time, energy, understanding and competence, and patience, to get beyond seat-of-pants discussions. Apply all these from a systems perspective, map the distilled ideas to action plans for each set of interrelated processes, and the upshot could be those process plans. We may get end-to-end strategies leading to convergent results to improve our infrastructure, which will enable agricultural and manufacturing production, services, and trade, with resulting jobs, while limiting negative environmental impact.Goals such as increasing jobs and farm income are desirable. To get on a higher long-term growth trajectory beyond a cyclical recovery, in addition to skilling, there need to be initiatives and investments that fit with the circumstances. An excellent example is the Automotive Mission Plan 2006-2016, now in its second 10-year cycle, which resulted in India becoming a preferred automobile assembly location with 32 million jobs in FY16. Similar approaches could be worked out for connectivity, electricity, and the rest, that address the needs/opportunities/markets, the products/services, how delivery will be organised, what the resources are and where they will be sourced from, how they will be organised and when, i.e., the detailed strategy, process plans and flow charts.Also, effective corporate practices such as facilitation for catalysing group decisions could be used if they are not already, to help administrators, experts, and practitioners arrive at sound, practical decisions.4 Another area is simulation and modelling of alternatives and scenarios. A third is overall strategy.

These steps will help improve our ability to achieve our aspirations.

---

Shyam (no space) Ponappa at gmail dot com

1. ‘India’s road to digital highway’, Nivedita Mookerji, Business Standard: http://www.business-standard.com/article/opinion/india-s-road-to-digital-highway-118012401544_1.html

2. ‘India as a ‘business partner’, Kanika Datta, Business Standard: http://www.business-standard.com/article/opinion/india-as-a-business-partner-118012401599_1.html

3. https://en.wikipedia.org/wiki/A_Modest_Proposal;https://andromeda.rutgers.edu/~jlynch/Texts/modest.html4. https://www.centreforfacilitation.co.uk/files/public/What%20is%20process%20facilitation.pdf

Beyond India's Tipping Point

Shyam Ponappa / New Delhi December 07, 2006

How India can improve its productivity

...our governments' focus has by and large simply not been on those issues we would expect as a priority from our current understanding of improving per capita GDP: systems that provide enabling infrastructure--energy, communications, transportation, basic health (including water and sanitation), education services and shelter, with good regulation to foster an appropriate level of competition.

It is increasingly evident that India is at a tipping point. A qualitative change is beginning to show in a broad swathe of services, products, and mindsets, although it is equally clear that for most activities, this inflection is at an early stage. There are a host of reasons for this, and by definition, it is this convergence of many factors that makes for a tipping point.* Consider the features that make for a good neighbourhood or city, and it is obvious that regional and national transitions happen for complex reasons.

They encompass the interrelated factors comprising people in their various dimensions, such as their nature, skills, productivity, organisation, systems, demographics, their physical and material environment including their natural environs, proximity and linkages, enabling infrastructure, movements of capital and people elsewhere in the world in every connected sector and location, technological and economic developments, the condition of their emigrants to other societies, and much else. Understanding the variables in the tipping point is important for shaping the future, however, even if it is difficult to deconstruct the elements. And one factor clearly at work in India's present transition is its improving economic competitiveness.

According to the McKinsey Global Institute's former director and founder, William W. Lewis, competitiveness is the single, most important factor in increasing per capita GDP, the most critical need in India, at least up to a point. Lewis's book, The Power of Productivity,** is based on MGI's study of industry sectors in 13 countries over 12 years to identify each sector's pattern of productivity, i.e., the ratio of the value of goods and services consumed to the amount of time worked and capital used to produce these goods and services. Sectoral competition is most influential in determining productivity (which is certainly borne out by the rise of India's IT and BPO sectors), and that national productivity closely tracks per capita GDP adjusted for purchasing power parity. Lewis concludes that large sectors like retail, wholesale, and construction have the greatest effect on GDP, and to improve per capita GDP, countries must increase their productivity in all sectors primarily through intense, fair competition in consumers' interests.

A surprise, however, is his dismissal of the role of infrastructure in productivity. This is difficult to accept given what one sees in India, China and elsewhere, as well as our experiences of working in enabled environments.

MGI maintains that poor regulation is the main factor limiting productivity by distorting competition. To quote from "Regulation that's good for competition," by Scott C Beardsley and Diana Farrell, on which there will be more in my next article, "India could raise its labor productivity by 61 percentage points if it removed harmful rules."

Changes Required

Among the choices that will significantly affect India's competitiveness for a long time through factors it can control, the endogenous factors, are four areas where enlightened choices will help India become much more competitive:

- The first is the domineering, adversarial stance inherited from colonial and prior feudal legacies of our government towards our people.

- Second, the involvement of the Left in mainstream government and its effects on the social, political, economic, and cultural aspects of our lives.

- Third, partisan politics that exploits bigotry, caste, the effects of reservations through misrepresentation, whether of statistics, situations/examples from India or other countries, or any other mala fide distortions.

- Fourth, the Great Divide between the champions of free markets and of state participation.

In our collective interests, changes in all four require collaborative solutions with one aim: an appropriate level of competition in the overall public interest. With these changes, India can then plan properly for, and achieve, good regulation. Now to the specifics.

The four fundamental change areas therefore concern:

- Government's attitudes: from ruler to facilitator partner.

- The Left: from hard-line ideology pushing adversarial class conflict to participative action for the greatest good.

- Social/Personal attitudes: from predatory exploitation for short-term gains to enlightened, long-term societal enrichment. This applies equally to all individuals as consumers or producers, whether in politics, administration, in public or private corporations, or as individuals per se.

- Market Philosophy: from the Great Divide (privateers, capitalists, freebooters, and libertarians, versus state participation) to collaborative aims and actions.

A conscious effort with this mindset could then result in good regulation with high productivity.

The changes in the role of the government are outlined below. Subsequent articles will address the other areas: changing mindsets from confrontational unionism to collaborative 'works councils'; from short-term selfish gains to longer-term societal benefits through a pragmatic coalition of interests crossing political and ideological lines; from dogmatic capitalism, libertarianism or socialism to pragmatic eclecticism and collaborative action for the greatest gains.

Government: From Ruler to Facilitator & Partner

If our government understands and acts to orchestrate a beneficial level of fair competition, we will get the most benefit from available capital and labour. Together with the instruments of colonial exploitation inimical to our interests, our government also inherited the domineering mindset, although in a more patronising role, instead of being a lead facilitator and partner in the public interest.

As a consequence, barring law and order, our governments' focus has by and large simply not been on those issues we would expect as a priority from our current understanding of improving per capita GDP: systems that provide enabling infrastructure--energy, communications, transportation, basic health (including water and sanitation), education services and shelter, with good regulation to foster an appropriate level of competition.

The daily newspaper ads for power backup systems and water purifiers indicate the failure of government in providing these essential services. The bitter zoning conflicts in our cities reflect a similar failure.

For instance, the Delhi Development Authority has only built a fraction of the planned commercial space over the last 45 years (16 per cent according to the DDA itself). This situation must change for us to have the government we need. India does not need feudatories preying on their own people, but a government that engages with its people to plan and create a framework for productive activity. Without this, it will be difficult if not impossible to rapidly increase overall prosperity (per capita GDP).

* http://wikisummaries.org/The_Tipping_Point
http://en.wikipedia.org/wiki/Tipping_Point;
http://en.wikipedia.org/wiki/Mark_Granovetter

** The University of Chicago Press, 2004