India Park. It has swings, nature trails, flowerbeds, sports facilities and walking tracks. Everything is wonderful, except for one thing: Kids don’t come to play there. This is because the park is mostly used by senior citizens, whom the kids refer to as ‘uncles’. Over a hundred uncles use the park for their morning/evening walks, society meetings and yoga classes. Each uncle also carries a stick, and uses it on the few kids who happen to venture into the park. If a kid jumps too much, squeals in delight, climbs up a tree or plays cricket, the uncles whack the kids. After all, the uncles feel, the park must be kept in order. There is even a microphone system installed that warns kids to behave.
As expected, the kids soon abandon the park. They go across town to China Park, where they are made to feel welcome. There are rules in that park too — kids are told to keep the place clean and not hurt anyone. But apart from that, they are encouraged to have fun. The only few kids who still use India Park are those who have figured out how to manage the uncles. Whenever they come to play, they bring treats for the uncles — a box of sweets, cold drinks or newspapers. Uncles then leave them alone for a bit. However, the number of kids doing this is small, as bribing uncles is not what most good kids do. India Park, hence, is mostly empty and under-utilized.
Then the uncles of India Park start wondering why so few kids come to play there while twenty times the number go to China Park? Uncles have meetings, sticks kept in their lap, to discuss the solution. They put up huge signs outside the park saying ‘Kids Welcome’. However, nothing seems to change.
In the above story, replace uncles with the Indian Government, kids with Foreign Direct Investors, fun with legitimate profit and India Park with India. This sums up how we approach the global investor community. We want them here, but we want to beat them with a stick and shout at them the moment they start having some fun (or earn a reward, in terms of legitimate profits).
This is why we have a long way to go to achieve the PM’s ‘Make in India’ slogan. The hardest part in achieving this is not the manufacturing infrastructure we need to set up; it is the ‘control freak’ mindset that exists in our power corridors (or rather in any Indian entity with power).
So we say we will never use the retrospective tax laws (which effectively allow the government to change tax laws for previous years and take more money), but we don’t remove the law either. The uncles say, ‘We will keep the stick, but we will never use it’. Well, maybe not today but what if another uncle comes tomorrow? Are the rules going to depend on the uncle’s personality? We want companies across the world to invest here, but the government places so many controls and permissions that it effectively controls every business. We call it free-market capitalism, but in reality it is state-controlled capitalism. The only way the uncles will let you do business is if you keep giving them enough treats. This is how India has been run since Independence, and that is why it is difficult to change the mindset. The unfortunate part is this uncle-and-stick model keeps the park empty. If investors don’t come, we don’t have jobs or growth. Kids can play in other parks. Asian economies, Eastern Europe and Latin America are all competing for investor dollars and to be manufacturing hubs. The only way the investors will come is if the rules are clear, simple and not politician-personality-dependant — in spirit, writing and practice.
If we really want Make in India, the government has to let go. Keep business rules, but according to international standards. Get the government out of business, not just in terms of selling PSUs, but also having no arbitrary or discretionary control over individual businesses. All this should be personality-proof. The current FM may be investor friendly. The next one may not. If I have invested money in India, how can I be sure the new guy won’t come behind me with a stick?
All these issues have to be addressed if we want economic and jobs growth which, come to think of it, is what makes ‘acche din’ happen. Let go of the sticks uncles; let the kids come and play.
August 24, 2014 ()