APRIL 11, 2004
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Q&A: Tarun Khanna
When a strategy professor at Harvard Business School tells the world that global analysts and investors have been kissing the wrong frog-it's India rather than China that the world should be sizing up as a potential world leader-people could respond by dismissing it as misplaced country-of-origin loyalty. Or by sitting up and listening.


Raghuram Rajan
The Chief Economist of the IMF doesn't hesitate to tell the country what he thinks. That's good.

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Business Today,  March 28, 2004
 
 
Century Makers
Will this prove to be 'India's Century'? That, ladies and gentlemen, was the core issue of the India Today Conclave 2004.

India's habit of counting, analyzing and projecting centuries, by conventional wisdom, owes itself to cricket. But then, The India Today Conclave, held at Delhi's Taj Palace Hotel on the March 12 and 13, is not about conventional wisdom. It is, rather, about pondering the questions others dare not. So here goes. Is this, the 21st, 'India's Century'?

The time had never been more appropriate to discuss it, as the Editor-in-chief of India Today, Aroon Purie, made quite clear, before inviting India's Prime Minister Atal Bihari Vajpayee to start the proceedings.

For his part, Vajpayee preferred to envision an India just some years away: a developed India by 2020. His three-pronged strategy: promoting productive employment in all sectors of the economy; enhancing employability of job-seekers through skill development; and strengthening social security schemes for those in the unorganised sector. All of it, he said, would bank on the 'Law of Growth'. The conditions were well in place, he announced, with a characteristic flourish-as if to go with a roll of drums for a new dawn.

He set the cat among the pigeons when he wrote a provocative article in the July-August issue of Foreign Policy entitled 'It's India Above China In The New World Order'. Tarun Khanna, Professor of Strategy at Harvard Business School, spoke to on that, and more.

You have spoke of India overtaking China as a leading power; why are you so optimistic?

While the two countries had embarked on different strategies of development and have achieved different rates of growth, China has discouraged local entrepreneurship in favour of an FDI-dependent approach; India, on the other hand, has allowed free enterprise to thrive. In fact, there is much more private sector initiative in India-be it in advertising, publishing or NGOs. The real issue isn't where China and India are today, but where they will be tomorrow.

Any major concerns, though?

Many. For instance, how will India rein in the fiscal deficit? How will India discipline its political class? Also, India remains over-regulated compared to other countries at its per capita income level.

Foreign Minister Yashwant Sinha spoke next-on India's quest for global power, both hard and soft. Managing the global response was the issue. This could depend on whether India escapes a failure of political imagination, warned geo-politics expert Sunil Khilnani, serving a blunt reality check-before advising the country to deploy its original wit, moral discipline and power of persuasion to bridge "conflicting interests" and, thus, redefine the essence of global greatness.

With the hall sufficiently steamed up, Yale historian Paul Kennedy ran the Conclave through the relevance of steam-that half-seen natural-turned-manmade source of power-and free trade to Europe's overthrowing of South Asia as the world's great economic power some three centuries ago. Was a reversal in sight? No, not unless India came to grips with the ifs and buts.

Anyhow, it was clear, the economy could not afford to let the country down again. To industrialist Mukesh Ambani, India's success was mainly an issue of making the most of the country's new "tryst with destiny". Exuding an urgent sense of must-do optimism, Ambani outlined a strategic plan to storm into the G-5 economies within a couple of decades. Services, energy and knowledge-era competencies, he said, could converge to deliver scorching economic growth-so long as no opportunity is left untaken, be it healthcare, tourism, design, entertainment or any other expression of creativity. What's more, if West Asia was the energy base of the world, there was no reason India couldn't modernise agriculture to become the food base of the world- which would ''entail an integrated, high-end, high investment, high-yield, resource-efficient model of farming".

''The objective conditions, including the international situation, have never been more conducive for this Law of Growth to operate with full power in the case of India."
Atal Bihari Vajpayee, Prime Minister of India

"Like all matters of international politics, the rise of India will depend not just on India's actions, but also on how the rest of the world responds to this development."
Yashwant Sinha, Minister of External Affairs

"The world is attracted by what Bangalore stands for, but repelled by what Gujarat means."
Sunil Khilnani, Professor of Politics & Director of South Asian Studies, John Hopkins University

"A Goldman Sachs report says India will be the third largest economy by 2050. But three challenges could put the brakes: Kashmir, energy deficiency and China as a competitor."
Paul Kennedy, Yale Professor and renowned historian

"To become an intellectual hub, we need a paradigm shift from deriving the benefits of innovation to driving innovation."
Mukesh Ambani, Chairman & Managing Director, RIL

"We are risk averse and frightened to fail. We love our comfort zone. We have to be innovative and different."
Anand Mahindra, Vice-Chairman and MD, Mahindra & Mahindra

"In the days ahead, Indo-US relations will be like a Bollywood blockbuster. There will be twists and turns in the plot, but there is no doubt it will be a happily-ever-after result for both countries."
Colin Powell, Secretary of State, USA

Chief Economist of the IMF, Raghuram Rajan, was relatively cautious in his optimism. Given the strength of its institutions, he said, the country had underperformed badly on most indicators so far. The good news was that most of India's growth since 1980 had come from 'total factor productivity', and India was set for great things ahead. Provided, he cautioned, the country deals quickly enough with drags such as the fiscal deficit. Beyond that, he advised, this is an opportune time to get reforms moving to ease constraints, attract greater investment and further incentivize growth, which has proven the best antidote to poverty.

With the economy in boom and globalising, it ought to be just a matter of a few decades that India could boast of a hundred multinational companies. How could it be done? As of now, said Harvard B-school professor Tarun Khanna, "Indian companies can hardly be called global." His three-part recommendation? "Leverage India's unique strength, embrace your neighbours and borrow strategically.'' That's the way to go. "If capital is not available at home," he advised, "tap into the deep capital markets of the world. If talent is an issue, then learn to tap into the rest of the world.'' His last suggestion: leverage India's "under-utilised asset''-the diaspora.

