Today, India is, above all, the country of cellphones. The phenomenon continues to grow despite the fact that the decade ended with the cellphone getting tangled up in probably one of the biggest scandals of crony capitalism anywhere in the world. But it was not just about crony capitalism everywhere. The sober manner in which the Satyam Computer Services Ltd scam was handled and how quickly the derailed situation was righted has to remain a great tribute to the actors involved—be it the department of company affairs or the Securities and Exchange Board of India (Sebi) as institutions or Housing Development Finance Corp. Ltd (HDFC) chairman Deepak Parekh and former Nasscom chief Kiran Karnik as individuals. Autonomous institutions such as the Reserve Bank of India (RBI) and Sebi came through as credible and as possessed of both good sense and integrity. Ironically, their autonomy is under attack as the politician and the bureaucrat based in Delhi want to take away their freedom and their financial stability. In passing, one wonders whether RBI and Sebi function well because they are not located in Delhi. Delhi seems to corrode everything it touches. The Telecom Regulatory Authority of India (Trai), which could have done a sensible job, has proved itself inept and possibly tainted. The spread of cellphones, the speedy “resolution” of Satyam, and the balanced behaviour of RBI and Sebi—for this writer, these are three positive outcomes of the last decade—all of them strengthen democratic capitalism, which with all its faults (and there are many: think Enron Corp., think Lehman Brothers Holdings Inc.) remains the freest, the most transparent, and the most efficient system for allocating societal resources and for encouraging mutually advantageous exchange.
The mobile phone revolution comes as a tribute to C.K. Prahalad, who tragically passed away during the decade. It was he who articulated clearly the possibility that capitalists could earn a profit serving intelligent consumers at what he described as “the base of the pyramid”. It is fascinating to note that it is the poor consumers who change caller tunes often—even though it costs them a not insignificant amount in relative terms—making the phone companies the largest “sellers” of music today. Railways changed the world a century and a half ago. Cellphones are doing something similar. The scale is bigger, the speed more breathtaking—and the effects are such that only future historians will be able to properly assess them.
Satyam was a strange occurring. The bahuroopiya (traditional artists who dress up as others) talents of the Janus-faced promoter of the company hit the country hard. After all, information technology (IT) was supposed to be the clean poster boy of the new India. How did this happen? How did the markets not smell it out earlier? Ironically, for years the market did have reservations. The price-earnings multiple of Satyam was for long at a discount to its competitors. But then, things seemed to be getting better. The company won awards for “corporate governance” and the discount narrowed. The independent directors were exemplary stalwarts, the auditor was a Big Four firm, not a little one subject to blandishments. Again, the full story may never be properly written for years to come. Suffice it to say that “awards” have lost some of their credibility and shine! The pleasant surprise was the reaction of the state. Not many know that the incumbent minister for company affairs belonged to the Rashtriya Janata Dal, which the urban media believes lacks all sophistication. And yet, it was the ministry under his leadership that moved swiftly, sensibly and, dare I add, patriotically. No government funds were expended. But the government provided crucial leadership when it was needed. Persons with credible integrity and competence were appointed to take charge. They moved quickly and transparently. A big player in Indian IT was put back on the rails. Customers, foreign and domestic, were relieved; employees were saved from whimsical layoffs. Foreign customers and investors noted how much better was the quality of public intervention in the Satyam affair than it had been for Enron or WorldCom. The Satyam episode sets an important precedent. Scams and frauds will not disappear. But when they happen, Indian industry can recover in a sensible manner with minimum disruption to stakeholders. This is perhaps why even with the ongoing slowdown in the global economy, large Indian IT companies have continued to show good growth rates. Their customers trust them.
Spreading net: The mobile phone phenomenon continues to grow in India despite being hit by one of the biggest scandals towards the end of the decade.
Capitalism requires that there be institutions and institutional processes that are stable, predictable, fair, and that legitimate commerce is encouraged, while frauds (the Achilles heel of capitalism) are restricted, given that complete elimination is not possible. Sebi stayed focused on keeping the capital market fair and transparent. In the long run, this is going to ensure the efficient allocation of capital, which China sorely lacks, and which India lacked in the infamous permit licence-Controller of Capital Issues regime. The political establishment in Delhi is clearly under pressure from “lobbyists” to allow business conglomerates to start banks, which no doubt, will serve the purposes of these conglomerates rather than the interests of the public. The autonomous RBI responded with a masterstroke. It asked for “public comments”. This process leverages the principle of transparency to ensure that back-room deals in Delhi do not become public policy on the sly. The chambers of commerce have supported their big members. But some of us have also been able to add our bit in the glare of public scrutiny. Giving business conglomerates banking licences will ensure that India descends into crony capitalism in a fast-forward mode. Hopefully, RBI will resist. The current climate of big business scandals should come in handy for the doughty officials in RBI to ensure the ongoing separation of banking and commerce in our country.
Of course, many other things happened in the decade. As an optimist, this writer has picked three events and trends— whatever you call them. With all the prevalent negative vibes of today, it was, on balance, a good decade and, hopefully, a precursor of another good decade ahead.
Jaithirth Rao is chairman of Value and Budget Housing Corp. Pvt. Ltd.