In the light of the dramatic transformation of the economic and business
environment, Aditya Vikram Birla examines its impact on Indian industry and
suggests ways in which companies can meet the challenge of change.
Dramatic, sweeping and far-reaching changes have
taken place over the past three years, not just in India but across countries.
Three years back, it would have been hard to believe that such a metamorphosis
would take place in the economic scenario of the country — which is leading to
changes, not just in business and industry, but in our very psyche, in our
attitudes, in our way of thinking and even in our daily lives.
-- Thoughts shared by Adityaji at the Rotary Club Of Bombay on 13 September
Let me take you through this changing economic scenario, to give you a feel of
the extent of the transformation, its magnitude, its sweep and the depth of the
reforms, and how Indian industry is globalising, in terms of size, ownership,
trade and attitudes.
Let us first talk about size. Globalisation and size are almost inextricably
linked. As all of you know, Indian industry, for far too long, has lived under
a draconian regime of controlled and officially prescribed capacities, guided
by politics and not economics, which has resulted in fragmented and sub-optimal
capacities that are uneconomic.
Amazingly, in the past, producing more was a crime. I was once almost served a
notice of prosecution for producing more! Such madness could exist only in
India of the not too distant past.
It is sometimes difficult to comprehend the quantum leap that has taken place in
plant sizes. From fragmented and small plants, today, we have reached a
position where we can take pride in having world-scale plants in several
Let me give you some examples from our own Group because that is what I know
best. Today, our Group is the world's largest producer of viscose staple fibre.
We operate the world's largest palm oil refinery of a staggering 3500 tonnes
per day capacity. Our Group is the world's third largest producer of insulators
and the sixth largest producer of carbon black.
This is when we are only three years into the liberalisation process. Imagine
what our achievements in globalisation will be ten years down the line, if we
continue on today's virtuous road of liberalisation. Indian industry has a key
role to play in the prosperity of our country. Its full potential needs to be
unleashed, if the business of India is to be in business.
Moving on from size, I now come to the aspect of global ownership of Indian
equities. Less than five years ago, in 1990-91, Indian companies mobilised Rs.
9700 crores from the primary market in India at that time; the funds raised
from foreign institutional investors — by the way of GDRs, or Euro Bond or
investment in secondary markets — were all a dismal, resounding zero.
Globalisation has opened the floodgates for the Indian industry of the vast
reservoir of international capital. From being closeted in a shell, we are now
becoming global in ownership.
Trade and exports
Now I come to another essential dimension of globalisation — trade. Industry
and trade go hand in hand. Indian industry cannot globalise without global
Not too long ago, India was an anachronism. In an open world —- an inward
looking, restricted, protected, insulated and a dead market, almost a
non-entity. We could not have mattered less. The world hardly took notice of
this large and talented country.
But now Indian industry is coming of age and our competitors can take us
lightly only at their own peril. In our Group, we are competing effectively in
the international markets, in several product areas. We are meeting competition
head on, without any government support, without any subsidies and standing on our
Psyche and planning globally
Globalisation is not just a change of numbers. It means also a profound change
in our psyche and in our planning. The change in attitude is reflected in the
fact that whilst in the past, we put up plants with sub-optimal capacities,
today we put up industries which have a minimum world economic size. We
consider not just the Indian market, but we consider the world as our market.
From an inward attitude, we have also started looking outward.
We now calculate the profitability of new projects not on the basis of current
customs duty, but the expected lower duties in the times to come. Earlier, we
used to just seek protection at home through tariff barriers, because the
home market was all that we knew.
Today, we are aggressive, not so much about protecting tariff barriers at home,
but also in seeking to demolish trade barriers in developed countries so
that we can have greater access to their markets. My firm conviction is, that
India will be a global economic force to reckon with, in the not too distant
Sometimes, some of our friends are apprehensive about the slow pace of reforms
and industrialisation. I tell them: it takes nine months for a baby to be born.
Be patient. Three years of reforms is just the beginning of the fireworks. We
will together see, in the coming decade, India, emerge as one of the great
economic success stories.
