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'India is carrying out a homeopathic solution to economics'

Nobody is perhaps better equipped to offer a global perspective to Indian companies than renowned economist Marti G Subrahmanyam, Charles E Merrill professor of finance, economics and international business, Stern School of Business, New York University.

Professor Subrahmanyam went to the United States with an MBA from the Indian Institute of Management in 1969, after graduating from the Indian Institute of Technology, Madras, in mechanical engineering two years earlier. He went on to secure a doctorate in philosophy, finance and economy from the Massachusetts Institute of Technology in 1974.

Since then, he has been a consultant to several global companies -- Citicorp, the American Stock Exchange Inc, Credit Suisse, Merrill Lynch Inc and the Swiss Bank Corporation. He is currently on the board of several global companies including the Bangalore-based Infosys Technologies Limited.

During his recent visit to Hyderabad to attend the CII Partnership Summit, Professor Subrahmanyam's frank, forthright and unconventional comments unsettled many Indian businessmen. He has a single-point prescription for Indian companies: "Globalise or perish." He hates the word NRI. He says the Indian economic reform process is like a homeopathic solution, very slow and taken in small doses.

In an exclusive interview to Senior Associate Editor George Iype, Professor Subrahmanyam offers his view on Indian business realities.

You said you dislike the phrase 'Non-Resident Indian.' Why?

I hate the word NRI. You know, it is a matter of taste. I think it is nice to refer to somebody in a positive manner. It is nicer to say that an Indian residing abroad has a positive attitude. What does the word NRI say? It means you are not something. It connotes a negative meaning. The phrase does not describe what I am -- an Indian. Why don't we say what I am?

What should an NRI be called?

I strongly feel they should be called Overseas Indians. The Chinese have been using the word Overseas Chinese for many years.

Where do you think India stands in the information technology revolution?

I am not an IT expert, though I am involved with IT companies including Infosys. But as somebody who is looking at the Indian scene, and looking at the success of Indian companies like Infosys and Wipro, I think they have achieved a lot. They have done something truly spectacular. You know, for the first time, people like Narayana Murthy and Azim Premji have created a kind of respect for India which never existed before. This is a completely new thing.

I have lived in America for 30 years. Open the front page of the Wall Street Journal or the New York Times, there always used to be a disaster story about India. Some war story, problems with Pakistan, insurgency, poverty, illiteracy, floods… After reading these disasters on the front pages for the last 30 years, the first positive front page article in the New York Times was some six months back. It profiled the life and times of Narayana Murthy and how the IT revolution is on in India thanks to people like him.

You said it is tough for the Birlas and Tatas to make it to the Fortune 500 whereas a company like Infosys could make it easily. Why do you say so? Is something wrong with our old industrial houses? Are they not adapting to global change?

There are lots of reasons. First of all, for instance, a company like Infosys started with a clean slate with no baggage. They wrote their own rules. They also wrote the rules in a very straight manner without making any compromises for whatever problems in the Indian context. They had an advantage.

IT was an industry nobody was keeping track of, nobody noticed. No excise inspector or income tax officer was visiting them. So they were able to do things quietly. Until suddenly everyone woke up and said, look Infosys is here, the IT revolution is here.

Unfortunately, the rest of Indian industry had to live and grow with a very complex, contorted set of rules. And frankly, in my opinion, the old economy companies do not have the managerial resources to do something significant overseas. I can say that of virtually all the major Indian companies.

What happens to these old companies if they do not go global?

They have to either change or perish. They have to make their work environment attractive. They have to attract the 25 year olds who are graduating from the IIMs. Does it make any sense for these youngsters to go and work for the Tatas? The answer is no. I was in the Tata Administrative Services years ago. I don't think if I am an 25-year-old MBA now, I would wish to join the TAS. Today, the lowest rank people join the TAS. In my days, the top rankers joined the TAS.

So if the old economy companies do not change, they will die.

Yes. They will die if they do not change and globalise. In a way, it is a difficult task. To change the whole structure is a very difficult task. If they want to survive, what they should do is to start a completely new entity with a totally new set of rules.

Otherwise, how can they compete with the likes of Infosys and Wipro?

You have been a keen observer of the Indian economy and industry. Where is the Indian economy headed?

If India achieves a fantastic growth rate -- let us say 8 or 9 per cent for every year for the next five years -- it would mean you would have a substantial jump in the per capita income. But it would be impossible to achieve this growth rate because the economic revolution is largely happening only in IT and related fields in India. That is the tragedy.

Today, we have some 350,000 people employed in the IT industry. We are talking about less than .1 per cent of the population directly or indirectly benefited by the IT industry. Let us multiply this figure another 10 times, taking into account all IT-related fields. But even then it is a minuscule percentage of the Indian population affected by the IT revolution. Unfortunately, it will have very little impact on the rest of Indian industry.

