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What Will It Take

For The Indian Capital Market To Lead The Country's Growth?

By Rakesh Jhunjhunwala

The role of markets in the development of economies and societies is significantly under-appreciated and misunderstood. The general impression is that markets are only for the rich, and hit the vulnerable sections of the society adversely. In my opinion, to the contrary, markets are an essential institution for development and the longevity of that development. This has been vindicated across generations and across geographies-the countries with the highest GDPs and highest per capita GDPs have well-developed markets and well-developed regulations. Even resource-rich countries without developed markets have ended up with poor economic fundamentals in the long run as witnessed in West Asia until recently. This is now well recognised the world over, and, hence, barriers to trade, capital and skills are coming down in this new era of globalisation, which has resulted in higher productivity, higher consumption, higher prosperity, lower poverty; and has controlled inflation in a benign range-much to the relief of the poor sections of society.

Markets bring about structural changes in the economy. One of the reasons that Communism did not sustain was the absence of free market mechanism to achieve efficient allocation of capital. Markets empower creative destruction, whereby the inefficient units are destroyed by the advent of more efficient and innovative units. Markets enhance competitiveness in an economy by reducing barriers to entry and by allowing better price discovery. Markets make sharing of risks, pricing of risks and transfer of risks possible. Markets empower entrepreneurship by providing capital and risk taking ability.

The oft discussed and debated economic liberalisation programme in India to me means:

• Customer is King; Achieved by competition and adequate supply
• Efficient allocation of capital; The primary function of the capital markets
• Government to exit the business of running businesses; The elusive phenomenon of privatisation.

To my mind, the crux and heart of the liberalisation programme is the development and the supreme role of markets achieved either by having formal markets, or the supremacy of the market mechanism. As a corollary, the term markets should include not only the organised markets, but encompass a wider perspective of markets, a laissez-faire environment without government interference. Even in the absence of a formal market, government participation in business leads to sub-optimal business environment.

A relevant example of futile government interference in the market mechanism was its attempt to revive the sick textile mills in the country under the banner of National Textiles Corporation (NTC). Twenty-five years and Rs 5,000 crore later, we have not only not succeeded in reviving the sick mills, but have also offered unfair competition to the healthy mills; in the process damaging the entire industry. "NTC has no future unless the government gets out of it completely," says T.S.R. Subramanium, former Cabinet and Textile Secretary. We have not only been unable to protect jobs, but I think we have stifled the prospects of one of India's largest industries and destroyed many job creation opportunities. This is a prime example of interference with the market mechanism of creative destruction. The same can be said of the jute industry, too.

Markets can be efficient only when we realise their importance and consciously make them an institution. Institutional frameworks for markets enhance the longevity of the wealth creation process. In their absence, we breed complacency, inefficiency and wastage. For example, we all know the challenges to the consumer and the stunted growth in the telecom sector till the state had a monopoly. But once a fair policy framework and regulation by TRAI (Telecom Regulatory Authority of India) were in place, we are now adding more mobile subscribers per month than China.

India's growth and growth potential are also influenced by its markets. All barriers and constraints to markets have resulted in wrong allocation of resources, inefficiency, lost opportunities and incentives to vested interests. We have seen dramatic improvements in areas where markets have developed and are transparent, efficient and have effective regulation.

Finance is the fuel that fires all furnaces. Financial markets and financial eco-systems are the most crucial markets for an economy, though the least understood and appreciated. Most people have an adverse bias towards equity markets as being speculative and a gambling den. Little are they aware that they are desecrating the temples of capitalism that ensure efficient allocation of capital and provide risk capital for entrepreneurs. One of the primary reasons for the cutting-edge innovation and scalability of us corporations is the availability of risk capital and an environment for exits for those who fund the risk capital primarily because of the development of equity markets.

Take the case of India's equity markets. There is a sea change over the last decade. With electronic anonymous order book trading, dematerialisation, enhanced corporate governance and robust, but fair regulation, the liquidity, breadth and scalability of Indian equity markets have leapfrogged. This change in the markets has enabled India to attract more than $9 billion (Rs 40,500 crore) of net FII (foreign institutional investor) investments in 2005. Moreover, the effective distribution of mutual funds has started playing a vital role in helping to channel incremental domestic savings into equities. Today, India has a culture of and environment for providing risk capital, especially as Indian markets can provide exit opportunities for sizeable capital, which encourages private equity and venture capital investments. This has laid an effective foundation for the provision of capital to Indian entrepreneurs-so vital for the secular growth of India.