Establishing industries in India by multinationals for
local market and exports
Let us now look at another significant fallout of the globalisation of
industry. Multinational corporations are migrating and flocking into India, and
creating a platform for local as well as export markets. There are some
uncomfortable fallouts to this invasion. As is true of any change, the rose
comes with the thorns attached. One of the negative fallouts has been that, in
several branded consumer goods, Indian manufacturers have virtually called it a
day. This has already happened in products such as soft drinks, toiletries and
others, and is likely to happen in other areas also. In consumer electronics
like TV, as also in several other industries, foreign multinationals are taking
and securing a stranglehold over equity ownership, thus subjugating the role of
the Indian entrepreneur.
Whilst the consumers stand to gain, entrepreneurship, which also is a rare
trait around the world, but which India is fortunate to have in abundance,
will certainly lose its vibrant character. Whether these shifts are good or
bad, time alone will tell. But cataclysmic changes are certainly under way.
Everything cannot be hunky dory. We have to learn to live with the changes and
to struggle and fight. No doubt, some Indian companies will fall. Some will
regain lost ground and many will thrive and emerge as world-beaters.
India not an exception, reforms a worldwide phenomenon
Whilst we laud India's economic reforms, let me also frame India's move towards
globalisation, in its broader, correct balanced perspective. India's reform efforts, whilst noteworthy, are driven by global compulsion.
It is not something remarkable or extraordinary.
It had to be done. There were no options. It was a Hobson's choice.
Without it, India would have been totally marginalised. As an economist
remarked, "there is no force as powerful as an idea whose time has come."
We should not delude ourselves, that we have been pioneers. The fact is, we have been swept up by the force of the wave and now we have no choice but to ride it, if we are not to take a splashing. That said, it is certainly to the credit of our Prime Minister and Finance Minister, to have perceived the dominant currents, decisively made a break with the past and steered the country towards the global mainstream.
The wheels of commerce
What we are seeing is the shrinking of the globe, as the wheels of commerce
make their inexorable rounds. The basic tenets of economics, suddenly, are
reasserting themselves and overriding narrow and misguided political
considerations, world over and at the same time industries are now being
located and relocated where they are most cost effective. This realignment is
going on worldwide. It is up to India to take advantage.
This gives developing countries a chance to industrialise on a global scale.
Let me cite my own experience. Thailand used to import Carbon Black from Japan.
Today, our plant in Thailand, whose size is 2nd only to the largest Japanese
plant, exports Carbon Black to Japan — a breakthrough. Thailand used to import
Epoxy Resin from Japan. Today, our plant in Thailand exports. Epoxy Resins, to our own collaborator in Japan — a total reversal. Japan was a
large exporter of viscose fibre to the world. Today, our plants have captured
a large segment of the ASEAN market, forcing the Japanese to scrap 30% of
their country's viscose fibre capacity.
In this changing kaleidoscope of world business it is for India, to capitalise
on those emerging opportunities for industrialisation in the
Indian companies look outward
I have talked, so far, of multinationals' entry into India. But this subject
will not be complete if we do not take note of the exciting and challenging
opportunities that present themselves to us —- to Indian groups, to become
truly multinational, by venturing out.
Without sounding immodest, I would mention that today, our own Group has more than 20 highly successful ventures outside India, encompassing a global spread of countries, including Egypt, Thailand, Indonesia, Philippines and Malaysia - with a combined turnover exceeding Rs. 3,500 crores. We have now targeted for Vietnam, Romania, Poland and Russia.
Hurdles to globalisation
I would also like to point out that the road to globalisation is strewn with
hurdles. I will mention three major ones:
The spectra of protectionism in developed countries
The drag exerted by the public sector
The noose of a dilapidated infrastructure
Protectionism in developed countries
I have maintained, that "We are not afraid of competition — let competition be afraid of us." However, a new and real stumbling block for Indian industry is the fact that even as more than 20 developing countries reduced their tariff barriers, 12 developed countries have gone the opposite way, and raised tariffs. Apart from tariff barriers, there are unfair anti-dumping duties, and we also face quantitative barriers such as quotas. To make matters worse, anti-dumping laws are framed, unfairly and blatantly, in favour of developed countries. These measures hamper globalisation of Indian industry.
