S. Ramachander

FROM about October to March, the leadership of Corporate India is busy with visiting dignitaries from their counterparts from the big corporations of the advanced economies. It may be something to do with the general festive air at this time of the year, the far more pleasant weather, or the continuing euphoria about India as the choice investment destination, but the fact remains that a lot of business is transacted and announcements made.

The past couple of weeks, nonetheless, were an exception. We had promises of comparatively large sums of direct investment in the country from the leaders of Cisco, Intel and Microsoft. For the first time, the founder of Microsoft, Mr Bill Gates, spent four days in India — on business, as distinct from social service programmes. It looks as if we are in for a happy season all round, and the stock market indices too continue on the upward course as if joining in the festivities.

Yet we must pause to ask the question: What of the domestic investment, from our own resources, to provide growth and employment opportunities here in India, out of the coffers of Indian businesses? The trend here is neither clear nor uniformly positive. Since the mid-1990s the Indian corporate sector has tended to focus on efficiencies of funds already invested and, under competitive pressures, keeping unit costs down. They have begun using long-term capital more cautiously, first by retiring expensive debt, and then by going directly to the market, including foreign markets, for savings; but as yet there has not been sufficient compensating effect of direct equity investment, especially in the manufacturing sector. Figures in many studies reveal that managers have shown themselves capable of extracting more from existing assets. As for fresh approaches to the market, the most recent public issue announcements are from the banking, energy, telecommunications, other infrastructure and services fields, but not a lot from hard-core manufacturing.

One wonders if this means that the much-discussed shift towards a more service-oriented economy is for real, after all. In one sense, our future role in the world economy could well be as the knowledge-centre and data-handling centre to the world, earning significant benefits from the West's growing more friendly to an outsourcing philosophy that has now spread to design, research and development — therefore, a good deal more than the clerical, repetitive, and merely back-office functions.

And yet, our rapid growth in the ICT sector is also based on a similar trend of dependence on the developed economies allowing the specialists to handle high-quality development and innovation in software. This is certainly in keeping with the concept of sticking to what one is good at. All our IT majors have signed up huge new accounts recently, giving them a longer-term relationship and the prospect of sustained growth.

In this context, a rather casual statement made by Mr Bill Gates in the televised discussion with Mr Narayanamurthy, founder of Infosys could be a sign of things to come. It was very revealing to see the world economy through his eyes — combining the technology of the US, the brainpower of India and the high-volume manufacturing capabilities of the Chinese. Mr Gates foresaw a period of rapid growth and prosperity for the mutual benefit of all three nations, and indeed for the whole world. This went a significant step forward, beyond the widely held belief in many quarters about the two giant emerging economies holding the key to the future of the 21st century world.

This analysis cannot be a casual statement made on the spur of the moment and calls for careful thought and study.

(Feedback can be sent to srchander23@netscape.net)

© Copyright 2000 - 2009 The Hindu Business Line