India takes the slow road to reform

Fifty years after gaining independence, the country is still bedevilled by bureaucracy, writes Eric Bellman

KK Kapoor's 10-rupee (18p) Hindi-pop cassettes sound so good because his factories use the latest dubbing machines from Denmark. Yet every time he needs to import replacement parts he's forced to pay huge tariffs, show folders jammed with documents and even bribe customs officials.

"They treat you like a cheat. I'm a businessman, not a cheat," he says from his windowless office in Bombay, originally a recording studio for his company. Kapco International churns out three million cassettes a year to fill orders from music companies like Sony Music Corp, but "even getting something cleared [by customs] in one week is a major achievement".

Even as India celebrates half a century of independence from British rule, it is finding that economic freedom is still elusive. The country is struggling to dismantle bureaucratic barriers erected during decades of Soviet-style central planning.

Reform has only begun in the last few years after inefficiency had pushed the country to the brink of bankruptcy, forcing it in 1991 to lower taxes and tariffs and, at least on paper, allow companies greater freedom.

Businesses say India has more work to do. India's growth rate has nearly doubled to 8 per cent since it opened its market to foreign goods and investment and gave companies and consumers greater choice. With more reform, it can grow 6-10 per cent a year for the next five years. Without, it risks returning to the "Hindu rate of growth", or about 4 per cent a year.

"If we could just let the bureaucrats sit idle for a while and tell them not to interfere, we could see miracles happen," says B.B. Bhattacharya, professor of economics at the Institute of Economic Growth at the University of Delhi.

India's first prime minister, Jawaharlal Nehru, chose socialism for India's economy, promoting industry through price controls and trade restriction, while Indira Gandhi nationalised banks and insurance companies, slapped controls on food prices and even kicked IBM and Coca-Cola out of India.

The central government ballooned to more than four million officials from 1.4 million 50 years ago. Red tape proliferated, forcing companies to seek approval from bureaucrats on what they produced, how much they sold it for and who they could fire. There are now 79 government departments, including the Development Commission for Handlooms and the Directorate of Vegetable Oils and Fats.

Enron Corp, the US power service company, had pumped $300m (pounds 190m) into a new power plant near Bombay, received government approval and signed contracts when the state of Maharashtra decided Enron was overcharging, shut the project and forced it to renegotiate.

Indian companies are also hurting. Most of the country's 246 state-controlled concerns are unprofitable. India's biggest companies were nurtured by government "guidance" that put regional development, job creation, or limiting imports before profits. It's still difficult to fire staff. Many state-owned companies are overmanned and it's nearly impossible to get government approval to fire people. Often layoffs lead to strikes.

When India's air traffic controllers went on strike in April thousands were left stranded at airports in Europe and Asia. The walkout was sparked by the Director General of Civil Aviation's attempts to reprimand controllers linked to a mid-air collision in October that killed more than 300 people.

But even minor changes can improve production for badly-managed companies. Take the power problems of India's third-largest city, Calcutta. Because the state of West Bengal's power plants were running at one-quarter of capacity, power would cut out for six hours each day. Those who could afford to bought their own generators to guarantee power for their lights, air conditioners and computers.

The state appointed Sanker Kumar Sen, a retired professor, as minister of power to reorganise its power company. He didn't have to lay off employees or build new power plants to succeed. He just asked the government for a free hand to promote productive employees and tell the rest to stay out of the way. The state of Calcutta now has a stable power supply and exports electricity to other states.

Even Hindustan Motors' chunky Ambassador car, once one of the only models on India's roads because of restrictions, has been improved amid competition from Ford and Suzuki. Customers can now buy an Ambassador with a stronger, quieter engine - and without waiting two years, as used to be common.

Hindustan Motors is about to spend 1bn rupees (about pounds 18m) on modernising its factory so the car's doors will fit better and shut without squeaking. It has no plans to change the design of the Ambassador, which has looked the same for the past 40 years. Because the body of the Ambassador is 2ft off the ground, it's protected from the giant potholes of country roads, it says.

"It's good to be a tank," says C.K. Rao, vice-president of marketing. And with its improved interiors, "it feels like you are sitting in your living room".

The reforms have opened doors in India for industries that are just taking off. The cassette-maker Mr Kapoor says the government allows a wider variety of imports now, so he has decided to diversify into importing soft ice- cream machines. "The approval system has been simplified," he says. "But the customs people still get in the way."

Start your day with The Independent, sign up for daily news emails
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'