I was a gung-ho liberaliser when economic reforms began in 1991. At the time, a sceptical politician asked me which sectors would benefit most. I replied it was not possible to predict the winners. In that case, he sneered, why embark on a path with no destination.
The answer is clear today, now that India has averaged almost 9% economic growth for several years. This success required a path which, by design, had no destination. The reforms tore down the planned road and opened entry into a million possible roads, facilitating ideas that no planner had dreamed of.
Before 1991, no planner visualised a future economy excelling in computer software, business process outsourcing (BPO), R&D, or brain-intensive manufacturing. But deregulation plus global connectivity created a million new possibilities, and innovative risk-takers did the rest.
India is globally famous for computer software. Yet government policy hobbled this industry for decades. Narayana Murthy of Infosys says it took almost two years in the 1980s to get a telephone connection and a licence to import a computer. Politicians and trade unions opposed computerisation as a threat to jobs. The 1993 bank-union agreement, two full years after liberalisation, nevertheless provided for bank branch computerisation at just 0.5-1% per year, meaning full computerisation would take 200 years!
Without widespread computerisation, software engineers could not develop high skills locally. But Indians who went to the US became the whizz kids of Silicon Valley. “Body shopping” followed — foreigners hired Indians to work on software projects in the US. India’s software skills were honed in Silicon Valley and then shipped back. No planner could have planned this: it was the spontaneous outcome of enterprise and global connectivity.
Similarly, no planner could have created BPO. Nobody predicted in 1990 that thousands of foreign companies would move back-office and technical services to India. General Electric was the first to experiment with the idea. It succeeded so well that MNCs galore followed suit.
Initially, companies thought only low-tech jobs could be outsourced, but Indians quickly graduated to the most skilled tasks. Moody’s and Standard and Poor’s took a long time to upgrade India’s credit rating to investment grade, yet have shifted some of their own rating operations to India.
India has become a global R&D hub. Here too, General Electric led the pack. Renault-Nissan is partnering Bajaj to make a small car that can beat Tata’s Nano. The R&D has been entrusted by the Franco-Japanese giant to Bajaj.
India’s boom in brain-intensive manufacturing was unplanned. Most people thought India would follow the path of labour-intensive exports pioneered by East and South-East Asia. India failed dismally here, thanks mainly to rigid labour laws. But, to everyone’s surprise, India became world class in brain-intensive industries like pharma and automobiles.
Indian pharma is now a global player, and all top companies have become MNCs, acquiring companies across continents. This was made possible after India agreed to international patent rules, something the government opposed tooth and nail and was finally forced to accept in the Uruguay Round of 1995. This failure of planned strategy was the beginning of Indian success. Indian pharma companies initially feared they would be wiped out, but soon found that integrating with the global economy was an opportunity, not a threat.
The auto industry has become world-class. Why? Auto companies need constant new models and improvements to compete. Auto MNCs in India found that Indian engineers could do this quickly and cheaply. An auto component giant like Delphi takes three months to go from a new concept to prototype to commercial production. Bharat Forge claims it can do this in one month. Such skills have made it global No 2 in auto forgings.
When the economy opened up in 1991, many predicted that Indian companies would go bust or be taken over by MNCs. Nobody dreamed that one day Tata Steel would take over Corus, which was six times as big; or that Tata Motors would acquire Jaguar and Land Rover; or that Hindalco would take over Novellis, which was several times its size.
How did Indian minnows take over global whales? By borrowing massively from abroad. But such massive borrowing was prohibited by government policy till recently. The curbs aimed to thwart irresponsible borrowing. No planner realised that the curbs also thwarted Indian takeovers of global giants.
The government has long discouraged private initiatives in education, and education for profit is banned. Supposedly non-profit private engineering colleges have come up, often owned by politicians, and often collecting illegal fees under the table. Their educational standards are spotty at best. Yet, these unplanned colleges, warts and all, have driven brain-intensive manufacturing. Government colleges produce only 45,000 engineers a year. Private colleges produce nine times as many.
For decades, telecom was a government monopoly. In the 1980s, the government vetoed proposals for cellphones, saying they were a rich man’s toy. No planner anticipated that after liberalisation in the 1990s, cellphones would be bought by everybody from rural shopkeepers to urban carpenters. Nobody foresaw that Indian companies would create the cheapest calls in the world, attracting 8-10 million new subscribers per month.
No planner saw any comparative advantage in wind energy. Indian wind speeds are generally low. Yet Tulsi Tanti, a textile manufacturer, launched Suzlon to make windmills. He is now world No 5 in windmills.
Essel Propack has become the world’s top producer of laminated plastic tubes (for toothpaste, drugs and cosmetics). Nobody planned this. Subhash Chandra, a rice merchant, was looking at an international fair for plastic packaging for rice. The plastics dealers told him, by the way, that laminated plastics were replacing aluminium tubes for toothpaste. This accidental discovery helped transform Chandra from humble rice trader to world No 1 in laminated tubes.
One of my favourite posters says, “Some people look at things as they are, and ask why. But I dream of things that never were, and ask why not.” India has succeeded by becoming a place where people can think of things that never were, ask why not, and then just do it.