The emergence of a new order

We want a new world to come out of this. We want to set up the basis for a capitalism of entrepreneurs, not speculators,” French President Nicholas Sarkozy was recently quoted saying, and I believe that there is plenty of merit in it. The financial meltdown has exposed a lot of excesses and speculation that was being built into the economic system.

In India, too, we had imported many of these excesses into our system. The competitive strength of India lies in its low cost of doing business. Yet, in the past few years, real estate prices, salary levels and investor expectations had gone through the roof.

The current situation, however, allows us to do a course correction, introspect and develop a new order—a new order that doesn’t depend so heavily on external stimulus for growth and economic well-being. The question that needs to be asked now is whether we really need to depend on foreign direct investment to generate growth, whether the overdependence on inflows of foreign institutional investments is beneficial for our equity markets and whether Indian companies need to acquire foreign assets to grow their business.

We are a nation of more than a billion people and are fortunate to have a very favourable demographic profile. An innovative approach towards strengthening domestic consumption can turn it into the chief engine of economic growth in India. Rather than FIIs deciding the fate of Indian equity markets, we need to explore how we can spread the equity culture in India and allow domestic investors benefit from our economic growth. Our savings rate is unparalleled anywhere in the world and if channelised in an appropriate and innovative manner, our equity markets can become far stronger and more fundamentally robust. And, with a billion customers and a fast-growing economy, Indian companies need to develop the conviction that investing and growing businesses here in India will provide far richer dividends than in investing in assets abroad.

I believe this is the time for India to take the thought leadership and make a paradigm shift in the way we deal with our economy. We need to take advantage of this situation. Our experience from the shop floor suggests that a vast majority of the population isn’t affected by the global crisis. Consumer sentiment continues to be quite strong during this festival season. And while domestic financial institutions have been impacted by the global turn of events, years of conservatism has ensured that they continue to be fundamentally strong.

At the corporate level, the time has come to reiterate that the core purpose of a business enterprise is to create wealth, not to squander it. It is time for moderation and time to root out every excess that had entered our cost structure. When we are able to do it, businesses will become more efficient, create more wealth for stakeholders and pass on more value to customers.

The autumn of 2008 can mark the beginning of a new era. The most resilient businesses are built during times of adversity. These are times that will separate enterprises that create real value and those which squander it. And these will also be the times, when new values will emerge, new rules of business will be written and a new order can emerge.