K C Chakrabarty: Ideas and actions for re-igniting India's growth and
shaping the recovery
Keynote address by Dr K C Chakrabarty, Deputy Governor of the Reserve Bank of India, at
the PGPX CONNEXION Conclave 2013, organised by the Indian Institute of Management,
Ahmedabad, 25 October 2013.
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Assistance provided by Shri Mridul Saggar and Shri N. K. Gayon is gratefully acknowledged.
1. His Excellency, Dr. Arye Kumar Jagessur, High Commissioner of Mauritius in India;
Dr. Ajay Pandey, Dean, IIM Ahmedabad; PGPX Chair Professor Anurag Agarwal, other
faculty members and students of IIM Ahmedabad. Let me begin by thanking you for inviting
me to CONNEXION 2013. I understand that this is an annual event organized by the
students of the One-year Post-Graduate Programme in Management for Executives (PGPX)
which brings together industry and academia for brainstorming on current issues facing the
nation. It is, indeed, a pleasure to be here this morning as I have an opportunity to share my
thoughts with both the business leaders of today and tomorrow, and also with those who are
shaping and grooming the business leaders of tomorrow. I have no doubt that the gathering I
am addressing today will be playing a key role in determining the future of our economy
through its ideas and actions. At all times, ideas shape growth in the economy, but perhaps
the theme of this summit, viz. "India In Cubate: Idea to Action", is much more relevant today
than ever before. You all know that our economy is at a critical juncture with growth having
slowed down for the past two years to a seventeen-quarter low, at close to 4 per cent. At this
juncture, the onus is upon each one of us to determine the future course of our economy,
whether to shape a growth recovery or slide further down, and imperil the long-term
sustainability of India's growth story. However, we need a combination of both ideas that
shape the recovery and actions that translate those ideas into actual recovery and growth.
This will be the theme of my talk today.
2. I will cover four very simple things. First, how or why ideas are important for
economic growth. Second, how ideas are a necessary condition for growth but it is the
execution of those ideas, which provides the sufficient condition to actually achieve growth.
Third, what are the possible ideas and policies that can put India's growth back on a
sustainable path. Fourth, what the business community and financial markets can do to
recoup India's failing growth levels. Of course, these thoughts are not final words, but a mere
conduit to stimulate more ideas and thinking. I am sure that IIM Ahmedabad, known globally
as an institution par excellence in business education, would be able to add many more
ideas to the debate I intend to initiate today.
3. How do ideas matter for growth? We all know that ideas lead to inventions like the
steam engine, which in turn sparked the Industrial Revolution. However, ideas need not
necessarily result in inventions or discoveries. Simple managerial innovations can deliver
productivity enhancements, which could form the basis for growth. Let me elucidate.
Ideas matter for growth
4. The fact that ideas have driven the largest economic expansions is ingrained in our
economic history. Ideas originating from the need for meeting basic human wants such as
food, clothes and shelter propelled mankind's first forays into organized economic behaviour
at the time of the great river-valley civilisations that prospered around the Nile, the Tigris-
Euphrates, the Huang-Ho and the Indus Valley, starting around 3300 B.C.
5. The Industrial Revolution of the 18th century was another example of clustering of
ideas that set the stage for rapid economic advancement. Inventions and innovations such
as the steam engine, iron and textile manufacturing that led to the origin of modern - day
factories and the corporate system transformed not just the British economy but expanded
over time to cover the rest of the world as well. These ideas may have resulted in inventions
that drove technological advancements but these were much more than mere inventions.
These were actually a series of ideas that fed into one another in the form of an interface
amongst ideas. For instance, the steam engine would not have been possible without
advancements in smelting and refining techniques of new ores and fuels that led to economic
use of coal. This in turn led to advances in the chemical industry, which threw up a range of
consumer goods such as soap, glasses, etc. Also, these technological changes spurred
political, social and cultural changes leading to changes in the way of thinking. The European
society that once could not tolerate Copernicus and Galileo, began to cultivate a scientific
temper and promoted thoughts like free trade with significant implications for growth and
welfare.