On the other hand, where markets have failed to develop well, the respective economies have borne a high cost for the same. India has a very thin and illiquid debt market for government securities as well as bonds. This has led to an implicit illiquidity premium being embedded in the yields. The futile attempt to prop the Japanese banking sector has resulted in a prolonged quagmire in the country's economy, as its banking system's weakness has been transmitted to the rest of the economy. In Japan, the process of creative destruction was stifled and, hence, the economic weakness persisted for nearly two decades.

Steel prices in India had skyrocketed, but since no artificial controls were enforced, increased supply by imports and by domestic capacity expansion has resulted in bringing down the prices subsequently. It is true that increase in prices hurt, but the hike also attracts fresh supply, which eventually brings down prices. Banning of short-selling has made equity markets more vulnerable. The futile attempts of pricing kerosene at a subsidised rate is unfortunately leading to adulteration of fuels across the country by mixing kerosene with diesel.

Lack of labour reform, which will bring about labour flexibility, may act as a protector of labour that is already employed, but acts as a deterrent for further employment and, hence, leads to lesser opportunities for the poorest sections of the economy. One of the reasons that the US has one of the lowest unemployment rates in the world is the laissez-faire nature of its labour markets. We Indians need to really think about this aspect and arrive at a consensus as to how we can make labour more mobile and productive by not unnecessarily protecting jobs. This is the most vital requirement for India to achieve double-digit economic growth, manufacturing competitiveness and for providing jobs to the crores of young Indians ready to enter the job market.

One of the most vital reasons for the lack of a second Green Revolution in India is the constant government interference in all aspects of agriculture, be it land supply, agricultural inputs, pricing/selling mechanisms etc. Lack of organised markets restricts opportunities. Artificial price setting distorts the free market mechanism and leads to inefficient resource allocation. The minimum support price (MSP) for wheat and rice results in imbalance of cropping area patterns to the detriment of other vital crops. Fertiliser subsidies result in imbalanced use of urea compared to other fertilisers and, hence, lead to structural deterioration of soil. The APMC (Agriculture Produce Market Committee) markets result in prejudicial pricing and lead to throttling of the price discovery process. The regulatory inhibitions of allowing corporates to participate in primary agriculture has led to a paucity of value-added downstream agricultural output in spite of being one of the largest producers of fruits and vegetables. Due to unavailability of market mechanism for movement of agricultural output, appropriate supply-chains have not been built. In spite of the Ricardian Theory of International Trade, the US and the EU are inflexible on agricultural subsidies, which are restricting global agreements on free trade.

If one has to conceive a utopian situation, where there is great faith in the free market mechanism and a commitment to ensure longevity to the wealth creation process in an economy, the following factors are a condition precedent to the stated goal of efficient markets:

• Free markets with low entry barriers and low exit barriers;
• Homogeneous/standardised tradable products/units;
• Efficient information dissemination;
• Effective price discovery mechanism;
• Suitable financing mechanisms for market participants;
• Systems for risk management, and prevention of malpractices;
• Effective Multi-dimensional Regulation; and
• Crisis Management plans.

We must remember what Raghuram Rajan says in his book Saving Capitalism from the Capitalists: "Markets are not just a tool for the rich, they make opportunities available to all sections of the society." He gives a powerful example of the difference micro-credit makes to a labour woman in Bangladesh, and how, in the absence of a free market mechanism to deliver micro-credit, she is exploited. Contrast this with the example of easy access of funds to a student in the US from a search fund that enables him to create significant wealth for himself. If India can create an efficient model for delivery of micro-credit at market-determined rates, we will see a revolution in India.

In summary, we as a society, and especially our polity, have to realise that markets are like the weather-we may not like them, but we have to bear them. The liberalisation of the 1990s is now bearing fruit, and we must continue on the path to reforms. Markets are the ultimate levellers, and always have self-correcting mechanisms. The development of markets and market mechanisms is the primary manner by which the spirit of enterprise of India's talented and skilled people will be unleashed. This, in my opinion, is the paramount need for India to win the war against poverty and for the country to be an economic superpower. We must appreciate and respect the market mechanism.

