Ahmedabad, 23 April 2012

With so much support from the enlightened and interested DG readers on previous posts on Gujarat’s Economic Development, I have decided to write a series of articles on comparing Gujarat and Tamil Nadu.

Both these states are high on radar of global investors and usually become first call for one reason or another. Today when any investor looks to India, very soon they realize that Golden India as hyped outside is just a mirage and no longer exists at least at New Delhi. The so called architects of reforms have gone into a deep slumber and what was highly rumored among investors, Mr. Kaushik Basu finally confirmed that reforms are on holiday may be until next general elections. The leadership vacuum and precipitous decline on the part of current leadership of India as pointed out by US analysts is seen as final straw on the credibility (http://www.firstpost.com/economy/us-inc-whispers-to-oabma-about-leadership-vacuum-in-delhi-281892.html). Not that our own stalwarts like Deepak Parekh and many concerned industrialists have not raised voice earlier but policy Paralysis is so acute that it hurts the world which is having great expectation from our young and democratic country. Ironically the “Incredible India” word comes to haunt us back as Incredible also means Unbelievable.

By having vibrant and thriving ports, both Gujarat and TamilNadu face outside world more than Delhi does literally. Chennai with proximity to South East Asia and Gujarat with Europe Middle East Africa (EMEA), both are led by strong leaders but their economic growth trajectory is triggered by different reasons. We will try to examine what keeps them ticking and what attracts and what could be improved further. What are the mutual lessons? However before getting into those details, first let’s go through briefly on the contemporary history of independent India’s tryst with development. Kindly excuse my brevity and simplified explanation for want of space.

Since student days two things I could never very well understand was why we were called a mixed economy and why a low growth rate was known as Hindu rate of Growth. In reality the whole nation was at the mercy of power center of Delhi. Control of industrial development in country in the guise of License Raj was enormously suffocating; it encouraged many inefficient and corrupt systems. To add insult to injury, the low growth then was attributed to the identity of India and clubbed with religion. The contradiction had to cease at some point and as iron curtains of the Communism/Socialism melted, New Delhi too was found exposed, wanting for shelter. The gulf war only added to woes and there was no other way but to liberalize.

It is almost 20 plus years since India took first step in the direction to get genuinely integrated with world economy. A lot is written about the desperate time. How boldly the then Prime Minister cut though all the contradictions of contradictory policies and decided to take firm path of reforms. The man credited though was his deputy (then finance minister) who worked very hard to make sure the vision was implemented. Followed by many more committed FMs, the reforms continued. I have analyzed the period purely from the economic and investor’s angle.

(1) Uncertainties till 1998:- In Search of Level Playing Field: However socially and politically it was a big huge CHAOS. The political chaos was evident from the fact that no government could survive their five years term. The opinion makers getting divided and man on the street confused. The oxy morns were in its play at best and it was a classic case of one step forward and two steps backward. None the less the external forces made sure India continued on reformist path. The control regime of Delhi also had to first time share their powers with periphery as many states decided to take decision making their own forte. The straight Jacket policies of Centre still continued, but States started taking their own calls on what is good for them. This was the time when Gujarat made Petrochemicals as growth engine and Tamil Nadu chose Automotive. This was also a time where domestic industries were crying in single tone “Level Playing Field”. The License Raj had weakened their structures and they found onslaught of global competition unbearable.

(2) (1999 to 2004):- Attaining PoNR:- Finally Indians got over the hangover of the Reforms phobia and chose a Government with clear mandate. The Industry by this time also realized there is no looking back and got their act together. Most of them chose their core area of growth and were ready to take the world. Those who could not survive without controls naturally found themselves at disadvantage. These five years in the hindsight look the best years for reforms. Genuine and concentrated efforts were made in Infrastructure building. Roads, Power, Ports they all grew. More important according to me was formation of Disinvestment Ministry. For India, with perennial deficit finance this was the right step in that direction. It is said that a country like India or China, when they reform, it takes at least 12 years to reach Point of No Return (PoNR). The PoNR means that both internal and external stakeholders get convinced on country’s willingness to change. While China had their PoNR in 1991, for India the moment arrived at 2003. It is not coincidental that BRICS report should come out in this year celebrating India as the only long lasting growing economy of the block. One better thing of this period was States became quite free in defining and designing their own growth plans. In pre reforms era, all the investment from Government in particular state was decided by how much the state leaders can please high command, this was indeed a welcome change.

