"Business Lobbies Must Shape up for Growth"

Rajiv Kumar*

Just three years ago, India was viewed as another Asian upcoming economic giant, along with China. Now, instead, the country is in a severe economic slowdown with a potential balance-of-payment crisis. The economy is in serious danger of slipping into a long period of 'slowflation' that will combine sub-5% GDP growth with near double digit retail inflation. This has the potential for generating unbearable social stress as employment opportunities dry up and the demographic dividend begins to turn in to a demographic disaster

Certainly New Delhi’s economic mismanagement is largely to blame. But so is the Indian business community. In the last few years, it has abdicated the role it has historically played in providing the government with an independent opinion and pushing for the critical reforms required.

There is a clear opportunity for corporate India to step up and pull the country out of the current crisis by proactively altering its approach to government inaction. Top-of-the-list is reform of the apex chambers of commerce. These have become insiders’ clubs and event managers at best, rather than the representative voice of the wider business community. This is particularly important now, when our weak 4.5% growth rate will probably dip further. Setting their own house in order will reinstate the legitimacy lost over the years. Only then can they credibly push governments for change.

The chambers must also ensure that they mediate the suggestions coming from their member such as to make them compatible with broader industry interests and also in line with the national interest. For example, instead of repeating ad-nauseum their demand for labour hire and fire policies, impractical in any case in the present political scenario, business would have done well to ask for better working conditions in the informal sector of the economy where working conditions can be shocking and wages below the minimum stipulated. This would give business the legitimacy to ask for greater flexibility in labour deployment.

The chambers played almost no role in the formulation of the unaffordable Food Security Act and the Land Acquisition Act, the latter of which will surely stymie business expansion. Nor did they insist on clear infrastructure outcomes from the work assigned by the NREGS, also a funds-guzzler. Instead of putting forward a well-researched paper that showed how enterprise can help to efficiently develop industrial and agricultural infrastructure to ensure food security, the chambers merely opposed the food bill or recommended fixing the distribution system before the passing of the bill – all to no avail. They did press for subsidies to be reduced, again a consideration that New Delhi ignored. By the time the legislation was passed, it was too late. And in a direct reflection of this economic mismanagement private investment has come to a virtual standstill and share of investment in GDP has declined from 38% in 2007 to 35% in 2012. What’s left is an entitlement-driven economy supported by taxpayer money, with policies now hard to overturn or reform. Like Brazil in 1985, this can lead to a fiscal crisis – the last thing business wants.

India’s business community must take responsibility for long-term structural changes. It must endeavour at all times to ensure that Indian business becomes globally competitive and pressurise the government to implement the required policies to help them in this critical effort. It must not revert to its old ‘Bombay Club’ instincts when it regarded India as its protectorate, demanding preferential treatment over multinational competitors and lobbying to shut out imports . Indeed all businesses in India, including multinationals, must have a level playing field and there should be no talk of reversing the free trade agreements that we have already entered into.

This refreshing change will only happen if the chambers honestly restructure themselves. Their focus must stay on advising the government on business policy, looking beyond the interests of a few powerful members, independently funding their organisations, and supporting their lobbying with serious research. The most important step perhaps is to make the chambers completely independent from financial support from the government both at the center and the states. It can be easily seen that with an increasing share of revenues coming from government sources, the chambers tend to be diffident in raising their voices in opposition to policies that they clearly see as not being in the national interest. This virtually destroys the relevance of the chambers in putting forward viable policy options for the government's considerations.

Another necessary condition for the chambers to restore their credibility and legitimacy is to to self-regulate themselves such that their membership is not open to those who are either convicted or those who have over time developed a public reputation for unethical behaviour. With the Supreme Court's judgement for not permitting convicted politicians from holding public office or to be elected to the parliament , now in effect, it is essential for business to implement such a provision if it wishes to retain the confidence of the general public. 

Finally, chambers must ensure that their membership is as broad based as can be and is representative of all the strata of Indian business. Germany provides a good model.  There, all companies are required to be members of one of the 80 chambers, which in turn are part of the single Association of German Chambers of Commerce and Industry, an inclusive and politically powerful group.  In India, only 7,100 companies are members of the by far the largest apex chamber, the Confederation of Indian Industry, despite there being an additional at least 26  million micro, small and medium enterprises, just   5% of which are officially registered. CII, FICCI and ASSOCHAM are not reflective of the multi-layered landscape of Indian enterprise which comprises these vibrant but voiceless smaller ventures. It is also important to ensure that complete transparency is maintained in the process of granting membership and in the election of the office bearers of the chambers. This alone will ensure that these chambers are taken seriously by the government and the civil society.

Finally,  the post of chamber president is reserved for those who seek it, typically business owners of large enterprises looking for access to the corridors of power.  Whereas, in the UK, the  chief spokesperson is a professional, not a business owner, enabling  her to represent the independent views of a broad set of businessmen without the baggage of vested interests. 

Business activism, that reconciles business interest with the broader  national interest  is the need of the hour. This will take us back to the  times when business worked closely with leaders of  India's independence movement in complete trust and transparency.  Only then will corporate India regain its lost legitimacy, and India, its lost growth and global competitiveness.

_____________________________________________________

Rajiv Kumar is Senior Fellow Centre for Policy Research. Co-authored with Karan Pradhan, senior researcher, Gateway House