The author is Partner of Rare Enterprises Ltd and a stock market investor

What Will It Take

For An Indian Company To Be Among The World's 10 Largest?

"The illiterate of the 21st century will not be those who cannot read and write but those who cannot learn unlearn and relearn."
Alvin Toffler

These are exciting times for the Indian economy. Never have we had it so good. A liberal economic environment has seen phenomenal growth rates over the last decade-and-a-half. What has been most exciting is the emergence of a strong service sector and the manufacturing sector reinventing itself to make a strong comeback. Having said that, I must also add that the best is yet to come. The Indian economy can and must go a long way forward.

Indian companies have started making their mark on the world map. Already, Indian it and ITEs companies are among the most sought after in the world and are busy creating a global footprint through both organic growth as well as acquisitions. Telecom companies have become benchmarks for offering the lowest rates in the world. Even Indian manufacturing companies are now producing world-class products and exploring international markets. As an Indian, one is really proud to see a Tata Indica being driven in the UK under the Rover badge. I hope and believe that as infrastructure bottlenecks get removed and trade policies get liberalised, the Indian economy will gain momentum.

But before we try and delve into the future to find out if an Indian company can be amongst the 10 largest companies in the world, it is essential that we analyse what's so special about the companies that currently constitute this Top 10 club. The Top 10 companies are from varied business sectors, countries and continents and have different business philosophies, but all of them have some common traits that separate the boys from the men.

Why are these companies right up there? They are there because they had a strong vision and a clear focus. All these companies have kept one eye on their growth and the other on the ever-changing business environment and kept evolving. This ensured that they could respond to challenges of new technologies, trends and changing customer needs. What's most important is the fact that they have braved and captured new markets to become transnational and have invested considerable resources to create powerful and enduring brands. This is similar to the story of some natural species that have continuously evolved and survived thousands of years of change, while others have become extinct.

Take the example of Wal-Mart. It started its retailing business with a single focus: to bring the lowest possible prices to its customers. Today, it is not just the world's largest retailer, it is also the world's largest company. Toyota Motors, through a constant focus on quality, innovation and process efficiency, is close to reaching the summit of international auto industry.

While we admire these companies, we must also learn from how they have managed to get to the top and stay there.

Asia has arrived on the world scene and is destined to be the growth engine of the world economy. Indian companies today stand at a very important juncture and will represent this new Asia, along with China, in the days to come. Globalisation has changed the current economic landscape and while it has opened up a box of opportunities, it also exposes us to several challenges. With trade barriers continuing to evaporate and access to new technology getting simpler, the world, in the not too distant future, will become a common marketplace. Everyone will compete for the same market and the same consumer and only the fittest would survive. For example, a Benarasi sari, which an Indian bride would wear, could be produced on a power loom in China. Fruits and vegetables at an American store can and are being produced at Indian farms.

So, what do Indian companies need to do to manage this change and move ahead? As our economy expands further, it will present everyone with ample growth opportunities. Though Indian companies are well placed to make the most of these opportunities, they will, at some point, need to move out of the comfort of their own backyard and explore new markets. I believe that over the next decade or so, several Indian companies will have acquired a considerable level of scale and competitiveness on account of a large and strong domestic economy. The natural transition from this stage will be the emergence of the Indian multinational. This could be achieved largely through a combination of acquisitions and exports. We have witnessed some of these developments at Mittal Steel, which has acquired steel plants and turned them around to become a truly global steel company. It is such combination of entrepreneurship and vision that will be required for growth.

In India, we have some very capable entrepreneurs, who have the ambition and can make it to the very top. I believe companies that can create their business models around delivering quality products and services while remaining cost competitive, will be at a distinct advantage when they move to new markets. The key, however, will be innovation and a global mindset. Companies will need to invest more and more in research & development and acquiring business know-how.

Indian companies will need to innovate new products and services or invent completely new product categories. As the world economy moves towards becoming a knowledge-driven one, Indian companies that can acquire knowledge quickly and adapt to or create new technology will have a clear advantage. Let us, for a moment, assume that there is technological parity and a level playing field across all markets, then the key will be innovation. Companies that move into completely new product categories and business segments and create new demand will be able to seize growth and profit opportunities.

Last, but not least, Indian companies must be able to create powerful global brands, which are one of the key drivers of growth for a top company. Powerful Indian brands will be those that cut across geographical and cultural borders and connect with consumers in the global market.

