‘I Do Not Prefer Either Uber Or Ola’

In an exclusive conversation with BW Businessworld, Swadeshi ideologue S. Gurumurthy talks about the Patanjali business phenomenon. Referring to the battle between desi versus foreign-grown companies, he says cultural appeal is a necessary part of the innovation of companies like Dabur, Tata, apart from Ramdev’s Patanjali.

Excerpts:

Is it an unequal battle — desi companies vs foreign multinational companies, with deep pockets?
Yes it is. In more than one sense. First, we are a debt-dominated economy, where current cost of capital has to be met, whereas the MNCs are driven by equity and they can postpone returns to the investors. Second, there is so much of phoney money unrepresented by production — over $700 trillions against power money of just $7 trillions that too much of hot money is seeking instant investment opportunities. Indian capital, or banks cannot compete with that kind of cheap money. So the MNCs are generally able to out-fund, undersell, outsell and buyout desi companies. This was proved in the case of consumer durables and automobile, where Indian companies lost out huge space to MNCs.

A number of homegrown desi companies are posing a stiff challenge to foreign brands. Ola is taking on Uber; Micromax is holding on to its base in the face of an aggressive Samsung charge; and of course, we all know about the successful Patanjali forward march. Can this become the norm? Can our desi companies, through innovation, and by invoking national pride, beat the foreign competition?
I will answer it in two parts. First of all in a business like local transport, I prefer neither an global or local major. This is a business, which can be efficiently done by small operators by forming a cooperative digital networking App. The Ola and Uber model converts present and potential entrepreneurs into employees. Therefore, I do not prefer either Uber or Ola.

It is true that some desi companies are doing well, but only in select segments. That Micromax has been able to stand up to Samsung in India is a good thing. But the strength of a company domestically is important for it to become face competition outside. Samsung would not have been able to penetrate the Indian market without being strong in Korea.

There is a contradiction between trade and investment, which economists do not discuss clearly. It is undeniable that promotion of domestic manufacturing requires encouraging domestic production against the imports. Unless we had done that, in the automobile sector India would not have become a global manufacturing hub. That way investment is preferable to trade.

With the decline of growth in global trade, which was twice the growth in global GDP till 2006 to the global growth being just about growth in global GDP, the economic theories which speak of trade as development vehicle for the emerging economies lack efficacy today. In the same way, promoting global investment into India which definitely puts the Indian industry to stress also would undergo a change soon with emphasis on domestic economic players. The world, which has swung to one extreme of free trade and free investment, is today getting diminishing returns from both. Therefore, promoting domestic players is definitely an important measure of building a strong economy.

The Patanjali business phenomenon is partly cultural economics and partly business economics, and the Patanjali model itself is superior as it uses the infrastructure of the large yoga movement of Baba Ramdev, who himself is a brand. This is not replicable by other domestic manufacturers. Cultural pride reinforces national pride. Innovation is necessary, but like Ramdev, Dabur and even Tata, who named their car Indica, cultural appeal is necessary part.

But on the larger issue of what is the best model for India, the rule is what will work in and for India. On this test both Ola and Uber will fail. We should focus on jobs rather than on topline, bottomline and market cap. Indian listed companies account for merely 5 per cent of Indian GDP. On this logic the issue is not whether company is desi or MNC, but whether the business model of a desi company will work in and for India. This issue needs to be debated. Centralisation of economic activity whether through state or market turns small entrepreneurs into employees. Swadeshi approach is against this.

What is Swadeshi? How does the Swadeshi philosophy play out in this?
Swadeshi is an evolutionary economics. It accepts neither revolutionary theory, economics of the Marxian type nor the post-World War II neo-classical economics. In both, there are assumptions which do not apply uniformly to all countries. In the cultural sense both Marxian and neo-classical economics ignore social and cultural variables of nations and believed modernity would contract people out of traditions and culture. This is the basis of modern western anthropological economics which is smuggled under the garb of modernity

Swadeshi philosophy which aligns culture and economics is diametrically opposite. The once celebrated of ‘fit-all’ model for development makes development and culture incompatible with each other. The major distinction between Swadeshi economics on the one hand and capitalist and socialist economics on the other are that while the former is founded on relation-based lifestyle — family, community, and society. The latter is founded on contract-based life and atomised individualism brought about by either market or revolution.

The idea of evolutionary economics, close to Swadeshi economics, was advocated by Eric S. Reinert Tallinn University of Technology, Estonia and Norwegian Institute of Strategic Studies (NORISS), Oslo, Norway. He argued that bringing evolutionary and Schumpeterian economics to the developing and underdeveloped world would benefit greatly from including insights and elements from pre-Smithian economics, from the history of economic policy, and from classical development economics post-World War II. He contended against financialisation of the economy in early- 2000s, much before the 2008 crisis. He said that financial capitalism, rather than production capitalism, aggravates the problem carrying the focus of the economics profession away from studying production to studying finance. He argued for promoting domestic manufacture and slow reduction in traffic. This moderated approach also aligns economics to culture, as it does not make economic theories and culture clash.

Actually, enlightened minds in the world have already begun seeing the futility of “fit all model”. In October 2005, finance ministers and Central bank governors of the G20 countries virtually invalidated the idea of ‘fit all’ economic model — read global model. They resolved ‘each country should be able to choose the development approaches and policies that suit its specific characteristics.’ In its New Letter in May 2008 the World Bank confessed: ‘In our work across the world, the World Bank has learned the hard way that there is no one model that fits all. Development means taking the best ideas, testing them in new situations, and throwing away what does not work.’ In 2015, the general assembly of the United Nations highlighted the need to recognise the vital role of culture in poverty reduction and sustainable growth, and to ensure that it is integrated into the post-2015 development agenda. Is Swadeshi then a global idea or local one? Is it a future model or an idea frozen in the past? Unfortunately the Indian economic establishment, which is a xerox copy of the Western, is hardly capable of original thinking for India even when such approach is advocated by leading global economic thinkers and institutions. My conviction and experience is that Swadeshi is a functioning model, and that is reflected in the unchanging per capita savings, spend and investment model of the people between 1980 and 2007 (spread over command economy and liberalised economy)brought out in the Economic Survey 2007-8 (p3) Swadeshi model, which rests on the durable lifestyle of the people, plays out both in the cultural and economic sense in favour of domestic economy -- and this will happen irrespective of the current approaches which will themselves not last fora a long time.

How can we create more Patanjalis in India? Do you see that happening?
Patanjali is a product of both economics and culture. If Indian firms can take to culture-based marketing approach, make the product dearer to the people, they will succeed. Indica succeeded first because of the cultural appeal. It secured 1,15,000 bookings in one week. It became No. 1 car in two years. But then Tatas did not carry that success forward is a different matter.

Do you think the government can do something to help the homegrown desi companies prosper and grow?
The government can do many things. It has to be alert on the external front and protect the domestic manufacture from unfair dumping. If it delays action it would cost the national manufacture and economy. It has happened in the case of some critical products. It has to carefully nurture domestic companies like US protects Microsoft. Everyone talks of free trade but manage the trade in favour of the country. The Indian government must do the same. It should not go into FTAs without strengthening domestic manufacture. Make in India programme is good. It must be founded firmly Indian companies as makers in India.

suman@businessworld.in