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Instability may halt growth momentum: Ratan Tata news
27 August 2007

Ratan TataRatan TataEarlier this week, corporate leaders had said that the industry is used to the volatility of Indian democracy and that economics has been decoupled from politics. But speaking to Karan Thapar, in Devil''s Advocate, Tata said that if this government is out of office prematurely, it would be damaging for the economy. " It will cause the momentum of growth, which we enjoyed, to pause if not reverse," said Ratan Tata, Chairman, Tata Sons.

He admits that despite the prime minister''s enthusiasm on reforms, he has not delivered on them, because the numbers do not stack up in the government''s favour. "The prime minister has seriously and genuinely wanted to see reforms take place," said Tata.

Tata believes the unintended consequence of the nuclear deal not going through would be rejoicing in the neighborhood. He thinks those that want the government to dump the deal have misunderstood it.

"The only people who will be happy probably would be Pakistan and China. The benefits that the civil nuclear deal will bring to the country will be enormous," stated Tata.

Tata said he decided to stick on with the small car project in Singur, in West Bengal, despite violent protests because chief minister Buddhadeb Bhattacharya stuck his neck out. "A lesser person would have succumbed to political pressure," commented Tata.

And he yearns for the days of single party rule, or strong coalitions, so that in India, there would be a serious debate on issues, not opposition for the sake of opposition.

As a chairman of Tata Sons, do you welcome the prospect of a mid-term election, or do you fear its consequences for both growth and the investment climate?
I fear the uncertainty in the political environment, which will certainly cause India to stumble, will cause the momentum of growth, which we have enjoyed, to pause if not reverse. And I for one have been extremely encouraged by what has happened in India. It started in the last regime and continued under Congress rule… India moving forward and becoming an economic powerhouse.

And that could start unravelling with a mid-term election?
I believe it could if there is a mid-term election. I hope there is none.

What would happen to our target of 10 per cent growth? Would a mid-term election make it unattainable?
I wouldn''t want to comment on that but certainly it would make things difficult.

And if at the same time the nuclear deal were to unravel, what impact would that have both on FDI inflows into the country and the perception of India as a destination of investment?
The civil nuclear deal with the United States is in many ways the best possible thing that has happened to India in a long while.

Apart from the fact that it enables India to go ahead on a much larger scale in the much needed area of power — of nuclear power which is clean power — it also takes away many of the dual use sanctions which have hurt India''s technological access.

Over time this will give India a tremendously powerful position in the knowledge industry, in R&D, in high technology. I believe the benefits the nuclear deal will bring to the country will be enormous and I''m very very sorry that on various issues this is being beleaguered.

So if it doesn''t materialise this is a serious loss and set back for India?
I believe it''s a serious setback to India. I believe the only people happy to see this not happening are probably Pakistan and China.

And could it also have an impact on FDI inflows?
I think it could because I think there would be repercussions and there would be reactions. I really do believe that if it doesn''t happen, the only people who would be happy and benefited by it not happening will be the people of Pakistan and the people of China.

So if the deal doesn''t happen India would lose?
You might say that. Yes.

In May, speaking at the Confederation of Indian Industry, you said, "We''re not doing enough to reach this landmark of 10 per cent growth. India is not thinking big enough, not taking bold enough steps." What are the steps you wanted the Government to take that have not been taken?
If you look at China and India, one glaring difference is that everything China has done has been enormously bold; in fact unbelievably bold, on the verge of seeming to be overkill. (In contrast) We''re always growing in small increments and we''re always behind the curve because our demand exceeds supply and we''re always trying to catch up. And, perhaps, the time has come to go ahead of that curve and think really boldly.

Do we lack the confidence to be bold? Do we lack the vision? Or the courage?
I think its part of our culture. We''ve come from a planned economy which was suppose to balance supply and demand, and we just did what we had to do. I think that''s a culture of the past.

So we have to change our way of thinking?
Yes and we have to have the courage to be able to live with over supply because the planned economy and licence raj has created another mindset which is that you don''t live in an open, competitive world. You live in a world, which buffers and protects you.

And we have to live in competition and with competition?
And to be able to win in a competitive scenario. India is very entrepreneurial but somehow in the private sector we are afraid to do that. We are afraid of competition. We are afraid of foreign competition. We often don''t want to see this take place. And yet, when I take the automobile industry, we have everybody internationally in India, and Indian carmakers are still surviving.

So conquer fear?
Conquer fear and have an urge to win.

Just a few days before you spoke at the CII, you also wrote a letter to the prime minister in your capacity as the chairman of the Investment Commission, about the momentum of economic growth. You said, "It''s in danger of getting dissipated by delays and roadblocks for no apparent reasons. The net result is that the country is negatively impacted in investment and industrial growth and the opportunity of being globally competitive." What response did you get from that letter?
I didn''t get a response other than an acknowledgment and an agreement that we would meet, but that meeting hasn''t taken place as yet. But the PM agreed to meet the Investment Commission on the issues relating to this letter, and he has undertaken to generate responses on the specific projects that I had listed.