(3) (2004 till now):- Oxymoron Called Indian Reforms: When Kamal Nath, then Commerce minister decided to sell India; he aptly chose the title “India Everywhere”. This was indeed the mood in matured market as companies around the world believing BRICs report were all vying for their space in this happening place. For India’s luck the Lehman crisis did not affect much and domestic demand continued to swell only fueling the rush. This however had a very adverse impact on the Indian Administrators. The leadership and administration took FDI and global investors for granted and thought Industry will invest irrespective of Govt reforming further. One international banker told me in 2008, “You cannot miss preaching by Govt officer on how India managed its affair well. Once he is done then only he may pretend to listen to you”. But the message to International community was “we will not reform any further as you will come in spite of that”. Investors were given scuttle hint, when The Ministry of Disinvestment was scrapped. The situation started getting worse as reforms got replaced by key word called CONTROL. In the guise of clearance, central agencies started creating many hurdles to the level where every industry started crying for reforms again. The urge to indulge in populist measures on one hand and control induced corruption on another, the governance and reforms were sacrificed in broad daylight. The so called architect of Indian reforms are proving to be in no control as various power centers within the Government or administration are running the show. With tongue in a cheek the words “Indian Reforms” started to sound like Funny Oxymoron.

In this backdrop, global investors are trying to figure out how to solve this India riddle. If USA, Japan or European countries are cozying up with the leading State leaders, there is not without any reason. If CEOs are spending more time at States than Center, there is a clear coded message in it.

One thing that is in stark contradiction with Center’s inability to persuade investors is the successful Vibrant Gujarat summits held by State of Gujarat. It is very ironic that more the central Government tried to control things; more Global and Domestic Industry lauded the CM of Gujarat. When TIME wrote an article on Modi, it ended with sentences and I quote, “If he succeeds, India may never be the same.” In the ten years of his rule, he has beaten Indian growth figures by big margins and continues to do so with the participation from his people. The shout and cry for Modi to play major role for India is only going to go louder in days to come. And as one Australian paper mentioned Gujarat is the Credible India within Incredible India. And I quote “With economic growth averaging about 10.5 per cent over Modi’s decade, the state is increasingly looked upon as the model for a ”credible India” – a play on the ”Incredible India” slogan of the national tourism agency – where bureaucratic and political obstacles are cleared for sustained high growth.” I could not agree more. (http://www.smh.com.au/world/role-model-for-a-nation-on-the-march-20120203-1qxei.html)

When on January 10, 2012, Japanese minister of Economy, Trade and Industry (METI) snubbed his counterpart Mr. Anand Sharma and made a trip to India only to meet Jayalalitha the writing was clear on the wall. Even the most protocol sensitive Japanese realized that talking to people in Delhi is a waste of time. The delay in DMIC (except for Gujarat) is testing their nerves and they decided to take things on their own far away from Delhi. The other countries are also not far behind. The docile nature of people and the hard-working entrepreneurs are surely Chennai’s strength. In spite of ever rotating government, the state still remains high on the investor’s radar thanks to her people and place advantage. If today every third car in India is made in Tamil Nadu, the state has also reached in coveted top 10 destinations for Global Automotive space.

Considering India’s Global trade is miniscule, the role these two states will play in integrating India with world is significant. In coming series, I shall humbly and candidly try to explore these states from Global investor’s perspective. Some of them are stark reality, some of them pure obvious things investors would look.

Kindly watch this column for further update.

Entire series:

Part 1:India’s port of calling: Credible Gujarat and Diligent TamilNadu
Part 2:Two ports, different paths: How to attract FDI
Part 3:India’s port of Calling: Importance of prolific ecosystem and lessons for Gujarat
Part 4:Tale of Two Industries: Lessons for Processed Gujarat from Discrete TamilNadu
Part 5:India’s Port of calling: Role of Palate, Place and People: A potent recipe to cook FDI
Part 6: India’s Port of Calling: Perils of welfare state- lessons for Vibrant Gujarat