From Business World of 29 March 2004. Maharashtra is close to my heart; I grew up in Poona, climbing trees and eating green mangos. I was sad to see its cosmopolitanism destroyed by Shiv Sena, and the consequent migration of Gujarati industrialists to Gujarat. CII's invitation gave me a chance to give a sermon.
Is Maharashtra competitive?
CII Maharashtra invited me to Bombay to speak to them on how to make Maharashtra competitive. I did not know there was a problem; Maharashtra continues to be India’s foremost industrial state. I looked at the figures; they did not give any strong indicator of lack of competitiveness. Its per capita income is exceeded only by Delhi, Punjab and Haryana; and the share of industry in its GDP is one-third – the highest for any Indian state.
But perhaps the figures we look at do not measure competitiveness. Look at Punjab and Haryana: the richest states of India, but who would go and invest over there? If openness made a state competitive, Daman would be the most competitive territory of India (actually, that is not a joke; Daman’s industrial strength is impressive). If balance of payments is the indicator, Japan has had a chronically strong balance of payments, and its growth has been miserable. If we take foreign investment, there are very few places where foreign investment makes a decisive difference; most growth is due to local capital, enterprise and brains.
On almost all counts, Maharashtra has not done too badly. Historically, its source of strength was Bombay. A British stronghold, it was never attacked by Maratha armies. Once the Maratha empire was defeated, Bombay became the fulcrum of British western India. First it prospered on the opium brought down from Central Provinces and Berar and exported to China. With the money made in opium, Bombaymen built textile mills; they were the source of Maharashtra’s industrial supremacy for almost a century. And as textiles slowed down, the import-substituting industrialization launched by independent India gave Maharashtra wider opportunities; it thrived on engineering, automobiles, chemicals and pharmaceuticals.
This era of easy industrialization came to an end in 1991; with liberalization, the older industries of Maharashtra have gone through tough times. That is the cause of depression amongst Maharashtra’s industrialists. Maharashtra has not done badly in the new industries. In software it has the giant TCS, and many other smaller firms. But the south has done better. Bombay probably has larger pharmaceutical manufacturing capacity – all the great multinationals are there – but Hyderabad is better known for its innovative firms.
Bangalore has created brand value. When firms in America want to outsource, they do not think of India – they think of Bangalore. They might have thought of Bombay, but the descendants of the Marathas wantonly destroyed its brand value by renaming it. Bombay was once India’s most cosmopolitan city; Poona attracted students from all over India. The antics of Shiv Sena gave Maharashtra a bad name; its reputation of being hospitable to people from everywhere was taken over by Bangalore.
Maharashtra may seem to suffer from its historical baggage; its Thana-Belapur belt looks like the graveyard of industry. But no industry is passé; the very industries that are half-dead in Maharashtra are flourishing in China. Europe has much industry that is very old but highly modern.
That is what Maharashtra needs to do – revamp its industry and bring it into the modern world. Many industrialists have done it; but there are many left behind. They complain about three things: labour laws, which make it impossible to reshape the labour force to the requirements of the market; octroi, which slows down and raises the cost of transport, and property laws, which do not allow industrialists to change property use. These are very much the creations of the state; the Maharashtra government is the prime culprit in the lingering death of industry.
But it is also true that hire-and-fire was not the way of most of the world. Europe has never believed in it; nor have the Japanese. They have suffered for not believing in it. But both have developed strong traditions of retraining their labour forces as a result. In the modern, globalized world, it is no longer possible for people to go on doing the same job their entire lifetimes. They can expect to stay employed only if they adapt themselves to the changing markets. They must have a sense of ownership in the enterprise, and they must keep learning to make the enterprise a learning organization.
To give them this capacity is the task of management; perhaps this is where the industrialists of Maharashtra are still a bit old-fashioned. What Maharashtra needs is a change in mindsets, a common sense of sharing. It is not what Shiv Sena would encourage; but Maharashtra is in peril. It needs to unite, it needs to open itself to outside talent, it needs to become more inclusive.