Business

Adi Godrej

Perhaps no other Indian business house has re-invented itself as radically in the five years of economic reforms as the Godrej group. Hiding behind private ownership for almost 60 years, the Rs 1,200-crore group suddenly came out of the closet, tying

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Adi Godrej
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Which areas have gained the most due to liberalisation?

Liberalisation has been excellent for the country. Thanks to the reforms, the macroeconomic situation has never been better. We have a much lower fiscal deficit and we have created foreign exchange reserves from an almost bankrupt situation. Most people accept that the macro aspects of the economy are on a much healthier wicket today than in the pre-reforms era. However, we are not liberalised enough. Hopefully, after the elections, a lot more will be done. The areas where reforms have had the maximum positive impact are on industrial licensing, the Monopolies and Restrictive Trade Practices Act and international trade.

Which sectors have liberalisation passed by?

There have been no reforms in land markets. The Urban Land Ceiling Act and development regulations badly need to be liberalised. Perhaps, there is not enough realisation that our rules and regulations are archaic. In most countries, you can develop the land available between five and 30 times. We still have a floor space index (FSI) that ranges between and 1 and 1.33. Naturally, we have a shortage of land in Bombay. Anyone who has been to Singapore can see how, in one generation, the country has grown from practically rags to riches. The Government alone doesn't have the money to develop infrastructure. You have to bring in the private sector for infrastructure development.

To what extent has the Indian economy been globalised?

There is no doubt that we are increasingly integrating with the global economy. Import tariffs have been drastically reduced. From a peak 210 per cent import tariff during the pre-reforms era, the maximum import duty has come down to 50 per cent. The average duty presently hovers between 20 and 30 per cent. The fact of the matter is that Indian industry today has to compete with importers. That itself is a big step towards globalisation. The consumer durables industry, in particular, has to compete with globalisation. The profitability of most Indian consumer durables companies, including Godrej, is down this year, thanks to competition from transnationals.

At the same time, an increasing number of Indian companies will have to go abroad in years to come. The first phase of globalisation was exporting without brands. That included commodities like cotton, yarns, rice, soya and so on. The second phase is exporting with brands. We are yet to achieve this target properly. The final phase of globalisation would include Indian companies becoming TNCs with manufacturing units abroad. In 20 years, we'll be seeing some large Indian TNCs operating in several countries of the world.

Which Indian companies have the potential to become transnationals?

Titan is heading in the right direction. I don't see why Titan can't become a global brand. Bajaj Auto can also become a TNC—it should not just stick to exporting its scooters, but also manufacture them abroad. As for us, we have taken over Transelektra recently. We are already number one in the world in mosquito repellents. I see no reason why we also can't become a TNC. India has a lot of talent and a large domestic market. Once the domestic needs are taken care of, Indian companies will start looking for markets elsewhere. One of the best sources of our globalisation is the Indian talent resident abroad. We have already seen an influx of Indian talent back into the country in the financial services industry. I believe a large number of Indians working in manufacturing industries abroad, especially those involved with research and development, are going to return to India to help the globalisation of the Indian industry.

Five years after reforms, China and some other developing countries are way ahead of India in wooing foreign investors. Why?

Don't forget that China started liberalising its economy 10 years before India. First, you have to tell the people and foreigners what you want. Direct foreign investment takes time to come. This year, India has received $2 billion more than last year. Our share is increasing, but there are other factors to explain China's growing foreign investments. During my last trip to China a few months ago, I found out that out of the $30 billion foreign investment into that country, 60 per cent was in the construction business. We have not yet opened up construction projects to foreign investment. In China, the second highest chunk of foreign investment is in infrastructure: transport, power and tele-com. While the Enron episode in India was most discouraging for foreign investors, even telecom tenders were held up in the Supreme Court. Moreover, 85 per cent of investments flowing into China are from the Chinese who live overseas and are investing in property. In comparison, our Urban Land Ceiling Act is ancient. For instance, why can't the Bombay Municipal Corporation take decisions on its own regarding FSIs and rent controls in the city? The contrast becomes clear if you look at Delhi and Haryana. While the government of Delhi is restrictive, Haryana is liberal. As a result, the development in Haryana, just 10 km from Delhi, is to be seen to be believed. Property prices are booming in Haryana, while land to the east of Delhi—in Uttar Pradesh—is going dirt cheap due to lack of development.

What should the Government do about employment?

Recruitment policies do not create employment. The current human resources policies of the Government are totally anti-employment. After 10 years of running an enterprise, if labour costs become unaffordable, an entrepreneur should be allowed to set up an infrastructure in Bihar, where labour costs are cheaper. Market forces must operate in labour relations as well. At the same time, the workforce, too, should have the right to strike just as the management should have the right to lockouts. The fact is that economic growth creates employment. We cannot get rid of unemployment overnight. We are short of people with skills. The unemployed people in this country are those who are unemployable. The Government should concentrate on producing people with specialised skills instead of churning out hordes of graduates.

How have the reforms changed the way you work?

The best thing the reforms have done is reduce my trips to Delhi. Earlier, I used to make two to three trips to the capital every month for stupid mundane matters like import licences and raw material allocation. I haven't made a single trip to Delhi in the past six months except for Development Council meetings where the industry meets with the Government to suggest ways and means for a healthy growth. Now we just think of growth in our company. It's indeed a sea change.

What should be the agenda for the next regime?

Privatisation of the public sector should be taken up in a much more concerted manner. Liberalisation in urban land laws and labour laws need to be tackled ruthlessly. The financial sector needs to be liberalised, opening up the insurance, banking sectors with prudential controls. States should have more freedom from the Centre to compete with each other in attracting businesses. The private sector should be allowed to start professional institutes like colleges and universities. Today, there is a legal restraint in setting up private universities. There is no reason to believe that a student who scores 60 per cent in his higher secondary examinations will not make a better doctor than one who scores 96 per cent. Why can't the student with 60 per cent marks pay money to get admission in a medical college?

Finally, how would you rate the reforms process on a scale of 1 to 10?

I would rate it in two categories. Reforms by the Union Government would rate a high 8 while those by the state gover n-ments would qualify an average of 5 on my scale.

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