[nukkad] Animal Spirits in India

["Pravin Walunjkar" <1>]

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Sad is his lot, who, once at least in his life, has not been a poet.
-Alphonse Marie Louis de Prat de Lamartine, poet, statesman (1790-1869)
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THE WALL STREET JOURNAL ONLINE, JANUARY 15, 2004 
 
'Animal Spirits' in India

By EMILY PARKER

NEW DELHI -- For the past decade, Western media attention has focused on
India's potential . . . to disappoint. Now the economy is buoyant, but
those who've been burned before argue that the country lacks some of the
economic fundamentals needed for sustainable growth. These doomsayers,
however, may be overlooking a new and hard-to-quantify asset. What John
Maynard Keynes called "animal spirits" are infusing the Indian business
culture.

The level of confidence is extraordinary. The same phrases are repeated
over and over: "It is time for the Indian to find his place in the sun."
"We are on the cusp of major change." "We can compete!" Of course, some
ask if this is more of the irrational exuberance that the country has
seen before. No one disputes that India had a fantastic year, sparked by
an excellent monsoon that set off a cycle of rising demand and
consumption in India's largely agricultural economy. Foreign-exchange
reserves have passed the $100 billion mark, last month India reported
8.4% GDP growth rate for the July-through-September quarter, and the
stock market recently hit a record high. In the past few weeks, even
relations with Pakistan have been looking better.

Even so, major obstacles remain. The economy is shackled by an enormous
fiscal deficit, red tape, bureaucracy, poor infrastructure and
widespread poverty. When major reforms began in the '90s, expectations
shot sky high. Yet India's inability to maintain reform momentum and
resolve inefficiencies in the economy have created an understandable
cynicism among India watchers. So it's reasonable to ask: What makes
this current optimism different?

The answer is simple. The mood is not optimism -- it is confidence. Many
Indian businesses are no longer afraid to take risks and compete on a
global scale. This is a major departure from the past. From Independence
in 1947 to the early '90s, the self-acclaimed "self-sufficient" nation
was largely closed off to the world. Protection by the government meant
less competition and safer profits, so many businessmen feared reforms
that would alter the status quo. Such fears partly reflected a lack of
confidence that India would be able to compete in the global economy.
Even after India opened its doors in the early '90s, many were anxious
that Indian industry would be demolished by foreign competition.

For an increasing number of Indian businesses today, such fears are
obsolete. Over the last 10 years, some of the weaker companies couldn't
take the heat, but others have proved that not only can they compete,
they can win. Furthermore, more and more Indians are reaping the
benefits of globalization and liberalization -- as consumer goods like
cell phones, televisions and automobiles are made accessible to a larger
part of the population. Foreign companies' outsourcing to India is no
longer seen as exploitation, but rather as the generator of thousands of
jobs per month.

Indian success stories in industries such as pharmaceuticals and
software are common knowledge. But other triumphs may be even more
revealing of how liberalization is benefiting the country. One example
is the auto industry. Indian companies, exposed to further competition,
have been forced to innovate, take risks and cut costs. In 2002, utility
vehicle maker Mahindra & Mahindra was facing strong competition from
Toyota. The company defied skeptics and embarked on a truly ambitious
project: building a homegrown Indian SUV. The Scorpio was a hit in the
domestic market, ranking first in a recent customer survey, and giving
the company's sales a major boost.

What drove Anand Mahindra, vice-chairman and managing director of the
company, to take a leap of faith that could have cost him his job?
"Competition and threat of extinction," he says. Not to mention "a very
deep confidence that at some point in the future India would be the
lowest cost source of engineering skills." Mr. Mahindra, who now
receives requests from business schools to share his experience, sees
confidence on the rise. "The Scorpio story is going to be pedestrian in
another year or so," he says. "The ability to take risks takes a quantum
leap when you have a few success stories."

The Indian press is full of accounts of domestic companies holding their
own against foreign competition, with examples ranging across a variety
of sectors. Furthermore, a growing number of Indian companies are
venturing beyond the country's borders -- and some have gone on to make
global acquisitions. In a bold move that would have been unheard of
several years ago, the auto-components firm Bharat Forge purchased a
German company last November.

Some would argue that too much protection remains, and Indian companies
have yet to be exposed to truly cutthroat competition. But in a few
cases where they've been forced to compete, Indian companies have
emerged leaner and meaner -- and proud that they don't need government
protection to survive. "There is a rise in Indian pride," says Uday
Kotak, vice-chairman and managing director of Kotak Mahindra Bank. "We
can stand up [to competition]. Indian quality is world class or can be
world class."

In many ways, India is being woven into a global network. Outsourcing
has made India a viable part of multinational production chains. Many
Indians take pride in the fact that outsourcing is no longer only for
low-end labor, but also for "low-cost brainware" such as research and
development. And India no longer feels as threatened by "brain drain."
For many years, India's top talents graduated from university and went
abroad. Now, many are coming back, lured by the opportunities of a
rapidly developing economy. Ajay Shah, a consultant at the Ministry of
Finance, explains: "I still have more friends in San Francisco than I do
in Bombay or Delhi. But there's nothing left to do in the U.S. . . .
This is the Wild West and I'm having a ball."

Even the Indian Diaspora, once disparaged for having "abandoned" the
Motherland, is being dramatically reconceived. Indians increasingly view
compatriots abroad as a major asset. Successful Indians in the U.S. are
perceived as promoting India's "brand image," and overseas Indians in
top corporate positions are viewed as directing jobs and investment over
to India.

Many Indians no longer resist global integration -- rather they see it
as a tool to sharpen their competitive advantages. Most importantly,
India has finally shed its former handicaps, fear and insularity, and is
developing the self-assurance essential for economic growth. As long as
the government presses ahead with reforms that allow these "animal
spirits" to thrive, India is poised to take on the world.

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have a great day !
- pravin walunjkar. 
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