Business - No longer as usual
Those who do not learn history
are doomed to repeat it. Right now, the Indian legacy business/ industry is
going through exactly this – Do they take the path less travelled or stay on the
same path and wait for a miracle to.
Let us step back and see the
reputation of India in matters commerce. From time immemorial there is recorded
and accepted information that India was a globally reputed trader, dealing in
spices, silk and what-have-you across the globe. While the focus has been on
commodities, high volumes, low prices, low margins and being global it is about
“managing” the system and people at which we have become adept.
Whatever chest-thumping we may
do about having advanced technology fact is that in the recorded age India
hasn’t been a technology leader. When Dr. Subhash Mukhopadhyay demonstrated the
test tube baby in 1978 soon after it was done in Britain, the Indian system
mocked him officially and drove him to suicide. It took a brave ethical Dr.
Anand Kumar who proved that Dr. Mukhopadhyay was the first in India and
relinquished all the accolades he was given for being the first.
We may have built the finest
temples, towns with sophisticated drainage systems etc and even today marvel at
the technology brains behind them, but India hasn’t earned a global name in
technology. We have been like the proverbial water that blends with almost
everything and finds a way to flow navigating around every hurdle thrown in its
path but without confrontation.
With such a history and DNA,
India became independent in 1947 and Nehru espoused socialism, self-reliance, and
the commanding heights of the public sector. With active help from Russians, British
and Scandinavian countries followed by the Americans, Japanese technology and
manufacturing took roots in India. But the guiding principle of Indian
governance was supply side economics and demand management. For a socialistic
but democratic country with high demand, little purchasing power it was no
surprise that successive governments used supply side economics and demand
management as their policy and foundation of economic activity. So, we had the
license raj and even someone with a export order needed to have a license to
export items, you could not increase/ improve production without a license and
it reached a stage where these licenses were itself traded.
Political power flowed from
the barrel of these license systems and the politician knew he held the life of
every industry/ investor/citizen in his hands and he felt that he was in
control of the country’s progress. The industrialist in the meantime cultivated
friends across the political spectrum, bureaucracy, helped frame laws and rules
(that benefitted them) and selling was a by-product of all this activity. We had
ration shops for a reason but the overall attitude of the governments and the
industrialists was that everything sold was like a “ration shop”. You waited
years to buy a scooter and at one point even soaps, toothpaste became luxuries
that were taxed to curb consumption. Monopolies flourished legally across
sectors and the overall attitude could be gauged by just one incident. The Minister
for Telecom CM Stephen saying that the telephone was a luxury and not a
necessity and anybody unhappy could return it.
Then in 1991 thanks to a
financial crisis this kind of inane politics changed and overnight the office
of the DGFT was abolished and any industrialist, businessman was free to pursue
his markets, products and customers. But 44 years of pent up demand, lack of
opportunity and deprivation meant that most markets went haywire with huge
demands. Economic activity boomed and supply side economics, demand management
were no longer needed. But then the industry/business still did not learn about
competition, customer service because anything you made, somebody was there to
buy it. Thanks to this kind of growth every bank happily lent to anybody who
wanted money. In fact, it reached such ridiculous levels that one businessman I
know seeking some Rs. 4 crore loan was mockingly told by a banker to add two
zeroes to it and come back to get the loan quickly.
The industrialists/
businessman still roamed the corridors of power so that they could get advance
information of what was planned. Every scrap of information was leveraged to
grow business, build partnerships globally, invest in facilities and once again
neither competition nor customer were factors in this grand scheme of
things. The most famous at this was
Dhirubhai Ambani of Reliance, but fact is that everybody played the same game –
it was only the scale that mattered.
By 2000. as the telecom
revolution once again showed, the target was not to sell spectrum as a resource, or select
who deserved it, did not allow the market to decide but became a first come
first serve democratic socialist policy. Theoretically if this writer had stood
in a line for days on end, I could end up with a telecom license which I could
then sell at a premium – in other words trading, supply side economics and
demand management. These two articles
are not meant for discussing any scams but to show how Indian economic policy
and industry/business have never changed beyond a trading mentality and
leverage of information.
