MANAGING A BUSINESS IN INDIA

Summary

Managing a Business in India is a Forum of Free Enterprise booklet that bundles excerpts from two speeches — one by T. Thomas, the long-serving Chairman of Hindustan Lever Ltd., delivered at the firm’s Annual General Meeting in Bombay on 20 June 1980, and another by the young industrialist Dilip G. Piramal. The introduction frames the volume as a periodic stocktaking of the conditions under which private enterprise must operate within India’s mixed economy, and argues that if its propositions are taken seriously, the role of private enterprise in national economic development can be secured. An epigraph from Eugene Black — “People must come to accept private enterprise not as a necessary evil, but as an affirmative good” — sets the polemical key.

Key points

• T. Thomas, Chairman of Hindustan Lever, argues that managing pervasive government controls, including industrial licensing, the MRTP Act, the Companies Act, and price and remuneration restraints, has become the dominant task of Indian chief executives.

• Thomas traces how decision-making authority migrated upward from Joint Secretaries in the 1960s to Cabinet Committees and the Cabinet itself by the 1970s, slowing the economy and increasing negative decisions.

• He holds up Japan’s Meiji-era partnership between government and private industry as the model India failed to follow, citing British Steel and British Leyland as evidence of the costs of public-sector ownership.

• Drawing on a 1977 National Council of Applied Economic Research study, Thomas itemises the damage done by price controls, including black markets, quality erosion, bureaucratic corruption and neglect of consumer welfare.

• He rejects the Janata government’s ‘small is beautiful’ philosophy as unrealistic, proposing instead a formula of ‘small with large’ in which large-scale industry remains essential to growth.

• Thomas’s policy proposals include five per cent annual cumulative growth permission for existing industrial units, inflation-indexed licensing thresholds, free-trade-zone treatment for export factories, and IAS officers seconded to private companies.

• He calls for cash limits on public-sector enterprises and for opening urban power generation and offshore oil exploration to private firms as further steps to expand enterprise.

• Thomas closes by invoking Gandhi’s and Nehru’s borrowing from the liberal West to free India politically, arguing a parallel economic opening is now needed to free it economically.

• The booklet pairs Thomas’s address, delivered at Hindustan Lever’s 1980 annual general meeting, with a companion speech by young industrialist Dilip G. Piramal as a joint stocktaking of conditions for private enterprise in India’s mixed economy.

Essays

Relationship with Environment

By T. Thomas

In Part I, “Relationship with Environment,” T. Thomas argues that the most important task of a Chief Executive in India is no longer internal management but the management of relations with an all-pervasive, controlling Government. He traces how industrial licensing, the Companies Act, the Monopolies Act, price and remuneration restraints, and a creeping upward movement of decision-making — from Joint Secretaries in the 1960s up to the Cabinet by the 1970s — have together slowed the economy, fattened the bureaucracy, and bred mutual distrust between officials and businessmen. He attributes much of this not to a coherent ideology but to political insecurity and a small but vocal minority hostile to private enterprise, and asks for the trend to be challenged rather than philosophically accepted.

Drawing on the Japanese Meiji-era partnership between government and large private industry, and on the recent troubles of British Steel and British Leyland, Thomas argues that public-sector ownership weakens governments politically (because no politician can be tough with public-sector employees) and is best confined to areas where it is the only possible choice. He marshals a 1977 National Council of Applied Economic Research study to enumerate the costs of price controls — black markets, quality erosion, parallel economy, bureaucratic corruption, neglect of the consumer — and dismisses the Janata-era “small is beautiful” enthusiasm, insisting that the realistic formula is “small with large.” He calls for 5% p.a. cumulative growth permission for existing units, MRTP and licensing thresholds indexed to inflation, free-trade-zone treatment for export-oriented factories, IAS officers seconded to private companies to build mutual trust, cash limits on public-sector enterprises, and opening of power generation in metros and offshore oil exploration to private firms. He closes by invoking India’s tradition of absorbing foreign influences — Aryan, Buddhist, Christian, Zoroastrian, Islamic — and the example of Gandhi and Nehru, who drew on the “liberal West” to free India politically; a similar opening, he argues, is now needed to free it economically, with even Russia and China rediscovering the root of enterprise.

• Government’s pervasive controls — industrial licensing, MRTP, the Companies Act, price and remuneration restraints — have made management of the external environment the dominant task of Indian CEOs.
• Decision-making has migrated upward from Joint Secretaries in the 1960s to Cabinet Committees and the Cabinet in the 1970s, slowing the economy and raising the share of negative decisions.
• Japan’s Meiji-era partnership between government and private industry is held up as the model India failed to follow; British Steel and British Leyland illustrate the costs of public-sector ownership.
• An NCAER 1977 study is invoked to itemise the damage done by price controls — quality erosion, blackmarketing, black money, bureaucratic corruption, and neglect of consumer welfare.
• The Janata “small is beautiful” turn is rejected as “meta-economics or philosophy”; the realistic formula offered is “small with large,” with large-scale industry essential for growth.
• Policy asks include 5% p.a. cumulative growth permission for existing units, inflation-indexed licensing and MRTP exemption limits, free-trade-zone treatment for export factories, IAS secondment to private companies, cash limits on public-sector firms, and private entry into urban power generation and offshore oil.
• Thomas grounds his closing appeal in India’s tradition of cultural absorption and in Gandhi’s and Nehru’s borrowing from the “liberal West,” calling for a parallel economic opening so that private enterprise — the root of all enterprise — can be revived.