The coming drought

Colette Mathur, that energetic director of the World Economic Forum who is responsible for the annual India-conference for investors, is in town these days to meet with representatives of civil society — NGOs, journalists, and others — in order to figure out what new sessions she could add for the WEF-CII conference to be held this winter.

During the discussion with journalists, one of the points that came up, while talking of the impact of events at Gujarat, was whether it made sense to have a session on how government planned to address the issue of security and even that of ensuring communal harmony.

But is that really CII-WEF’s concern was a question that someone shot at Colette. After all foreigners are still queuing up to invest in China despite Tiananmen and the periodic anti-freedom crackdowns aren’t they?

Sure, she replied, and it is true the Gujarat spillover has been quite small, but China has reformed so much whereas India continues to be mired in all manner of problems ...

It is tempting to dismiss this as the usual grouches of the white man (in this case, woman), anxious to exaggerate other country’s problems while ignoring their own (the latest Newsweek, by the way, has a big story on how much of Europe’s top leadership, such as French President Chirac and former German Chancellor Helmut Kohl, are reeling under charges of serious corruption).

But take a look at the Centre for Monitoring Indian Economy’s latest review of Gujarat, and you will see just how serious the problem is. Investments planned in the manufacturing sector in the state have fallen, systematically and precipitously, over the years — and we are not even talking of what could happen as a result of the recent events.

From around Rs 60,000 crore in January 1997, investments planned fell to Rs 40,000 crore in mid-1999, to Rs 36,000 crore last January. Investments actually being implemented, have fallen correspondingly, from Rs 40,000 crore to 25,000 crore and 15,000 crore.

This fall in investments, by the way, is closely mirrored by the fall in the state’s GDP growth — it grew 22 per cent in 1994-95, 12 per cent in 1996-97, to under 5 per cent in 1998-99.

All-India figures, sadly, show the same investment famine. From Rs 430,000 crore in October 1997, investment envisaged in the manufacturing sector fell to Rs 3,35,000 crore in April 1999 and finally to Rs 2,90,000 crore in April last year.

In fact, over the last few years, the number of projects being shelved has gone up dramatically — Rs 8,000 crore worth of projects were shelved in the quarter ending July 2000, and this rose to three times by April last year.

Essentially, all the figures show that, with the Central and state governments not moving fast enough to remove hurdles in the way of investors, they are simply not investing their money.

Juxtapose this with a Global Entrepreneurship Monitor (GEM) report just out from the Indian Institute of Management Bangalore (IIMB) in association with universities in the US and the UK. GEM is essentially a global survey on the entrepreneurial attitudes of 29 countries.

The good news first. With a level of 11.2 percent, India is ranked Number 9 on the entrepreneurial activity index.

The bad news: India is the highest on what’s called the Necessity-based entrepreneurship index and fifth from the bottom on what’s classified as Opportunity-based entrepreneurship.

What this means is that the Indians who are unable to get jobs, or hold on to them, are the ones that really become entrepreneurs. And by the same logic, only very few become entrepreneurs because they see some great opportunity. Of course, there are those who will say that is not in itself a bad thing — after all, how does it matter why you became an entrepreneur, what matters is how successful you are.

Well, what happens with Necessity-based entrepreneurs is that, since all they want to do is survive, they typically set up small shops or service units — that’s good for them, but doesn’t really catalyse the economy.

The GEM survey in fact shows that majority of Indian start-ups comprise services (mechanics, video repair chaps, couriers) and petty trading, and that they have no great growth plans. The respondents, in the sample survey, spoke of just creating an average of 6.6 jobs in the next 5 years.

Much of the reason for this, the survey confirms, is what we have always suspected. India’s horrible infrastructure and life-threatening redtape are enough to curb the enthusiasm of most wannabe entrepreneurs, and after an initial experience of this few have the energy, or desire, to dream big.

In the event, where do India’s real entrepreneurs go? Like Narayanamurthy of Infosys and my uncle Ishwar — to China, where infrastructure is available in plenty and the government is bending over backwards to attract investors.

My uncle, for the record, began making energy-efficient bulbs in China long before Narayanamurthy landed his first Infosian there. Hardly surprising then that, as Colette Mathur confirmed to us journalists, the CII-WEF conference will have a special session on China.

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