You wrote to the PM in May as chairman of the Investment Commission, and you did not get a response other than an acknowledgment. You got an acceptance to meet you, but four months have passed, and that meeting hasn''t happened either.
That''s been because all of us in the Investment Commission have also been travelling. I cannot say that it''s an issue that lies with the PM.

It''s not that the PM hasn''t responded with alacrity or seriousness.

In that letter, you drew specific attention to hold ups in two areas insurance and banking. And you said that if restrictions were to be removed in these two fields, India could see perhaps see $2 billion or $3 billion more of FDI. Now given that the government is publicly committed to reforms in these areas, when those reforms don''t materialise even after a lapse of two or three years, what message does it send out to the world?
It doesn''t send out a positive message. Sometimes these issues get overblown by foreign investors, but by and large, if India is to open up its economy, it will need funds from outside. India needs to be a more open financial economy. Therefore financial services, banking, insurance needs to be opened up.
There can be constraints on market share that you put so our financial services don''t get dominated by foreign companies but, nevertheless, it needs to be opened up.

When it''s not opened up, despite the fact that the finance minister and the PM have committed themselves, then don''t investors both in India and abroad begin to doubt the word of the government?
Usually it is not government policy that leads to this kind of roadblock. Usually its vested interests in the country, sometimes in the private sector, sometimes from the public sector, that works its way behind the scene into policy, which blocks moving forward.

You mean vested interests in the form of industrialists who think they might suffer, actually work behind the scenes to impede some of the reforms the government is committed to, and as a result those reforms don''t happen?
It is not industrialists only, it may be individuals, it may be elements of the political environment, it may be the public sector.

But what sort of government is it that makes a public commitment for reform, and allows backstairs-vested interest to hold its hand in restrain its action?
I think in fairness to our government, that kind of thing happens in varying degrees all over the world in all governments.

Does it happen more frequently in Indian than elsewhere?
Perhaps it does happen more frequently because India is in the process of transitioning, and it has to open up.

If the next few weeks or months turn out to be the last lap of the Manmohan Singh government, how would Indian industry regard the three-years of UPA rule and in particular the UPA''s handling of the economy?
We have had a prime minister who, in many ways, has made this country proud. He''s an upright person of high ethical values. I believe he''s been respected all over the world for what he stands for. At the same time I think this government has not been able to perform as it could have or should have performed.

Has the government talked more about reform than it has delivered?
To some extent that could be true. It has been very vocal on reform. The prime minister has genuinely and seriously wanted to see the reform take place. I think the political system has not allowed delivery of that reform to take place.

Given the track record when it was in office between 1998 and 2004, how would you regard the possibility of another BJP-led government in power were there to be mid-term elections?
I wouldn''t be able to comment on that. Many of these reforms and much of the start of the economic boom happened towards the end of the BJP government.

So you have no reason to fear a BJP government. You hope that they would carry on the way they were.

You have spoke about how the pressures and compulsions of coalition politics impose caution on the government and restrain them. And even a prime minister like Dr Manmohan Singh with the bold vision is unable to act boldly, why India has to go through mid-term elections. Would you therefore hope that we return with a single-party government?
If I leave mid-term election as an issue aside I really do wish we could go back to the days when we had stronger coalition or single-party in government or two-party system in the House where you really dealt with issues and you dealt with serious ideology rather than issues of opposition for the sake of opposing.
And that sort of boldness can only come if you have a strong government, and a strong government has to be a single party government preferably or at least a very strong coalition, not the sort of coalitions we are seeing at the moment.
Well, it has to be a strong majority.

A strong majority confident of itself and therefore a prime minister who has the confidence of that majority.
A strong government, a strong majority, confident of itself, committed to what it is doing and having one voice.

To come back to the thought of boldness, which you have emphasised on, am I right in believing that boldness, if it is going to implement itself and work through in policy and vision has to come from the man at the top. When the prime minister is bold the country can be bold, when a prime minister is forced to be cautious and hesitant - everyone else becomes cautions and hesitant as well.
I think you are putting too much load on the prime minister. When the country has to be bold yes the government has to be bold yes the prime minister needs to lead the country in that way.

But each of us also has to be bold in the businesses we run, in the investment decisions we make, in the marketing moves we do - we have to be bold we have to try to stretch the envelope we have to try to be the leaders not in the country alone but on the global basis.

So boldness has to come from within each of us.
Absolutely and it is wrong just to focus on the government. Boldness has to be the thing that embodies the way we do our business.

That''s the message for the future - be bold.

Be bold, be brave and you will be successful.
In fact internally I have coined a phrase in the group, "Think big, be bold - leader never falls."

Karan Thapar: Thank you for talking to us.

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Instability may halt growth momentum: Ratan Tata