An industrial overture Dr Bharat Ram, head of DCM Group, comments on the industrial scene in India.
Dr Bharat Ram, as head of the DCM group of industries and former President of the Indian Chamber of Commerce, is more than qualified to comment on the industrial scene in India.
Q: Dr Bharat Ram, what do you think has been the impact of budgetary measures on the economy? Has the economy responded to incentives?
Bharat Ram: It is too early to make an assessment or forecast, but judging from the trends the rate of revival has not been as much as was expected. The high rate of interest has been a big constraint on investment. It is not only the high rate of interest on borrowings alone but also on deposits, meant to encourage savings, which has diverted savings into channels other than industries.
An investor seeks safer investment with a reasonable rate of return. So the obvious choice for him is bank deposits. Why would a person sink his capital on a long-term project? I feel very strongly about reducing the bank rate on borrowing as well as deposits to encourage investment and reduce competition in investment sector.
Q: To what would you attribute the recent price rise?
Bharat Ram: The price has been sharp only in the case of cotton and vegetable oils. These two items get quite a weightage in our Price Index. So with the rise in prices of these commodities the general price level has gone up.
Rise in other commodity prices has been marginal and sympathetic. As a matter of fact foodgrain prices have registered a fall. People prefer to buy in the open market rather than at fair price shops. Sugar prices have more or less been maintained.
Actual shortages have been responsible for price rise of cotton and vegetable oil. But then supplies of agricultural raw materials depend on so many factors beyond human control which make shortages a recurring phenomenon.
Q: What remedial measures would you suggest?
Bharat Ram: To stabilize prices, what we need is building bufferstocks of other essential commodities as we do for food-grains. The government should do forward buying in international as well as in the home market when the prices are reasonably low. Some time ago cotton prices had registered a steep fall.
Farmers found it extremely difficult to sell. It is at times like these that the government should come in a big way to shop for the bufferstock. It will not only help the farmer in disposing of his stock but also ensure regular supply. The government must build a buffer even if it means losing money. It will be just like paying an insurance premium. Stockpiling will be an insurance against runaway prices.
Q: Since you have mentioned raw material shortages for major industries, do you think there is scope for stepping up the production of commercial crops, by incentives and increase in the acreage?
Bharat Ram: I think at grower's level things are quite alright. Increasing acreage under cotton will not solve the problem. There will never be sufficient cotton. Actually for the textile industry we have to develop the alternate man-made fibre industry. Production of nylon and synthetic fibres should be encouraged as in the West. Why should scarce land not be utilized for other essential crops which have no substitutes?
Q: This brings us to another important problem - the problem of sick mills. What do you think ails them and what suggestions would you offer to tackle the problem?
Bharat Ram: The textile industry is the barometer of the Indian economy and it is very sad to note that it is not doing well at all. The number of sick units is increasing at an alarming rate. Poor management or mismanagement is often held responsible for a unit going sick. It could be the reason but only in a few cases.
The whole industry cannot be said to be suffering from mismanagement. There has been a large-scale stagnation in the industry. Expansion and modernization, so essential for healthy development of any industry, is absent here. Most of the units have not renovated the machinery. They have not been allowed to expand for some reason or the other.
Static level of production thus fails to bear rising costs of production. Unfortunately, the government policy has not been very clear. Its 'controlled cloth' policy has resulted in Rs. 100-crore loss annually thus not only ruining the big textile units but also harming the handloom sector. The companies which have survived the crisis are the ones which have managed to diversify and expand. In my opinion what we need is a complete re-thinking on the subject. Government take-over will not solve the problem unless a new policy is evolved with an open mind.
Q: What do you think of the credit policy?
Bharat Ram: The 'credit squeeze' policy for curbing inflationary pressures has been extremely successful. India is the only country in the world which has successfully checked inflation. I am not at all in favour of credit liberalization or easy credit.
But to give a push to the economy we must do something to bring down the rate of interest. Inflation is bad but recession is worse. Some rise in price is inevitable and essential for the growth of a developing country. But restraints to check runaway prices are equally essential and I fully endorse them.
Q: What about the level of taxation, specially in the corporate sector?
Bharat Ram: The government has taken steps to reduce individual taxation, which have been widely welcome. But taxes on corporate sector are quite high. As a matter of fact they are very high when compared to taxes in developed or developing countries. These taxes, in a sense, become part of the production costs.
As a corporation is ultimately concerned with what it gets after paying taxes, prices are accordingly adjusted with a certain margin of profit. So high corporate taxes tend to raise prices and are inflationary. To lower the rate of corporate taxes would go a long way in building a healthier climate for investment.
Q: But that would reduce the government's revenue?
Bharat Ram: No, the lower tax rate would induce investment and growth. As the economy develops, the government revenue will also go up. Growth and higher revenue are as directly linked as constant growth and the law of diminishing returns.
Q: The government has recently taken a number of steps to encourage small-scale
industry for promoting employment. What can the big industries contribute to it?
Bharat Ram: I am afraid the role big industries can play is rather limited. The nature of big industries like chemicals, etc. is such that it operates as a complex whole. It cannot be split.
The only big industry that can play a vital role is the engineering industry to which small-scale units can be an ancillary industry. And this is being done. Other fields in which the small-units could come in a big way are certain type of consumer goods industries.
Q: FICCI has recently prepared under your chairmanship, guidelines for export promotion. What are the main suggestions.
Bharat Ram: In this report emphasis has been laid on long-term planning with regard to exports. We must develop an infrastructure capable of meeting export demands say in 1980's. FICCI has estimated an additional outlay of Rs. 1,800 to Rs. 2,000 crores to meet the export demands.
This is the additional investment over and above the investment needed to meet domestic demand during that period. The planning has to be very intensive taking into account changing demand patterns at home and abroad, increased internal demand at that state of development.
Q: There has been a great optimism about opening up of trade links with Pakistan. How do you view it?
Bharat Ram: It is certainly a good thing. But the scope and the volume of trade would be very much limited - if it is to be on bilateral basis, balancing imports with exports - for Pakistan has only cotton to offer as against India's wide range of commodities. In case of unrestricted trade, India can have an advantage but that will again depend on our competitive strength in Pakistan markets.
Q: Do you think foreign capital has a vital role to play?
Bharat Ram: Any foreign capital or investment is welcome. But we are at such a stage of technological development that more than foreign capital we would welcome foreign technology. But climate for foreign investment is not bad and we should and are attracting foreign capital.
Source: India Today