Possibly, no brand has done a better job of mining the potential of brand building than Samsung Electronics Co. A little over a decade ago, it was seen as a maker of low-end consumer electronics and a poor cousin of top Japanese consumer electronics brands. But a clear focus and investments in the brand have seen Samsung move up the value chain. Today, it is up there with the best in the world, and, according to the BusinessWeek-Interbrand survey of Top 100 brands 2005, has even surpassed Sony in terms of brand value. Another example is Google, a global brand built up in no time, riding on simplicity.

Can a product breakthrough, such as Apple iPod, be achieved in India and take the whole world by storm? Can an Indian pharma company be the first to invent a vaccine for aids? Can an Indian it major create the next Windows? Having said that, we also need to keep in mind that the next decade will be critical for Indian companies to create a springboard for global operations. The government will play a critical role in this by providing adequate policy support and checking the infrastructure inefficiencies. It is only fair to say that we must learn to live in a globally integrated economy and be globally competitive before taking the big leap. We may be ready at the moment to make a mark in emerging economies, but the real challenge is to compete with the best in their very own territory. A policy environment that encourages a 360-degree approach to social and economic development of India will help prepare this ground. Only such an environment would give us thought leaders and entrepreneurs of tomorrow.

Will an Indian Company be amongst the world's 10 largest? We have a mountain to climb but all ingredients for that recipe are there and turning the Great Indian Dream into reality is only a matter of time.

The author is Chairman & Group Managing Director of Bharti Enterprises Ltd

What Will It Take

For India To Become The #1 FDI Destination In The World?

The question itself contains within it the obvious presumption that foreign direct investment is eminently desirable. I have no quarrel with that presumption, but I do wish to place it in a context that will support the roadmap I've been asked to lay out.

Towards that end, it may be useful to restate a basic tenet of development economics. Economists employ a rule of thumb labelled the Incremental Capital-Output Ratio or ICOR, which is essentially a formula that articulates the quantum of investment, or capital, required to achieve a certain rate of growth. So, if we target a growth rate of 8 per cent in Indian GDP, we will, per force, need to ensure a rate of investment of 32 per cent, given an ICOR of 4.

India's savings rate has not yet touched the levels that this formula tells us is sine qua non for ensuring the growth target we have in mind, and indeed, must have in mind if we are to banish poverty within a reasonable time frame. When there is a gap between the savings rate within a country and the rate of investment required for achieving the targeted growth rate, then that gap is usually met by-you guessed it-foreign direct investment (FDI).

Now that is essentially a mathematical argument in favour of FDI. In addition, I'd like to cite four more reasons in support of FDI that are soft in nature. First, and most important in my view, is that foreign direct investment brings technology and innovative practices to India. Even when it is brought in by MNC-controlled subsidiaries, there is an inevitable osmosis of knowledge that takes place through their Indian employees, who leave and join other firms or even better, become entrepreneurs themselves.

Secondly, overseas firms can deploy large quantities of capital, which is just what the doctor ordered for large infrastructure projects. Indian entrepreneurs can, by and large, access whatever capital they need today, but there are still only a handful of domestic business houses that are capable of undertaking, or willing to make the kind of investments needed for long-gestation, uncertain infrastructure plays.

Thirdly, the entrance of some key global players can provide India vital access to downstream elements of the value chain. For example, if India wants to become a major exporter of agro-products and processed foods, then it is critical to gain access to global retail outlets and brands which overseas consumers trust. Encouraging large global players to enter India encourages them to view India not just as a market, but as a key participant in their supply chain.

Fourthly, FDI brings in players who raise the scale of the industries in which they operate. Let's take the retail sector, which is the subject of intense debate. If a giant global player comes in and targets the procurement of $5-billion (Rs 22,500-crore) worth of goods annually from India, then this will allow Indian producers of all kinds of goods to make a quantum leap in their scale of production with dramatically reduced risk. We seem, therefore, to be missing the point that FDI in the retail sector is not just about retail, but is about making India a manufacturing superpower!

This last point is crucial. We need to understand, once and for all that information technology (it) alone is not going to solve our employment needs. Despite great success thus far, the reality is that it employs less than 1.5 million people today. I recall Bill Gates saying at a Confederation of Indian Industry (CII) meeting in Bangalore that India could not ignore the manufacturing sector if it was to achieve sustainable growth and provide employment opportunities. The multiplier effect in manufacturing is far greater and, therefore, more valuable for a country with our population and demographics.

