India Sharpens Economic Edge
Change at Local Level Cuts Through A Top-Heavy Bureaucracy
By JOHN LARKIN
Staff Reporter of THE WALL STREET JOURNAL
February 7, 2006; Page A6
MUMBAI, India -- In the competition for foreign investment, Beijing's ability to dictate change seems to give China a leg up on India, where a messy multiparty democracy often impedes market liberalization. But there is increasing evidence that India's own edge is sharpening, as the freedom enjoyed by the subcontinent's consumers fosters economic change at the local level without waiting for top-down approval.
Here in India's commercial capital and largest city, the Brihan Mumbai Electric Supply & Transport Undertaking Ltd., or BEST, is testament to these ground-up changes. In recent years BEST manager Swadheen Kshatriya has replaced 1,000 clunky double-decker buses with comfortable new ones. He has trimmed a few thousand jobs from the huge work force -- 46,000-strong before the cuts -- by halting recruitment for all but essential jobs. He even plans to replace the century-old wall clocks on which drivers punch in with a computerized check-in system.
The new buses are a hit with commuters. "They are more airy and comfortable," says R.K. Shinde, an audit officer at Hindustan Petroleum Corp., as he rides to work. "The automatic doors mean there's less chance of accidents."
Mr. Kshatriya's success so far exemplifies how some Indian administrators are responding to the rising expectations of a burgeoning middle class -- now estimated at 260 million to 300 million people -- by overhauling state-run industries and changing public policies that for decades have been obstacles to reform.
"The middle class is getting more demanding," says Ramesh Ramanathan, who quit as head of Citibank's equity-derivatives business in Europe to return to India in 1998 and start a civic group that lobbies for citizen involvement in political issues. "That puts pressure on the state to start focusing on outcomes."
BEST, which is run by Mumbai's city government, has long been just another bloated, pampered example of everything that seemed wrong with India. Foreign investors and local entrepreneurs point to dilapidated airports, potholed streets and a backward tax system as other evidence of how India's sclerotic bureaucracy stifles economic progress. It takes a world-worst 89 days to register a business here, and as long as 10 years to close one down, according to the International Finance Corp., the World Bank's investment arm.
Mumbai isn't the only place where bureaucrats have helped spur modernization. Indian aviation officials have sought to improve service and lower prices at state-owned airlines, in response to the rise of private carriers. Last week New Delhi awarded contracts to rebuild Mumbai and New Delhi airports to two consortia consisting of Indian companies and foreign partners.
Local governments are also teaming with the private sector to help fix India's decrepit infrastructure, often through privatization deals. Private construction companies are building most of a $38 billion network of roads, making their money back through tolls. New Delhi's water-supply system is being overhauled by Lyonnaise des Eaux, a unit of by French utilities giant Suez. In Chennai, garbage disposal is handled by CES Onyx, a local subsidiary of Vivendi Environnement SA, the utilities division of French media conglomerate Vivendi Universal SA.
Such arrangements are relatively common elsewhere. But they represent a big advance in India, where the business community has long groused that an inept bureaucracy hamstrings the nation's economic potential.
In Bangalore, Mr. Ramanathan works with receptive city officials on a program to stamp out evasion of property taxes that has boosted annual collections by 500 million rupees, or about $11 million. He has persuaded the city government to issue a quarterly performance review to show how effectively taxpayer money was spent.
At BEST, Mr. Kshatriya's entrepreneurial instincts were unleashed in 2003, when Mumbai's High Court ordered that all buses over 15 years old must be replaced to cut pollution. That gave him the leeway to respond at last to increasingly vocal complaints about the quality of the bus service and need for new vehicles.
That pressure, Mr. Kshatriya says, stems from increasingly affluent commuters having more transportation options. Longtime bus users see their children spend call-center salaries on cars and motor-bikes that they themselves still can't afford. And the city's 55,000 tiny Premier Padmini taxis -- which hit the streets in the 1960s -- will soon be replaced with larger models, posing more competition.
"There is tremendous prosperity, and some families have more than one car now," Mr. Kshatriya says.
Still, not everybody is happy with his efforts. "All this is blasphemy to the old guard," Mr. Kshatriya says, referring to bosses with the BEST Workers Union, which saw some of his proposals as first steps toward privatization and eventual job losses.
Mr. Kshatriya says unions have accused him of being a spy for the World Bank, an institution that is sometimes viewed with suspicion by leftists in India because of its reputation as a backer of market liberalization. Indeed, the World Bank is one of his main supporters, chipping in with a $25 million loan to buy new buses.
Prakash Valke, president of the BEST Workers Union, said he favors making the bus service world-class, but emphasized that workers shouldn't suffer as a result of reform. "If BEST wants to improve its services it should speak to us. It cannot cut the number of employees according to its own whims and fancies."
To reinforce his case, Mr. Kshatriya has commissioned Tata Consultancy Services Ltd. to study how to make BEST more efficient. "Competitive forces are forcing a lot of things to change [in India]," says TCS Chief Executive S. Ramadorai.
It took Mr. Kshatriya two years to win a one-rupee fare increase. But getting the fare to a minimum four rupees eventually helped build a consensus that public transport has to operate on a commercial basis. To generate new revenue, vehicles have been plastered with advertising. Radio entertainment has been installed in the expectation that music will persuade passengers not to migrate to taxis.
Mr. Kshatriya has also sweet-talked Mumbai's politicians, who form a committee inside BEST with veto power over major changes. Members of the Hindu nationalist Shiv Sena Party dominate the panel and are concerned mainly with saving the jobs of their voters. Committee Chairman Surendra Bagalkar, a Shiv Sena city councilor, says there are limits to how far the committee will go, arguing that profit shouldn't be BEST's primary concern.
Mr. Kshatriya says that kind of thinking, a legacy of India's experiments with socialist economics, reflects the mentality he must oppose to make his business relevant in a transformed India. "We must adapt to changing times," he says. |