Another problem is that this IT sector is going to suck up all the good managerial and technical talent in the country. If 50 per cent of graduates from the IIMs are attracted by jobs overseas, who is left to manage Indian industry? So you will see those industries shrinking unless they did something very quickly and efficiently to attract talent.

Do you think the government has a role to play in reviving old economy companies?

No. The government has no role to play. I do not think it has anything to do with the government. It is a market force. In some industries, India does not simply have the competitive advantage.

Can you compare India with China?

I think in China, they did the same things which we are trying to do. They kept boosting up industries and technologies. Do you know in China they did something that is unthinkable in India? Various state industrial development corporations were shut down. In the last few years, the public sector in China has shed millions of jobs. They just got rid of people. We also try to do similar things. But we have been postponing the days of disaster.

Take the insurance sector. Private insurance companies are going to do the same job with a few hundred people which the Life Insurance Corporation of India is doing with hundreds of thousands of people. How can the LIC continue to be a viable economic entity in the global context? It is impossible.

What is your hope for the Indian economy?

My hope is that in the agricultural area, there will be change, radical change. I predict there will be a second Green Revolution in India. The issue is not of producing enough yield as it used to be in the sixties and the seventies. Then we produced enough to avoid a famine. The issue today is can we change the whole agriculture sector, not to feed ourselves, but to create a huge surplus for exports, in various types of agricultural products. That could really be a very big thing. I think it will happen in the next five years.

It is nearly a decade since India launched the economic reforms. Do you think it has been a success?

If I am told to give the economic reform process a grade, I would give it thus: From A to D, I would give India C plus, B minus by global standards. Much better than what we used to be, but just above the passing mark. There is a lot of publicity, a lot of noise made by various governments and leaders about globalisation. Everybody is making speeches, not doing enough about it. But again the problem is that we keep benchmarking our economic reforms with our past performance, which was very poor.

A friend of mine, who runs the economic development board of Singapore, pointed out a single fact. From Singapore he can fly to 15 different cities in China directly, in many cases more than once in a day. But there is so much hype about Bangalore and Hyderabad. Do you know how difficult it is to reach Bangalore or Hyderabad for somebody from Singapore? Basically, he has to shoot three days just to come for a meeting in Bangalore. Three days are gone. So I compare India with China, we are nowhere near the real economic reforms and globalisation.

So you don't give many marks to the reform process.

No. It is a lot of talk, a lot of ideas, but the action is much below the talk.

What should the government do now? Finance Minister Yashwant Sinha is talking about the next set of reforms these days.

First, we have to ensure that our economic reform process is such that real development happens across the country simultaneously. We have a lot of regional disparities. We have things happening in south India. East India is a disaster in terms of development. The north, except for few pockets, is also a disaster. Uttar Pradesh is bigger than most countries in the world. You combine UP, Bihar, Orissa and West Bengal -- it is a gigantic, unproductive country itself.

You cannot continue to have this situation for long. You cannot have all the new things happening only in the south. That is not development of a country. That is not a sustainable reform process.

What then is the solution?

I think the economy is pretty vibrant in terms of macro economic indicators. For instance, inflation is very much under control. You have a reasonable good growth rate, not fantastic. But I think the problem is the huge public sector. Politically, it is very difficult for the government to do anything creative about the public sector.

The other day, I was travelling in Tanjavur in Tamil Nadu. I was caught up in a traffic jam for hours because of a huge protest march by workers of Communist trade unions against insurance privatisation. These people are wasting time. They are trying to stop the waves. The government has no choice when the workers come to the streets.

India is the only country in the world where the urban middle class supports political parties like the Communists. There is no Communist party left in the world including Russia. But strangely, we keep the statues of Marx and Lenin across India whereas in every other country these statues have been toppled.

What is your view of the divestment process? Don't you think the government should get out of businesses like airlines and tourism?

I am not going to argue that the government should completely get out of all the sectors. That is one extreme position, which is not just possible. I think the model that has worked best around the world is the Singapore model. They have a very strong public sector. Who is going to build roads? Who is going to ensure that the power companies work? Who is going to make sure that the mobile operators are paying the right amount for the licences and actually delivering the quality standard? Who is gong to make sure that we should have schools in all the villages in the country?

It is the government's business to take care of these things. I think the government should divest and put the money into education, health care, literacy etc. But it is hard to do it overnight in India. But look at the Eastern European countries, they did it overnight. One fine morning, they said, ok we are going to divest. I feel India is carrying out a homeopathic solution to economics. Very slow, in small doses. This homeopathic economics has to stop.

Is politics the stumbling block in India?

Politics and trade unionism. Everywhere you go in India, you will see government employees protesting, not working. It is an irony. You know, all these government workers are a privileged people. The bank employees, the insurance people, the schoolteachers… these people who are protesting against divestment, privatisation and globalisation are the privileged people who get their monthly salaries. The sad thing about India is that nobody is talking about the people who are sleeping on the pavements and living in the slums of Bombay. That is the strange politics and economics in India.

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