So, the bottom line is that we need to up the ante in our efforts to attract FDI, and we need to focus afresh on investment in manufacturing. What, specifically, do we need to do?

Let me begin with a prescription that is obvious and, yet, worth restating: we cannot, and must not, let our GDP growth rate slip below 8 per cent. We must understand that no amount of improvement in our customer-friendliness and easing of regulations will help, unless we are growing at a rate that makes the world sit up and take notice. Arguably, there are many areas in which our regulatory framework is superior to China's. But it is steroidal growth which keeps the legions of investors coming. For this, the political leadership, from the Prime Minster down, must make it an unequivocal virtue to pursue GDP growth targets.

I recall when, with a CII delegation, we met B.G. Lee, then Prime Minister in-waiting of Singapore, and asked him about his interest in India, he said simply: "How can I ignore a country growing at 10 per cent?" He was referring to the latest quarterly growth figure for India and then proceeded to ask whether that growth was year-on-year or quarter-on-quarter, because Singapore had just announced 11 per cent q-o-q growth. I found it striking that a Prime Minister was so focussed on growth metrics and was so constructively competitive about relative GDP figures. Happily, our own Prime Minister recently referred to the half-yearly achievement of 8 per cent growth with great pride and asserted that he was aspiring to 10 per cent levels. That kind of talk will do more to encourage FDI than any single other measure.

Coming to more mundane, but important measures, I do not want to adduce a lengthy laundry list of things to do, especially since such lists are ubiquitous and are quoted ad nauseam. I'd like to focus on just three items which deserve priority, and could radically transform the investment climate.

1) Infrastructure, as I've mentioned earlier, is an area starved of investment. In the World Economic Forum's latest global competitiveness report, "inadequate supply of infrastructure" was by far the highest ranked impediment to doing business in India. Hence, attracting infrastructure investment has the double benefit of inducing growth as well as kick-starting a virtuous cycle of investment in all other sectors of the economy. In particular, we stand no chance of becoming a manufacturing power without the bedrock foundation of efficient infrastructure. In order to make headway here, we need to speedily put together templates for various infrastructure projects. By this, I mean a set of rules and guidelines for financing, implementing and operating large projects in a transparent manner. Despite occasional hiccups, the government did manage to set in place such guidelines as well as a regulatory authority for mobile telephony, and the result is that we are today the fastest growing mobile phone market in the world. In our own group of companies, we experienced inordinate delays while bidding for South Asia's first privatised water supply project in Tirupur. Many important international participants in our consortium lost interest along the way. Five years later, thanks largely due to the persistence of the Indian bidders, the project is successfully underway, and there is now a template which will, no doubt, shorten the gestation period of new water supply projects.

2) India's Special Economic Zones are at the point of take-off. The government has moved with alacrity to conceptualise SEZ legislation and to create an open market for the participation of private enterprise. Indeed, it makes great sense to emulate China, which began its transformation through SEZs that served as laboratories for more widespread reforms. In fact, one could argue that such an approach has even greater merit in a democracy, where it is far more difficult to override vested interests and bring dramatic change overnight in legislation and in urban landscapes. How much easier it is to lay down new infrastructure and a new way of living in a brand new township than it is in Mumbai! But if these zones are to attract new manufacturing investment, then they must have a more flexible labour policy than what exists outside the zone. Neither the central government nor the state governments have shown the courage to take this step. Surely, it should not take much courage to institute this policy within a limited geography? If one enlightened state government enacts these new rules, it will receive a torrent of investments to the detriment of its competitors.

3) My last and simplest recommendation: open the retail sector to FDI. I will not belabour this point since I have already elaborated on the reasons for doing so earlier. What bears repetition is that a thriving and world class retail sector is not just an engine for consumption and growth, but also the route to becoming a world-scale manufacturing force.

There is one final and overriding reason why we must become more hospitable to FDI: in our typical fashion of underestimating ourselves, we have overlooked the fact that today, many Indian companies are on the verge of becoming robust multinationals and will seek to conquer new territories abroad. These new champions are confident of meeting foreign competition in the Indian market and do not need the security of non-tariff barriers. Soon, our government will have to support these companies in prying open lucrative overseas markets. As a nation that will nurture new multinationals, we will, therefore, be doing ourselves a favour by throwing a welcome mat down for FDI and setting a trend that other countries will necessarily have to follow!

