Go for it, Mr Goenka

Incoming chiefs, whether corporate or political, it is true, do tend to promise a lot when they first come to power. In that sense, it’s not surprising to hear the plethora of pledges made by Sanjiv Goenka, the new chief of the Confederation of Indian Industry. What’s interesting, however, is what Goenka is focussing on. He’s said that, under his tutelage, CII will identify six national infrastructure projects, track their progress, and present a report every quarter to the country’s press, to sort of institute a system of accountability in the implementation of infrastructure projects.

It remains to be seen whether Goenka delivers on his promise, and how effective he will be. The department of programme implementation comes out with horrific figures on cost and time over-runs periodically, but it’s become so routine no one’s really bothered anymore. But there’s no doubt he’s put his finger on the nub of the problem. It’s well established by now that the problem in India is not of lack of well-intentioned policy, but of lack of implementation. So, for example, we’ve allowed private investors in the power sector, but since the state electricity boards (which have to pay for this power) are far from fixed, most of the projects here have been still-born in recent years. That, in fact, is the reason behind the curious structuring, and problems, of Enron’s Dabhol Power plant in Maharashtra.

How huge the infrastructure problem is, of course, best brought out by an analysis released by Goenka the day he took over the CII reins. Thanks to the huge problems in India’s electricity sector, for instance, as much as 3 per cent of the turnover of India’s textiles producers is spent on their power bills — their counterparts in Thailand spend half this. This is then compounded by problems at India’s congested ports — compared to Thai firms, Indian exporters spend a fifth more on shipping costs to US markets.

All this, naturally, ensures that India’s exports become uncompetitive. In the year just gone by, it is true, that Indian exports did grow by a fraction under 20 per cent in dollar terms. But when there’s a global slowdown, as now, India’s uncompetitive exports will be the first to get hit. In the months of February and March, exports did slow down to 10 per cent.

And while it’s true that India’s software exports have been growing the lack of infrastructure is likely to tell here, as well, soon. A study by management consultants Skoch Consultancy Services shows that China is repeating its toy story in the software sector as well. The Chinese software story really began just two years ago and its exports have already touched $1 bn. While this is still just a fraction of India’s $6.2 bn, what’s worrying is the average billing that Chinese software engineers get is around $16 an hour, which is about $2 more than the Indians get.

While it’s easy to dismiss this as a flash in the pan, what’s important is why, and how, the Chinese got here. Skoch’s analysis shows that China’s existing PC base of 20 million is close to four times India’s; at 22 million, the number of Internet users is well over three times India’s; 20 per cent of China’s population has access to telephone lines as against 3.5 per cent for us. Given the kind of speed at which we’re planning to rollout new lines, by the time India’s teledensity reaches 15 per cent, China’s will be in the region of 50 per cent. Since software is transported over the Internet and telephone lines, and people with greater exposure to computers are more likely to develop better software, it’s perhaps just a matter of time before China’s SoftToy success story is translated into SoftWare.

What’s frightening is there’s little to suggest things are likely to look up soon. CMIE’s latest report shows growth in infrastructure industries has slowed dramatically in recent months — it’s now down to 5.1 per cent, from 9.1 earlier. And the reason for this is there’s just not enough investment happening — between 1995-96 and 1999-00, gross capital formation as a percentage of GDP has gone down from 27.2 to 23.3. This again, is due to the fact that while government investments have fallen (to cut the deficit, all governments found it easier to cut capital expenses), private investments in the infrastructure sector haven’t kicked in to take the slack. The reasons for this are also well known — that, as in the power sector, the enabling reforms never took place to make such investments worthwhile.

Stepping up infrastructure expenditure, removing of constraints and red-tape is what lobby groups such as CII should be rooting for. Goenka’s is a good beginning. Just a few weeks earlier, the same CII was lobbying hard on behalf of one section of the private telecom industry. CII issued a statement asking the government to allow WiLL-based mobile telephony, a move that favoured certain Fixed Line Service Providers like the Reliance, the Tatas and HFCL, while hitting their counterparts in the cellular business. Let’s see how long Goenka manages to hold out, before he too starts lobbying for individual businesses.

Earlier Columns