Indian industry: Only patches of grey

D. Sampathkumar

PESSIMISM, it would seem, is an abiding national characteristic among Indians.

The fiscal deficit is way too high, exports are not growing as fast as China's, and the economy is slowing down. These are but some of the innumerable items on our `woes-list'. But by far the strongest wailing has been reserved for the manufacturing sector and its relative lack of competitive ability.

But is Indian enterprise really all that bereft of competitive spine that it is unable to stand up to the marauding forces of overseas competition? Far from it. The half-yearly results of listed companies announced recently has more Indian winners than MNCs. And one is not talking of the software industry. There are pockets of Indian enterprise that not only manage to hold their own against competition from imports, but are also one up on MNCs with local operations.

The most impressive instance is the performance of the domestic pharma companies. Dr. Reddy's Laboratories, Sun Pharmaceuticals, Cipla, Lupin Laboratories and Ranbaxy Labs registered rates of growth in sales and profits superior to that of pharma MNCs, which did well in revenues and post-tax earnings. The 12 MNCs for which information on second-quarter performance is available actually recorded net declines in sales and profits.

One could say the performance in one quarter is not indicative of enduring superior performance. But in the instant case it merely reinforces what has been known for long: that the top-notch domestic pharma companies are equal to meeting the competitive challenge from the MNC counterparts in the domestic market if not in the markets of the West.

An indication of the competitive threat domestic companies pose to MNCs is available from another source. The US, despite being easily the top manufacturing economy in the world, does not see much prospect for export to India. This is revealed in an assessment put out last year by the US Department of Commerce.

The agency regularly puts out its assessment of the export prospects for American enterprises in different parts of the world. In sector after sector, the Department's assessment of the potential for exports into India is but a small component of the total market size. A classic case is that of power plant equipment. Its estimate of the total market size for such equipment, as of 1999, was $6.720 billion. Against this, the total imports were a mere $1.510 billion, or roughly 20 per cent of the total demand.

Incidentally, the share of US firms as of 1997 was only 18 per cent of the total imports into India. So much for their competitive ability. Of course, MNCs such as Siemens or ABB have a domestic production base in India and, to that extent, are reckoned as domestic sourcing. But a big chunk of the total demand is satisfied by the public sector Bharat Heavy Electricals, testifying to its competitive capability.

BHEL's critics might say the company is not above playing the `patriotism' or `domestic employment' card in an effort to win orders from local consumers, especially in the public sector. But against this must be set the fact that equipment purchasers are not above rewriting the technical specifications to suit the overseas suppliers, and to the detriment of the public sector BHEL. The US Commerce Department study identified only a handful of sectors (a mere 15), which hold out the best prospects for export of US goods and services. Even in these, the scope for exports into India, barring that of computers and peripherals, telecommunication equipment and aircraft, the prospects are minuscule.

That India has an entrenched base of domestic players is evident from another statistic. Western investment interest is confined principally to the infrastructure and services sectors. But in hard-core manufacturing, there is little interest among overseas players. Petrochemicals is a classic case. It does seem strange that not one of the MNCs in this segment, including DuPont, Dow Chemicals, Shell, etc., seems inclined to set up a plant and wean away market share from the two domestic majors, Reliance and IPCL.

The latter should particularly seem a soft target if its public sector orientation is anything to go by. It cannot be that these MNC enterprises lack resources. Nor can they be uncertain of obtaining clearances from the Government. MNCs have gained entry even into sectors hitherto thought impossible. But they have still not evinced much interest. The conclusion, therefore, is inescapable. That they have not come into India in quite the expected numbers is simply because they find the competitive environment far too hostile.

The story is the same everywhere. MNC interest, such as there is, is largely restricted to automobiles, beverages and food processing -- sectors where the MNC penetration is suggestive not so much of their ability to vanquish domestic opponents, as of their desperation in securing volume growth in the Third World, as the demographics of the West is not conducive for achieving this in their traditional markets.

The trouble is that we tend to look at competitiveness from the point of view of exports, where India's performance, it must be said, is not outstanding. But is that the only yardstick by which capability should be measured? Why not, for instance, measure it in terms of an ability to withstand competition in the domestic market? After all, competitive capability should be able to hold its own in the battlefield of the domestic market place as it has to in foreign markets.

If the measurement paradigm of competitive capability is changed, an altogether different picture of a vibrant and competitive domestic industry emerges. This is not to say that Indian industry has reached the pinnacle of competitive performance and that it has no more mountains to conquer. The contention is that the visage of Indian industry is not painted in black with just the occasional streak of silver. Rather, it is awash in silver with only the odd patch of grey.