The East India Company Hangover

by Jaithirth Rao - Mar 11, 2015 04:38 PM +05:30 IST
The East India Company Hangover

Three specific ideas that could solve some massive problems for India—domestic, international, economic. The question is: Can Narendra Modi be a Deng Xiaoping?

The East India Company adventurers came to our country as traders. Using cunning and guile, they became our rulers. This is taught to every school-going child in India as authentic, incontrovertible history.

When India became independent, our slogans were self-reliance and self-sufficiency. It is interesting to note that the word “prosperity” was not articulated with any frequency or volume. Foreign investment and foreign trade were not so much despised, as feared. Between 200 per cent import duties, outright import bans, ill-conceived export duties, suffocating exchange control regulations, the socialistic pattern of our industrial licensing policy, 73 per cent income tax rates for foreign companies and the draconian Foreign Exchange Regulation Act (FERA), we made sure that we became one of the world’s most hostile countries for foreign trade and investment.

Our share of global trade, which was two per cent in 1945, plummeted to less than half a per cent. Many have argued that if we had just maintained our marketshare, not necessarily grown it, we would be a rich country today. India, which has been a cotton textile exporter since Harappan times, is now a peripheral player. China, which had no position at all in cotton textiles some 60 years ago, now dominates the same.

And China is a country that today is far richer than we are and we possibly could be in 20 years. The fear of a return of the East India Company has made us shrink our global footprint and condemn our citizens to poverty.

Everyone, but everyone knows this. And yet, in our public discourse, we try to avoid saying this, we try to glide around the issue. Self-reliance and self-sufficiency remain magical mantras that we simply do not seem to be able to get away from.

Look at China’s approach in the post-Deng Xiaoping era. By allowing, even encouraging foreign investments, China converted erstwhile adversaries into strategic allies. Every time American human rights activists make some noise or right-wing Taiwan-loving American politicians get loud, there is a counter-move. American corporate and financial investors in China rush to the defence of their host country and make sure that the barbs of the American foreign policy establishment get softened. This happened even in the aftermath of the atrocious events at Tiananmen Square. It is as if China has managed to create a reverse East India Company syndrome where the country does not lose its sovereignty, but the foreigners who invest there are held hostage. A truly Kautilyan/Machiavellian achievement!

Given the Modi government’s imaginative and bold moves in many areas, let me suggest a course of action that once and for all gets rid of the lingering fears of a new East India Company emerging and converts our search for prosperity through foreign trade and investment into a national strategic advantage also. While investments from the US may come to India if we free up our markets and make our country investment-friendly, investments from other countries may require a strategic incentive also. And in the process of granting this strategic incentive, we may create for ourselves the opportunity of holding them hostage.

Let me suggest three possibilities:

• Sell a majority stake in the Delhi-Mumbai Railway (a resurrection of the old Bombay Baroda Central India Railway) to a Japanese consortium.

• Sell a majority stake in the Mumbai-Bengaluru Railway (a resurrection of the old Southern Maratha Railway) to a Chinese consortium.

• Sell a majority stake in Indian Oil Corporation to the Saudi Arabian government.

In the first two cases, the investors will bring in world class managerial and engineering practices to our country. They will compete with each other in order to demonstrate that each of them can run faster, cleaner, cheaper, better trains than the other. More importantly, both countries will have a strategic stake in our success. Neither will create trouble for us in entering the Nuclear Suppliers Group (NSG); the Chinese will be wary of precipitating border incidents and driving the Indian stockmarkets down, as the value of their investments will be hurt.

In fact, such extended and intensive engagement with Indian business may motivate the Chinese to finally resolve the festering border dispute—something which they currently do not seem to have the incentive to do.The bull market and the resultant economic growth that this would lead to in India should leave us all with a mouth-watering feeling.

The third case may not result in us receiving much in the nature of technical or managerial inputs. But being a major part of Saudi Arabia’s financial portfolio, especially in the downstream oil sector, may not be such a bad thing. They are unlikely to ever cut off oil to us in a fit of petulance; they might even give us better pricing and credit terms.

Additionally, a close economic embrace with the world’s leading Islamic country would once and for all get rid of any impression that we bring to bear religious reservations in our pursuit of development. Terrorists of the LET variety as well as so-called homegrown ones may think twice before they attack soft targets in Indian cities.

The East India Company Hangover

I submit that this is the kind of strategic thinking that Comrade Deng would have practised. And I further submit that there can be no greater compliment to Shri Modi than that he set his country on a strategic path similar to what Deng did for his country. After all, in the history of humankind, no one has done more to lift more people from poverty to prosperity than Deng; no one has done more to take a despised and poor country to the threshold of unimaginable prosperity and strength than Deng. To go down in history as being in the same class as Deng should and would be a greater accolade than any a leader could wish for. And for Narendra Modi, who appears well-tuned to the call of history, this should be a tantalising possibility.

The officials of the Indian Railway Board will doubtless oppose these plans. They will think up many logical, rational, patriotic, matriotic reasons—reasons that you and I cannot conceive of, and which they have not conceived of as yet. They will not admit that what they fear is the loss of their own influence, prospects, power and perquisites. The railway unions will oppose it because doubtless they do not want the discipline and the work ethic of their Chinese and Japanese counterparts. It would be supremely ironic to witness one of the Communist unions objecting to Chinese investment. As an aside, if nothing else, this would expose the fatuous stupidity of our domestic comrades!

The officials of the Ministry of Petroleum will very quickly produce hundreds of position papers about safeguarding the sacred Indian Oil Corporation. They will not admit that their real fear is that their great ministry might be gradually and inexorably made irrelevant. The managers and the workers of Indian Oil will also scream loudly. They might even seek to drum up support from sundry sadhus to convert the debate into a religious one rather than let it remain in the realm of economics.

But I submit that if anyone has the opportunity to move boldly and intelligently demolishing the self-serving arguments of the detractors, finally getting rid of the ghost of the East India Company from our minds, and establishing our country as being strong enough and sensible enough to leverage foreign investment and foreign trade for the benefit and prosperity of all Indians, then it is Modi and the time is now. Let us hope that he and his team go for it.

The author is the former CEO of MphasiS, and was head of Citibank’s Global Technology Division. He is currently the Chairman of Value and Budget Housing Corporation (VBHC), an affordable housing venture.

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