Message from the market

Look behind the hype, and two images would endure, signifying the cha-nging world of Indian business as the millennium ends. One is the latest listing of India’s most valuable companies. At the precise moment the Sensex pierced the 5000-mark this week, only one mu-ltinational, Hindustan Lever, figured among the top ten?

Look for more interestingevide-nce in that top-ten list. Three of the top four are in the business of knowledge, entertainment or software of one kind or another. They are not dependent on the government in any way. The sarkar is not their licensor, consumer or protector.

If there is anything the promoters of these companies — Azim Premji (Wi-pro), Narayanmurthy (Infosys) and Su-bhash Chandra (Zee) want from the government, it is merely that it should stay out of their way. They are today se-en as personifying the success of genuinely indigenous enterprise.

Their co-mpanies are valued so high not on the strength of Indian financial institutions at the prompting of some uncles in North Block but by the hard-nosed deal-makers on Nasdaq. See how successful enterprise changes power equations. They do not go chasing after their chief ministers and the prime minister. They don’t employ PROs who hawk to us newspaper editors their pictures with the prime minister.

In fact, when the Premjis or Naraynmurthys meet the prime minister, itis he who is hoping to look good and techno-savvy. Some change indeed from the old days when even a Dhirubhai Ambani had to keep meeting the PM and the others in the government to pay homage. What does all this mean except that devotion to the sarkar is as much of a myth in a free market as the fear of the firengi?

As you search for evidence you have to recall the other enduring corporate image of the fortnight, albeit an unfortunate one, given the way the almighty Confederation of Indian Industry (CII) retreated after its high-powered committee recommended the closure of three loss-making public sector banks.

The question is not whether individual members of the committee are themselves defaulters. The issue is, what business did they have wasting their time telling the government how to run its banks? They should have been out running their own businesses, expanding, or downsizing, diversifying or consolidating, in short, competing with the new challengers, Indian and foreign. Why do corporate czarsreduce themselves into North Block joint secretaries?

Just what is it that makes the government and political policy-making so seductive to the traditional Indian businessman? The chambers are falling ov- er each other to invite political dimwits to address their meetings. If you saw the body language, the fawning speeches at these meetings, you’d think the licence-quota raj is still very much there. The India Economic Summit organised by the World Economic Forum (WEF, of Davos fame) in the capital earlier this month was supposedly about liberalisation and reform.

But almost at each session the keynote sp-eaker was a minister or a secretary to the government. So many foreign businessmen yaw-ned. So many vowed not to return if they were to listen to the sa-me old boring speeches on the emerging consensus on reform. They now want action. Mov-ement. Something mo-re that demonstrates that Indian enterprise is actually breaking out of the sarkari stranglehold.

The phenomenon of the pick of the traditionalIndian enterprise spending so much of its time on inconsequential committees advising the government on how to run the economy is not only the anti-thesis of reform, it also has the seeds of a new crony-capitalism.

Businessmen should be making more mo-ney, generating jobs and wealth, and not back-stopping an incompetent go-vernment. One of India’s most imaginative, successful and modern managers, Deepak Parekh, is spending so much of his time advising the government on one thing or the other that had I been a shareholder of HDFC, I would have complained. Mercifully I am merely an HDFC debtor.

The market is too smart not to know this. So the savvy new investor and fund manager values companies quite differently than in the past. Ever wonder why, when we are sitting on the verge of an infrastructure boom none of the companies that will benefit from it are keeping pace with the Sensex?

Cement, steel, construction are going to power the rebuilding of a new India. Yet they get such poor valuation on thebourses. Isn’t it also likely that one reason why infrastructure, or even many other traditional manufacturing firms, has such unjustifiably poor valuation is that they are still seen closely linked to the government? The markets do not like governments. Why else would so many well-run, profitable, near monopoly PSUs be valued so poorly on the markets?

The reform debate so far has focused far too much on the need for the government to get out of the economy and business and too little on why it is necessary for the traditional Indian businessman to discard the old devotion to political power and the touching belief that somehow it’s good old lobbying and influence on high policy-making that will continue to fatten their bottomlines.

We have moved slowly, but the rules of the game have changed. The role that political influence plays in running businesses is declining very rapidly. This will accelerate if the government now gets out of other crucial areas like infrastructure and leaves strong regulators todiscipline the markets. Maybe it’s just a hope in the season of millennial cheer. But even if that doesn’t happen, at the 5000-mark today, at least 25 to 30 per cent of the Sensex is represented by businesses that have nothing to do with the government now. If that figure doubles by the end of the next year, you could celebrate the coming of age of Indian enterprise and capitalism.