By the beginning of the 2000’s
as demand plateaued, the legacy business went back to what they knew best -
access to information, power and managing the supply side economics. They
realised that demand management was now out of control anyway, the customer was
too smart. Also, in the post liberalisation era the politician to ensure that
he didn’t become irrelevant had climbed on to a new band wagon – he became a
businessman/industrialist himself.
Policy continued to be
manipulated and information was used to for private benefit. What was a common
practise for decades, got a new name – crony capitalism. The inability to take
risks was by now very strong because the legacy business had never taken risks.
So that started phone banking as it was called. Politicians decided
policy/programs, legacy industry/business jumped in with liberal loans from
banks thanks to their excellent past record over decades, inexperienced newbies
who wanted a piece of this action jumped in with disruptive strategies and
ideas and younger politicians from across the country coveted their stake in
the gravy train as quick fixes. The only people left holding the risk were the
banks.
Jump ahead to 2012 a
concatenation of circumstances, events both local and global started
unravelling this complex web. The spiders were now running for cover and by
2014 the tide had turned. A new government took over and this was by an
experienced politician, a maverick, a disruptor or even a dictator as some
chose to call him. A rare breed of politician with impeccable personal
integrity who didn’t just claim credit but led from the front which meant that
even debits were attributed to him solely and wholly.
Narendra Modi went about
demolishing the status quo of the past 7 decades in various ways with various
programs and every one of them created opportunities for some, but the legacy
industry/ business status quo was targeted with a stick wrapped in velvet but
nobody saw the velvet, the stick was what everybody felt.
With new legislation like the
Insolvency code, leveraging the Aadhar identification, frequent Know your customer
exercises the Modi govt attempted to clean up the books like never before.
Overnight drivers who were Directors, peons who “owned” companies, were simply
swept away ruthlessly. It left the legacy business gasping for breath.
The legacy system that had
cheered Modi to power now wished he didn’t continue because they were now being
made accountable, answerable and even if they claimed political vendetta nobody
in the voter community cared. Reputations were shred to pieces, banks created
panic with huge losses and some who had taken the loans even fled the country,
others were stopped from leaving and overall the legacy businessman/
industrialist prayed and hoped that 2014 was a black swan moment, a bad dream
that would go away in 2019. They bided their time, waiting, not investing.
Meanwhile those who did not come with strings attached invested, but the mood
was one of gloom.
2019 has come and nearly gone –
leaving the man Modi still in power but with a greater majority, the voter
customer had spoken tellingly. The
legacy industry/business is now at the crossroads of the future. The new path
in front of them is that they need to take the risks, they need to put their
money where their mouth is, they need to compete in the market, offer customer
service, be prepared to fail if need be.
Business plans can no longer be based on who you know and what you know
and what you can manage. It now depends on the market and the customer. Legacy
industry/business has to come to terms with this. They needed an escape door
and the Govt did give them that opening with massive reduction in tax rates,
lowering of interest rates. There is very little the govt can do now and the
industry/business must now step up to the plate and start learning to compete
and be customer focussed. They have a window of opportunity till mid-2020 to
show that the juggernaut is moving and if they don’t adjust to the new normal,
the risk they run is that for political gain Chinese business may well get a red-carpet
welcome. Recall how the MG Hector from the Chinese stables is a success in the
Indian auto industry, how telecom majors are batting for Huawei, how Chinese
smartphones have become market leaders, the biggest investments being referred
to are by Foxconn a Chinese company, the Chinese have electric buses on Indian
roads when India is planning to go electric in a big way. The list is endless.
The writing is on the wall for
Indian legacy industry/ business. Change, Compete, Customer service and Risk
will now have to be a part of their business plans. The big question is – how quickly they will
change. It needs one person to break ranks for the flood gates to open.
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