Indra’s Drishtikona (Viewpoint)

‘Beware of China, Reform to Compete’

Posted : October 24, 2005 at 8:01 pm [IST]

Minister P Chidambaram, our Finance Minister was in China recently perhaps after 15 years or so. He looked around Beijing and Shanghai and was amazed with the change that has come in China. And he came with his impression about China while addressing the AGM of ASSOCHAM.

India would be left behind China in the absence of fast track reforms.

The government would accord top priority to financial sector reforms. The companies must ensure that large portions of their stocks are traded in the market. We will press on with the financial sector reforms. Unless financial sector is sufficient, we cannot convert savings, capital flows, tax revenues, which comes out of capital expenditure into production of goods and services leading to high growth.

Communist China has announced a programme to raise 270 billion dollars by making mostly state-held stocks publicly traded. This is the biggest shake-up of ownership since 1990. By making all China’s shares tradable, the Chinese government aims to plug a pension shortfall. We have pension shortfall too. This is aimed at increasing private ownership of companies, making management more accountable to shareholders. China’s goals apply to Indian public and private sectors too.

In the next 3-6 months, our agenda is very clear. The government would bring in the Pension Fund Regulatory and Development Authority Bill, already cleared by the Standing Committee for passage in winter session of Parliament. The government is also confident that two banking bills, now before a Standing Committee, will also come up for discussion in Parliament to carry forward financial sector reforms.

The government was committed to providing “good wicket” for pushing up economic growth. But good wickets alone do not win matches, as there have to be good batsmen, bowlers and fielders. We have a mission, political and economic. We propose to maintain a good wicket, create friendly environment, maintain moderate and reasonable tax rates, propose to reward those who are promising, enterprising and risk taking. The industry must contribute their mite to make India a giant economic power in 20 years.

As priority, we must raise our savings. Savings in India appear to be high but are again a fraction of what China saves. We should encourage people to save in financial instruments as most of the savings in India are still in physical assets like gold and property.

Not only the public sector but also private sector should float large portion of their equities in the market. Non-traded companies are not adequately assessed, rewarded or punished by the market, just as political parties are judged by the ballot, it is important an opportunity was given to the market to judge the performance of companies by making large portion of their equities tradable. Today, even in most of the private companies in India, promoters and associates hold sizeable chunk of stake, making them less tradable in the market.

As far as the Indian corporate sector is concerned, there is churning, as the top 100 companies of today are different from the top 100 companies in 1991.
Companies, which were nowhere in the horizon have become large and successful. Companies, which were virtually household names have receded to background. Such a churning makes Indian corporate sector more efficient.

Since 2003-04 Indian industry has been witnessing buoyant growth with IIP showing 8.2 per cent growth in 2004-05 and in April to August this year it was even better at 9 per cent. Performance of manufacturing sector was robust and it was encouraging to know that overall industrial growth has been broad-based.

FDI had picked up not only in inflows but outflows with many Indian companies looking for offshore investment close to their export markets. Indian private sector had engaged with China more than the government. I urge upon Indian industries to carry it forward as well as carry Indian flag by setting up more manufacturing units outside the country.

The next 20-30 years belong to India and China, which were propelling the world growth unlike in the past when northern hemisphere used to dominate. It was up to corporate sector whether they want to be competing with China to drive the global growth or be “second driver” behind the communist nation.

Several segments of Indian industries have successfully graduated from a narrow vision of import substituting production to ambitious plans of catering to a diverse variety of global consumers.
Our outward oriented enabling polices have been significant in ushering in the changed outlook. Such policies have helped industries like automobiles, pharmaceuticals and software in not only integrating with global value chain but also moving up that chain to more high-end activities. Trade deficit, which seems large with exports growing at 20 per cent and imports at 33 per cent, is certainly a healthy sign of growing economy.

The companies must improve standards of corporate governance. “Which is why side by side (with) financial sector reforms, the government is pressing for public sector reforms, reforms in corporate governance in private sector, reforms in various accounting standards, reforms about disclosures, reforms that would lead to transparency.”

Is it not nice to hear all? I am sure all are listening to FM including Leftists.I wish Prakah Karat would have been with Chidambaram in China where the later could have convinced the former to agree to opening of FDI in retails. Both could have visted some Wal-Mart outlets. I am sure they are enjoying McDonalds and PizzaHuts together with no problems in Delhi.

- Indra

Category: Government Policy/Administration |