India vs Bharat: The new contrast in industry

R K Roy

India vs. Bharat: the phrase was first used to contrast urban prosperity and rural neglect. Post-reform, the dichotomy has emerged in the modern sector. Industry shows a divide: between advancing sub-sectors and languishing laggards.

The winning sub-sector is drug manufacture. The dazzling leaders are Dr Reddy’s Laboratories and Ranbaxy; both discoverers of new drug molecules, the commercial application of which, when fully developed, will rake in a fortune. There are other manufacturers patiently working at new discoveries; and cost-cutting processes. What distinguishes them is their research and development (R&D) effort.
Also knowledge-driven is infotech and software, the nascent win-win sub- sector. Its USP is mind-skills, relatively cheap in India. R&D is at the fringe of India’s infotech and software, which have hitherto relied on body shopping. But with the recession in the US, the better-known companies have realised the need to upgrade R&D or lose out to Israel altogether.

The successes of Indian pharma and of software majors stem from their discovery of knowledge as capital. Europe had found this out 130 years ago. The research laboratory became an integral part of industrial development. In the United States the purely commercial laboratory emerged in the wake of telegraph companies, celebrated by Edison.

The emergence of corporate in-house R&D distinguishes the new from the old economy. The latter went no farther than establishing quality control laboratories—and that only to gain tax reliefs. No old economy company has come out with a new process, a new engineering development, or sought cost-economies by using new materials.

The penetration of industry by science made the educational system crucial to industrial development in Europe. But technical manpower was disdained by Indian industry. IIT graduates made a beeline for the US; chemists and biologists too migrated. Skilled workers, mechanics, fitters, foremen, masons, civil engineers went to the Gulf.

Indian corporates (old economy) prize chartered accountants: they help boost profits by saving (avoiding) taxes. It is difficult to raise profits by production economies or quality improvements. The soft option of tax avoidance is the driving force of corporates even today. Thus, pointing to the lack of buoyancy in revenue from excise duties, Mr Montek Singh Ahluwalia said (on the eve of his departure from the Planning Commission): “There is a great deal of leakage in this area” (see ‘Reform needs leadership’, FE, May 25).

India got rid of industrial licensing and MRTP at one go. Industry was given the freedom to expand, upgrade technology and access capital markets at home and abroad. Even so, at the end of the first decade of reform, the old economy has little to show by way of modernisation and export.
Technolgy in public sector industry is out of date by a couple of decades. Is it any different in the private corporate sector? Why are private corporates shy of modernisation, of technology import and assimilation (with R&D)? Funding in forex and in rupees (the latter at declining interest) is available in plenty. But (old economy) corporates let themselves slip into Bharat.