International Business: COMMENTARY
COMMENTARY: AS THE POLITICIANS SQUABBLE, INDIA STAGNATES
An Italian politician would feel very much at home in the halls of India's Parliament these days. Italy, of course, is renowned for the political chaos that has spawned the formation of 51 different governments since 1945. Now, New Delhi is showing it can rival Rome. On Apr. 21, after personal rivalries wrecked the ruling United Front coalition, India swore in its third government in 10 months and named its fourth Prime Minister in less than a year--78-year-old I.K. Gujral, a diplomat and member of the Janata Dal party. Most analysts think the Gujral government will prove as short-lived as its predecessors and that elections will probably be called by yearend.
Many would argue that this kind of jockeying has not affected Italy's development into one of the world's largest economies and biggest exporters. And it is tempting to predict the same for India. Gujral, after all, has pledged to continue market reform, despite his previous fondness for leftist doctrine, and even his opponents make similar noises. Yet it would be a mistake to conclude that India will reproduce Italy's peculiar mix of political turmoil and economic progress. Instead, India has the worst of both worlds: a dysfunctional political scene that continues to inflict major damage on the economy.
ANOTHER MORASS. Consider the events of the last few months. In February, Finance Minister P. Chidambaram delighted investors with a promarket budget. It was supposed to pass quickly, but instead the government fell, temporarily halting any serious lawmaking. Now, Gujral says he will press for the budget's passage. But with Chidambaram no longer the Finance Minister, the budget lacks a strong, free-market advocate. And even if Gujral is sincere about reform, it's hard to see what progress he can make. His main task will be keeping the left-leaning factions, in addition to the Congress Party, from disrupting the coalition.
The business community is very concerned. Sure, some reforms will probably take place, but what matters more is the pace of change. "Our worry is, are we going to lose one more year?" says Uday Kotak of Bombay investment bank Kotak Mahindra. Adds Subir Gokaran, economist with the Indira Gandhi Research Institute: "The immeasurable cost of all this has been that of time and postponed investments."
India has attracted only about $2 billion in foreign direct investment in the last year--far short of the goal of $10 billion, and ridiculously short of the $42.5 billion poured into China. The attractions of other Asian countries make it easy to skip over India. Such competitive neighbors as Singapore, Thailand, Malaysia, and the Philippines woo foreign investors and shower them with incentives. In contrast, India discourages potential investors with a set of rules specifying what they may not do. Meanwhile, sectors crucial to development such as telecommunications and power will most likely remain hobbled by overregulation and political interference.
CALLOW. Little wonder that many Indians are more cynical than ever about politics. "I'm sick of the political situation--schoolchildren behave better," says Amberish Dalal, who runs a $2 million chemicals business, Albert Rose Chemicals Ltd., in Ahmedabad. During the three weeks of political vacuum created by the Congress Party's withdrawal of support from the United Front, India's truckers and air traffic controllers launched strikes that further paralyzed the country. A strong government might have been able to contain the damage. Now, many diplomats and foreign executives compare India to a banana republic.
It's time India's rulers shed this unworthy image by delivering on the economic front. A first step would be for the Gujral government to reappoint Chidambaram as Finance Minister, then pass the budget at top speed. A second step would be to support some high-profile investments from foreign companies. The new domestic airline venture between Tata and Singapore Airlines, for example, has been delayed by the Aviation Ministry--although India's airline industry desperately needs foreign capital and expertise. Why doesn't the government make sure this deal works, instead of finding reasons to derail it?
Some day, perhaps, India's economy will hum right along without help from the government. But that moment hasn't come. The world's largest democracy desperately needs economic leadership.By Manjeet Kripalani