Open Forum

New Delhi, 3 September 2013

Reducing Deficit

CREATE WORLD CLASS BRANDS

By Dhurjati Mukherjee

It is amply clear now that one of the most critical problems presently hindering India’s growth prospects is the unsustainable current account deficit. The large deficit undoubtedly indicates that apart from oil imports, the country is yet to attain international competitiveness in several segments of the economy.

The deficit zoomed to 4.8 per cent of the GDP in March this year, way above what the Reserve Bank of India believed the economy can sustain. The country now has the second highest deficit in the world, after the US. Worse, the UPA Government’s bid to woo the foreign investors has failed to make a mark. They have been reluctant to invest in projects or in the country’s low-yield capital markets, sparking worries in the Finance Ministry on how it will finance the growing deficit. It may give ample assurances but there is little hope that nothing will change till mid-2014.

In the last fiscal, the Government somehow managed without dipping into its foreign exchange reserves to fund the $ 88.2 billion current account deficit.  As present, it cannot curb oil imports as it did in 1991 because this would be an obstacle to growth which has already slumped to below 5.5 per cent in 2012-13 from the record levels of 9 per cent achieved between 2009 and 2011. This apart, it’s a different story whether the Government will heed to the Petroleum Minister M Veerappa Moily ’s advice to rethink importing cheaper crude from Iran, which is facing UN sanctions. According to his calculations, the country could save nearly $ 8.5 billion, i.e. Rs 57000-odd crore.

Financing the deficit by attracting more debt-creating capital inflows will only imply growing external indebtedness. Thus, the problem needs to be tackled through a different strategy. Since 2009, Indian subsidiaries had to make increased payments to their overseas parent for the use of brand names established several decades ago. According to a report of the ET Intelligence Group, royalty payments of Indian subsidiaries of MNCs trebled over the past five years. A similar analysis by the Business Standard found that 75 BSE 5000 companies paid royalty equivalent to 32 per cent of their net profit in the year 2011-12 and this has increased in 2012-13.

The fascination for MNC brands among the middle and upper sections of society such as soaps, shampoos, clothes, footwear, electronics etc has grown over the years, resulting in a sizeable outflow. The false notion of such brands being of superior quality has not been dispelled. Moreover, a majority have no inkling that every purchase made by them has a send value out of the country to the foreign owners.

Perhaps it is in this context that ITC chairman YC Deveshwar at the 102^nd Annual General Meeting of the Company held recently, suggested to “align national and corporate energies to create world class Indian brands”. He emphasized the need for domestic enterprises to build globally competitive brands that can compete with the best in the world on equal terms.      

Though creating world class brands in this era of technological competitiveness is easier said than done, it would not be difficult in at least certain household items. Thus, Deveshwar urged that the mission to create such brands in India must assume the fervour of a national movement. According to him, “such world class Indian brands will help create, capture and retain larger value for the economy”, thereby becoming a force for inclusive and sustainable growth.

The observations of the ITC chief are indeed very significant at this juncture and the suggestion for generating a national fervour echoes the swadeshi movement initiated by the father of the nation Mahatma Gandhi. The realization that the same products of Indian brands have almost the same quality and are largely less costly needs to be popularized so that the craze for foreign brands is reduced. There is also an urgent need for the Centre and States to formulate a well-thought out strategy so that people are induced to go in for Indian brands rather those belonging to the MNCs.

Success stories of consumer brands such as Bajaj, Reliance, Amul, Godrej, Hero, Mahindra and Airtel clearly reveal that India has the capacity of creating world class brands. There cannot be any two opinions. The new experiments with Akash tablet, designed by IIT, Bombay and Centre for Development of Advanced computing is also expected to make a dent in the Asian markets. Apart from outstanding entrepreneurial talent, the country has sufficiently high quality R&D, which needs to be further nurtured along with differentiated product development capacity.

At the same time, a change in outlook is also required among the neo-rich and the upper sections of society and a realization that the outflow of funds needs to be checked to help the country out of its fiscal mess. Deveshwar’s call for a national movement, i.e. putting more reliance on swadeshi products, is a timely call, which has to be seriously considered at this critical juncture. It also needs to be pointed out that most of Indian brands are highly improved and, in some cases, even better than MNC brands.      

In the coming years, some Indian companies with their international levels of R&D are destined to come up in a big way in some very important sectors. Encouragement and support from the Government would be necessary in this regard – the first being that all purchases should be of brands only of Indian companies. If the Government transacts business only with the State-owned banks, this purchase decision should not be difficult to take.

In certain sectors, export incentives would have to be considered to allow Indian brands to make inroads into foreign territory. R&D support from Government laboratories could also be extended at minimum cost to improve quality, wherever necessary. Thus, through a concerted strategy there could be no reason for not meeting the challenge of making India globally competitive. 

If a plan is evolved in this regard, the twin objectives of reducing the current account deficit as also giving primacy and promoting Indian brands would be achieved. The swadeshi spirit would have to be inculcated in each and every household to ensure that Indian brands flourish though simultaneously emphasis would need to be given on the quality aspect as well. A beginning must be made, at the earliest. ---- INFA 

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