The author is Vice Chairman and Managing Director, Mahindra & Mahindra Ltd

What Will It Take

To Make India An Economic Superpower?
Business Today

The national intelligence council (NIC), a division of America's Central Intelligence Agency (CIA), in its 2005 report entitled Shaping The Global Future avers that India and China will be the economic heavyweights of the 21st century. Barring major upheavals in these countries, the rise of these new powers is a virtual certainty, according to the NIC. This bold and confident prediction comes in the wake of several other similar reports that also dwell on the inevitability of the rise of India and China. The talk of India attaining or aspiring to be an economic superpower is, then, certainly not premature.

One stark aspect of the global power shift is the shift of manufacturing, from the West to Asia, in industry after industry. For instance, nearly two-thirds of world fibre production comes from Asia today, the same as the share of North America and Europe in 1980. Reflecting the shift in production bases, nearly one-fourth of the world fuel demand now originates in non-Japan Asia, compared to just one-tenth in the mid-seventies. To take a more recent example, China, Thailand and India have contributed to 35 per cent of the increase in world vehicle production between 2001 and 2004. China alone now accounts for one-fourth of the global steel and aluminium demand, nearly one-third of the coal demand and 40 per cent of cement consumption.

This Asian destiny is slowly manifesting in terms of the changing pattern of global GDP. During the past 30 years, the weight of global GDP has been progressively shifting away from North America and Europe towards the ASEAN region. The share of OECD Europe has declined by 5 percentage points, while that of the US and Japan has declined by one percentage point each. The average GDP growth of China and Korea over the past 23 years has been 9.5 and 6.7 per cent per annum, respectively. Judging by India's own fast growth, it is possible that by the middle of this century, India's share of global GDP will be the same as its population, making it the world's second largest economy. This indeed was the case in early 1800s. Two centuries on, we seem to be in the process of coming a full circle!

The journey towards becoming an economic superpower is actually the outcome of conscious choices that we have made in the sphere of economic and social policies, especially during the past decade. Some of the signposts in the journey are quite spectacular. We have become the world's largest producer and consumer of a variety of industrial and agricultural products. Many Indian companies are winning international recognition for manufacturing excellence, and in information technology, India has become a brand to reckon with. Most global corporations have established a presence in India, either for manufacturing or for research and development. In the next few years, I see billions of dollars being committed to India in the form of foreign investment. In the short span of seven years, we have gone from being a state on which sanctions were imposed-in the wake of our 1998 nuclear tests-to one which has signed a special nuclear treaty with the United States. Our continuing progress in nuclear and space sciences lends further legitimacy to our claim for membership in the UN Security Council.

The continuation of our economic journey will depend on how we utilise all the factors that are advantageous, and also our political and national will to pursue economic reforms. Going forward, we need to answer the following five questions, as we develop a strategy for becoming an economic superpower:

How will we ensure better livelihoods for the people of India?

India's demographic dividend is a well known fact, wherein the labour force is growing much more rapidly than the overall population. But, we need to ensure that this demographic blessing does not become a curse. This means that we must ensure that the pace of job creation or self-employment opportunities must increase at an exponential pace. The four areas which can contribute tremendously to job creation are textiles, agriculture (including agro-processing), construction and retail. This calls for unshackling all constraints in these four sectors, as well as ensuring the flow of large investments into these sectors. More than half of India's labour is self-employed, so we also need to encourage and nurture entrepreneurship. To create ever higher value adding jobs, we must chart a path towards becoming one of the few global manufacturing hubs. The global mega trend of outsourcing is waiting to be harnessed, and we must latch on to this tide. We must be able to widen the field to include engineering, chemicals, metals and textiles-in addition to the strides we have made in information technology and auto ancillaries.

How do we increase the capabilities of our people?

It is well known that high growth is supported by high capital stock. But, an increasing share of that capital stock is in the form of human capital. In a country like the US, more than three-fourths of capital stock is accounted by human capital. This is an outcome of higher literacy, skills and training. In India, we are still short of attaining the targeted level of investment in education-around 6 per cent of GDP. No child in India must have to skip school for the sake of pursuing a livelihood. And no student ought to be denied an opportunity for higher education for lack of funds. India is already a "knowledge economy" brand; yet, many it companies are worried about ensuring adequate supply of trained manpower. Some companies have integrated backwards and started technical universities. I believe we need to facilitate the emergence of private vocational and technical training institutes in order to meet the huge demand emerging for trained manpower. The connection between human capital and GDP has been validated by the World Bank, which examined per capita income data for 121 countries and linked this with its Knowledge Economy Index.