What the government could do, according to industrialist Anand Mahindra, is provide a 'Tropical Garden environment'. "The gardener should create the right kind of soil (conducive environment), ensure that there is adequate water (facilitating policies), rid it of the weeds (obstacles and bottlenecks) and then, move out of the way,'' he suggested. The de-weeding could go from power supply, roads, ports and labour constraints to archaic strictures on mergers. Further, the quest for economies of scale requires common-market thinking, and it would help vastly if attitudes on this issue could be reshaped.

Score check: Aroon Purie, Editor-in-chief, India Today, and Gen. Pervez Musharraf, President, Pakistan (on the screen)

You could say that again, one could almost hear US Secretary of State Colin Powell think to himself, as he addressed the Conclave via satellite-on Indo-US ties, with all the 'twists and turns' in the plot.

India's own governance story, according to Disinvesment and Communications Minister Arun Shourie, is about mass empowerment-enabled by the receding of the state as a big part of people's lives. The state is no longer the growth engine, he held, but more of a facilitator for private enterprise. But let's not get cynical about the state, said Delhi University's Deepak Nayyar. "We have moved from a widespread belief prevalent in the 1950s that the state does nothing wrong to a strong conviction in the late 1990s that the state can do nothing right," he said, "Now, these are caricatures of perceptions."

Thankfully, change is the very word youth defines itself by-as made evident by young politicians B.J. Panda, who spoke on the need for youth-driven change, and Mehbooba Mufti, who made a plea for peace.

At 40, he is the youngest individual to be IMF's chief economist. Raghuram Rajan's major works include the recent book Saving Capitalism from the Capitalists. Excerpts from an interview with

What is the major problem confronting US capitalism?

The biggest problem with the US today is a sense of scepticism with the functioning of the capital market and with issues of corporate governance.

How do you see the build-up of India's foreign exchange reserves to nearly $108 billion?

My belief is that India has accumulated more dollars than is necessary, and it is actually hurting its growth prospects. It shows two things: that India is not buying enough from different countries, and not enough investments are being made.

What are your other concerns about India's progress?

I am worried about the high fiscal deficit, the meagre investment both in physical infrastructure (power, ports and roads) and soft infrastructure (health and education).

Mutual understanding, be it the ongoing peace process with Pakistan or economic reforms, was also a theme played by Congress Chief Sonia Gandhi. She spoke of the national imperative to turn the 21st into another Indian century (the 20th already having been one in "many ways"). "Faster economic growth is essential," she said, making a case for an open-minded Indian century, "but this growth must take place in an environment of social harmony, in an atmosphere of social cohesion."

If hard realism was an issue, S. Krishnaswamy, Chief of Air Staff, took it to an entirely different sphere, speaking on India's defence preparedness. We need economic growth, he said, to gain military muscle. Defence expert Ashley Tellis made a frank case for allying with the US, given the unlikelihood of matching its firepower anytime soon. "India should exploit the existing world order," he advised.

India's soft power, on the other hand, is within anatomical distance of the global big league-but deploying it effectively would require another literary revolution in the country, according Sonny Mehta of Alfred A. Knopf, a global publishing house. Aishwarya Rai, star of the recent releases Khakee and Chokher Bali, began with an acknowledgement of her presence as the film industry's 'face', and spoke of the creative expressions of soft power that could be projected worldwide to India's unique advantage. "I...I..." she appeared to hesitate-before exposing her soreness with the media's half-commital enthusiasm for Bollywood's dreams, and hoping two things of the audience: a pardon for her nerve, and a take-away of more than how good she looked.

That was minutes before India's sensational last-ball cricket win in the Karachi one-dayer. And it was amidst this "good mood" that Pakistan's President General Pervez Musharraf addressed the Conclave live via satellite. The topic: ending half-a-century of Indo-Pak conflict. Yet, questions of where who stood became supercharged as the Conclave's grand finale, the interactive session, began to see its jolly conviviality alternate with grim reality. And the challenge ahead. A dialogue that began with the K-city of cricket couldn't but veer its way to the K-state of Kashmir. May hard minds keep whirring for soft solutions.

"The real thing is not to think of reforming the system, but of hacking away the functions, to transfer function, power and legitimacy from State structures to society."
Arun Shourie, Union Minister of Disinvestment & Communications

"Vulnerability tempts aggression. Economic strength is vital to national security. Economic growth will lead to military growth."
S. Krishnaswamy, Chief of Air Staff

"It is not possible to build an Indian century if the reality of the two worlds-India and Bharat-remains unchanged."
Deepak Nayyar, Vice Chancellor, Delhi University

"In a unipolar world, better relations with the US will help both. The US is an 800-pound gorilla that has to be entertained."
Ashley Tellis, Sr Associate, Carnegie Endowment For International Peace

"Let us not be diffident, I say this to politicians of our generation. Let us use our mandate to make a difference."
B. J. Panda, Member of Parliament

''Our soft power is our population. We need to cut costs to make knowledge affordable to the masses."
Sonny Mehta, Editor-in-Chief, Alfred A. Knopf

"We have to translate fault lines of conflict into silver lining of peace, change borders of hostility into bridges of trust and cooperation."
Mehbooba Mufti, Vice-president, People's Democratic Party
"Our soft power is not just films, but also media, language, music and fashion. We need to harness all these."
Aishwarya Rai, Film Actor
"The closing of the Indian mind is simply not compatible with the opening of the Indian economy."
Sonia Gandhi, Congress President and the Leader of the Opposition in the Lok Sabha
 

 

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