Friday, February 02, 2007

Rationale for exuberance

The Indian economy is growing in leaps and bounds ( projected growth rate of close to 9% looking at the year ahead). Stock market is booming with both the NSE and the BSE touching all-time highs. Nothing more exemplar of India poised than the takeover of Corus by Tata Steel for GBP 6.7 Billion.

Well, just hold on a little. Obviously, there are definite good times ahead for the economy. It is definitely a time to celebrate, but, also a time for humility and a retrospection of what we are now. Total global trade figures dwarf India's trade contribution.

India's largest firm in terms of revenues - Indian Oil at 28 Billion in USD looks puny when placed aside the world's largest firm Exxon at 378 Billion in USD. To drive home the difference in scale - Exxon made more profits than Indian Oil's revenues (and Infy's and Wipro's combined). The world's largest software maker - Microsoft makes more profits than all the major Indian IT vendors' revenues combined.

Why are these differences important?

I chose to write on this difference to highlight where India stands on the world stage. Indian firms, IT particularly, have evolved as competent players on the world stage. But, by no means are they even close to "world dominance", for that matter in any industry. Ireland is to this day is the world's largest provider for outsourced IT services. A reality check on what Indian IT firms have achieved in the last decade or so of good growth is important for them to plan ahead for the future. Indian industry has a long way to go before it can dominate the global arena. We need large firms which can steer industries and trade talks. We need good collaboration between the government and the industry to negotiate good trade deals on the world stage. All the free market activists fail to highlight the fact that international trade is still not truly "free" with the EU and US imposing tariffs and trade regulations even to this day. If the Democrats are back in office - the pro-big business environment might altogether disappear in the US.

More importantly, India still has a culture of family-owned businesses (Reliance, Birla, Tata, Wipro), which are professionally run, but yet family owned. Perhaps, it is in this inability of entrepreneurs to let go off their beloved ventures that India loses out on the world stage in terms of access to global capital flows, expansion and growth. Maybe it is a time to rethink, regroup and plan ahead for the future. It is a big world out there!

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