How do we ensure provision of adequate level of public goods?

Our productive prowess and the ability to serve global markets are increasingly handicapped by the poor state of infrastructure and public goods. This includes water, sanitation, electricity, transportation, law and order and governance. These goods cannot be provided by any private entity, or through a market-based competitive system. While foreign and domestic private capital can flow into infrastructure, the actual provision of the public service is necessarily in the public domain. Among the many infrastructure sectors, electricity remains a drag on our competitiveness. A detailed survey by the World Bank has found that manufacturers in India face nearly 17 significant power outages per month, versus only one per month in Malaysia and four in China. Nine per cent of the total of output is lost due to power breakdown, compared to 2.6 per cent in Malaysia and 2 per cent in China. Outages are so frequent and long, that not having standby diesel generators is unthinkable in India. Generators account for 30 per cent of business power consumption in many cases. Almost 61 per cent of Indian manufacturing firms own generator sets; the figure for Malaysia is 20 per cent, while in China it is 27 per cent, and in Brazil 17 per cent. Moreover, India's combined real cost of power is 74 per cent higher than Malaysia's and 39 per cent higher than China's. Electricity is but just one example. The inadequacy in infrastructure is virtually across the board. Here, I must mention the obvious and startling successes we have achieved-in telecom, for instance. The point is we can do it.

How do we ensure that our global winners retain competitive advantage?

In countries like Japan and Korea, the government was an active partner in helping industry attain global status, in the earlier stages of their development. Even us foreign and international trade policies are largely aligned with the business interests of us corporations. The short point here is that in the era of globalisation and international trade competition, corporations and nation states have to develop winning partnerships. We are seeing some manifestation of this in our oil security strategy, wherein our national oil companies are scouting the world aggressively for acquisitions. That is the way to shape our policies, going forward-so not only do they support economic reforms and freedoms, but also proactively facilitate the emergence of global Indian corporations. The Indian Brand Equity Foundation (IBEF) points in the same direction.

How do we protect and nurture the core diversity of our economy?

India, perhaps, stands unique in the degree of its diversity. Apart from racial, cultural, linguistic and social diversities, different states in India also tread different paths toward economic progress. Yet, it is the largest democracy in the world-noisy, chaotic and slow though it may be at times. But even under these conditions, market forces have struck solid roots. Such is the resilience of market forces, that for more than two decades they have been driving the economy ever higher, notwithstanding periodic political and ideological differences.

Nobel laureate Amartya Sen has said: "Public reasoning is essential to democracy. It is intimately connected with public discussion and interactive reasoning-traditions which exist all over the world." Arguing against the theory that democracy was a quintessential Western concept he said: "There are two ways to see democracy-one, the narrow view that interprets democracy in terms of voting and majority rule and the second, broader view, which sees it in terms of public reasoning. The argumentative heritage in India is an important asset, which we will be wise to invoke and utilise."

China is already much bigger, and has been quietly and consistently growing at 9 per cent per annum for almost two decades. But, China has a very different political system. And that may be one of the reasons that the West pays more attention to China. India, which has recently been growing as fast as China, and which also has a similar population size, hardly fills the West with the same foreboding, because it is a democracy, and, as we are continually told, democracies "never go to war with each other".

I believe the past few years have proved that the thought of India becoming an economic superpower is no longer outlandish. We could argue about the timeframe. But the possibility is real, almost inevitable. That said, we cannot afford the luxury of overconfidence-and the complacency and hubris that come with it. A lot of groundwork still has to be done. Exciting as the prospects are, the road ahead is extremely challenging. We have to stretch the canvas every way we can. Our dreams have to be audacious. Our ambitions have to have that essential element of the 'killer instinct'. And-in tune with the pace with which things move today-we have to take a quantum leap in the speed with which we do things. We certainly have the luxury of having the essential endowments and competencies that go into building a successful, global economic power. What we don't have is the luxury of too much time.

The author is Chairman of the Aditya Birla Group

Sharekhan - Cement and Automobile

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