Transforming traders into industrialists poses significant challenges. While traders prioritise high profits, industrialists require a long-term vision
India has a large enough trading class. In fact, the Hindu caste hierarchy has traditionally allotted an entire arena of activity, i.e., economic, to the Vaishyas and Baniyas, Chettiars and Shettys, but that doesn’t mean that they are all—or most of them—are potential entrepreneurs or successful industrialists. The reality is that it is difficult to buy the proposition that a first rate trader can easily develop into a first-class industrialist. The latter’s priority is a rapid turnaround of turnover, ideally accompanied by high profit margins. An industrialist must have a long-term vision, patience for profits to turn in, and a virtually unlimited scope for expansion. Above all, he must have the nerve as well as the packet to absorb losses in the short term.
The only common factor between an industrialist and a trader is a sense of money. This would party explain why the Government of India took so long to divest itself of the ownership of Air India; the programme for the privatization of this “national carrier” has been slow. This again explains why the government has been having to focus its concentration on making the good old public sector more and more efficient, including the ordnance factories. A lot of the new expansion, especially in defence production has had to be undertaken in a kind of partnership with the large and established industrial houses.
It was not so long ago that members of the intelligentsia used to say that a people whose ruler was a trader, would end up as a pauper. This, in actuality, was the story of the Indian economy until the Modi administration took charge. Choosing the right industry, running it efficiently with integrity are the sine qua non of success. The emphasis on these factors waxes or wanes with changes in ministries and/or governments. No ministry can claim to be forever engaged in policymaking on a single issue or industry. Incidentally, a leading management scientist had some time ago said that public institutions quite often keep their doors open for the leakage of money. If this factor is to be kept in mind, a typical public sector unit or institution should not be expanded. If the state has to invest willy-nilly, the President of India certainly should not hold any shares. Banks and insurance companies like the LIC, GIC, etc., should invest, so that there is no obvious gateway to corruption.
For long years, the majority of Larsen & Toubro’s (L&T) shares were held by financial institutions, but hardly anyone knew this fact. The general impression was that L&T was a private sector company, like any other. There was no door available for misuse by political or bureaucratic agencies or factors. Another problem caused by the President of India holding shares, is that willy-nilly, the management tends to be directed by a joint secretary. A normal bureaucrat might have many virtues, but is seldom inclined to lay emphasis upon the delivery of results in the same way as an industrial manager would have to. The former is primarily, and mostly, concerned with rules and procedures. Profits come lower in his priority.
Moreover, the bureaucrat’s job is secure and therefore, he does not expect his head to roll if he cannot explain the losses the public sector company under his belt might have made. Although, he might spend a sleepless might or two if his head clerk were to point out a lapse in procedure. Being answerable to the minister, the bureaucrat does not have the ultimate authority, although he is influential day to day.
Yet, anyone with contacts with the minister, i.e., the political executive, can influence the joint secretary. This does not add up to business management.
On the other hand, banks and financial institutions investing in public sector units (PSUs) would be looking at how much they are earning on their investments. Otherwise, they wouldn’t have any influence or any substantial contact with the PSU.
In answer to this discussion, a suggestion emerges that proven top executives in the private sector could be given a chance to set up large industries. Instead of the country merely waiting for capable entrepreneurs to emerge spontaneously, the successful top executives near their retiring age from their private sector assignments, would have a reputation, and a proven record of managing a large industry. Let the candidate invest 5 per cent of the estimated initial capital; another 5 per cent may be given as founder shares, making it a total of 10 per cent. But before that, it would be for him or her to discover the right project in answer to the country’s needs.
If foreign technology is needed, the executive’s reputation should help him to locate the right foreign partner who could provide not only technology, but also some management, and possibly some investment, and reserve say, 26 per cent for financial institutions like banks, etc., and other the rest to the public. Some experiments might succeed while others might not. Some top executive candidates may discover that they are not equal to the challenge, and may even sell off their shares to a more confident entrepreneur.
(The writer is a well-known columnist, an author and a former member of the Rajya Sabha; views are personal)