At a discussion with the President of the World Bank, I respectfully mentioned to him, that we had reduced our tariff barriers, in response to sermons of the World Bank.
Whilst we were doing this, the developed countries were raising their tariff barriers. In anguish I said, "Why can't you tell them also to reduce their tariff barriers?" After a prolonged argument in which he defended the developed countries, the President finally gave in to reason and logic and said, "Well, Mr. Birla, the difference between your country and the developed ones is very simple — they are the lenders and you are the borrowers. So we cannot sermonise them".
Therefore, friends, for further globalisation of industry, we need to fight, at every international forum, for open borders and much freer access to the developed markets.
Inefficient public sector Undertakings
As far as the working of these undertakings is concerned, I would like to reiterate what I have been pleading in Delhi - that if the industry is to become efficient, then the PSUs which supply the inputs, such as petroleum products, coal, power, transportation, etc., have to become efficient, because these inputs constitute a large part of our cost of production. To make public sector undertakings efficient, it is important that the umbilical cord between Delhi and the public sector be snapped, before both the mother and the baby come to grief.
If the public sector becomes efficient, we become efficient; if they are inefficient, we, perforce, become inefficient. Therefore, my first suggestion is: let the Central Government sell 51% of the shares of these public sector undertakings to the public.
A deficient and fractured Infrastructure
Having rolled out the red carpet for one and all, we should yet restrain our euphoria. Industry needs infrastructure. The deficient infrastructure which is creaking and bursting at the seams, is today the major, immediate bottleneck — one, which can choke economic activity.
Power is chronically short throughout the country. Unfortunately, there is yet no clear policy on power. The Government admits to a case-by-case clearance of power projects. Liberalisation is yet to touch this sector, where there should be transparent guidelines. Further, the best and the most competent may not necessarily be the ones selected, in subjective assessments, as opposed to objective and transparent criteria.
I will give you an example of transparency, which ensures selection of the best.
This could be a model for India. In Thailand, there were five parties who
applied for putting up a Carbon Black plant, although there was need for only
two plants. The Government was in a quandary and did not know how to tackle
this situation, without giving the impression of favouring any one party. To
solve this problem, they asked all the parties to give bank guarantees, which
would be encashed for half the amount of the project, if the party failed to
implement the project. Two parties gave bank guarantees — we, our Group and
another Thai party, while the others just dropped out. This is transparency for
Tasks for Indian industry: footsteps towards the 21st
I have talked enough about the broad currents of globalisation. Let me now
mention, in brief, what I believe Indian industry needs to do to become
vibrant, dynamic and outward looking, for entering the 21st century. I believe there are certain basic precepts to be followed, and on these there can be no
When setting up a plant, don't only look at the Indian market. Look at the
world market also, put up an economical world size plant. The days of
fragmented capacities are over.
Secondly, get the best technology that is available worldwide. Do not
compromise by getting the second best. Choose the most effective technology,
which ensures the best product quality and ensures cost effectiveness to
withstand severe international competition.
Thirdly, institutionalise R&D and spend fruitfully on it. With our becoming
stronger, we will find it hard to get technology. Today, no one gives to our
Group technology for VSF, Carbon Black or Insulators. They see in us, a threat
to their own dominance we therefore need to develop our own technology through
Fourthly, one lesson I would like to share with you is: one must never
compromise on quality. Even though, in the short run, it is an expensive
exercise, in the final analysis quality always pays and pays handsomely. I can
say this rom my personal experience.
Last but not the least, inculcate the philosophy of continuous improvement in
all spheres of management activity. This psyche, this philosophy, must be all
pervasive, be it in quality improvement, cost cutting, labour and staff
management, in-house R&D, assimilating the latest technology. Only such
painstaking, constant and consistent attention to attaining excellence will
ensure that Indian companies can remain cost and quality competitive, survive
and come out ahead, in the chilly and ruthless winds of globalisation.
This then, is the unfolding drama of India's globalisation:
Driven by the sheer winds of global change
Driven by the hopes and aspirations of the people of India
Driven by the partnership between the Government and private sector, and above
Driven by the indomitable will of the Indian entrepreneur