The wave of reforms that the government has unleashed threatens to sweep all before it. Or rather, the wave of media applause for the reforms threatens to sweep all before it. In the middle of this noise, it is sobering to take a moment and think about what the attitude of investors outside India is.
Last week, here’s what I heard Alan Chua, a Portfolio Manager with the Templeton Global Equity Group, say about business environment continuity. He spoke about Thailand, which has suffered huge discontinuities in the system, with military coups and violent changes of government, but a high degree of business continuity. Businesses grow and expand and businesspeople make decisions that facilitate growth in conditions that are not just conducive to business but are predictably conducive and can be reasonably expected to remain so for extended periods of time.
However, having an apparently bipolar, manic-depressive attitude to reforming the economy does little to instill any confidence in continuity. A government that stays in its depressive phase for years together and then goes into a mania of reforms that builds to a crescendo within days is no doubt very exciting for headline writers and TV anchors. However, in the minds of serious businessmen who have to invest in building businesses over years, it must raise questions about when the reverse mood-swing will hit.
Certainly, there are businessmen who will find even these rapid mood swings useful. For example, we have in our country a well-known and hard-working Formula 1 racing team manager cum soft-porn calendar publisher who has been dabbling in running an airline. Rumour has it that in the last few days, he has been acting like a vendor in a vegetable mandi at the end of the day, who must sell the goods before they rot completely.
However, if you are a businessman with a longer perspective, say someone who would like to prevent those vegetables from rotting by building a long supply chain, then you’ll be a lot more circumspect. You’ll need to be pretty certain of what the environment will be like a few years from now. That certainty will take years of steady and confident action to build, and that’s a process that hasn’t even looked like starting yet.
However, closer to the ground, many of the real problems are those that seem a world away from what the cheering is all about. Ask anyone managing a business today what the big constraints are. You’ll get a long list. There’s no power. Real estate is too expensive. Employees are poorly educated. There’s no public transport to bring employees to work. Transport for raw material and finished goods is expensive and unreliable. There’s a huge amount of corruption and coercion in dealing with government departments wielding archaic anti-business laws. In many parts of the country, especially in industrial areas, criminalised labour leaders rule the roost, often in cahoots with local politicians.
There’s no connection here with anything that is being reformed today. A few days back, I read this account of the problems faced in transporting oversized factory equipment from port to site. Apparently, at many places the transporters have to build alternate roads (with all the attendant procedural issues) because no one knows the real load-bearing capacity of bridges and culverts. Not just that, the modular trailers that could be used for such transport have to be re-registered and fresh permits obtained from each state on the way if their configuration is changed. Therefore, it takes months to transport outsized cargo. What does this have to do with the fiscal deficit or diesel prices?
For two decades, we have fed ourselves on the low-hanging fruit that were plucked by Dr Manmohan Singh. Now, the real reforms needed are not just variations on the same old themes—permit foreign investment and allow higher stakes, sector by sector, in excruciating slow motion. They are far tougher, and they will take a lot more doing.