6. Given the strength of ideas in fostering growth, it is a pity that we pay insufficient
attention to it. Let us not forget Marie Curie's advice, "be less curious about people and more
curious about ideas". In a similar vein, Eleanor Roosevelt, American First Lady, once
quipped, 'great minds discuss ideas; average minds discuss events; small minds discuss
people'
Converting ideas into action to deliver growth
7. Yet, ideas by themselves are not enough. James Russel Lowell, the 19th century
American Romantic poet said, "all the beautiful sentiments in the world weigh less than a
single lovely action". Conversion of ideas into action is important as Mahatma Gandhi
pointed out, that "action expresses our priorities". However, let me add that it is hard to
convert thoughts into reality. The French novelist, Honour de Balzac once said "it is easy to
sit up and take notice, what is difficult is getting up and taking action". There is not so often a
knowledge gap as there is a courage gap, for it needs courage to execute in labour, ideas
that are born at leisure in our minds.
8. Productive ideas are often born out of social necessity, and these have a way of
spawning their own transition into action. Singer got the idea of inventing the sewing machine
when he saw his wife toil so hard with her sewing and his mind craved to do something about
it, leading to the execution of his idea of a vibrating shuttle sewing machine. This brought a
sea-change to the hitherto transverse shuttle designs, and revolutionised the production of
textiles into a high-speed, mass-production industry that never looked back.
9. Action can take several forms and yield different results from the same idea
depending on how action occurs. Henry Fayol provided us with principles of administration
that laid the foundations of the theory and practice of organizational management. Some of
these principles, which were enunciated in his book, General and Industrial Management
(published in French in 1916 and later in English in 1949), have helped several generations
of business managers in effectively carrying out their functions by minimising
misunderstandings, better coordinating actions, thereby resulting in increased efficiency in
organizations.
10. Qwerty keys was a great idea devised way back in the 1870s, making it easy to
typewrite using only the keys on the top, thereby preventing the ribbons from clashing with
one another. This single idea has withstood the test of time and is the basis of the keyboard
on our laptops and many mobiles even today. This experience tells us that ideas need to be
translated into action, which can, then, have long-term effects on growth, as acceptability of
the ideas and their user-familiarity provide lasting gains. Victor Hugo famously said that "an
invasion of armies can be resisted, but not an idea whose time has come".
11. However, the ideas have to be put into action for growth to take place and it is in this
context that the premier academic institutions like IIMs, have a crucial role. Over the years,
your institution has done a remarkable job in bridging the knowledge gap. Believe me, there
is absolutely no dearth of good ideas in the system. What is lacking, however, is the courage
to execute and bring these ideas to fruition. Going forward, IIMs have to work towards
narrowing this courage gap that exists in the society.
Ideas and policies to put India's growth back on sustainable path
12. Now what relevance do these micro-stories on ideas and actions have for shaping a
sustainable recovery in India? The link may not seem obvious, but there is plenty that can be
gleaned from the above analogies. I will discuss four simple ideas and actions which need to
be taken to get India on the path of growth. This, of course, is not, an exhaustive list of ideas,
but only an illustration of how easily we can and we shall get our growth back. Let me also
emphasise here that our problems are much simpler than elsewhere in the globe and the
added advantage is that we are well aware of our problems.
13. Are the ideas that will restore India's growth momentum more related to micro or
macroeconomics? My belief is that for putting India back on to the growth track, we need to
focus much more closely on the micro level than on the macro. However, the ideas for
bringing about this change have to emanate from thought leaders at all levels. For example,
we cannot expect the R-SETIs to be the harbinger of ideas for entrepreneurial grooming and
adaptation to changing technologies. These ideas have to primarily come from the
storehouses of wisdom like IIMs and the IITs, which can then, in turn, be executed at the
R-SETIs. The bottom line therefore is that we need more IIM and IIT graduates to develop
entrepreneurship ideas for the R-SETIs.
14. The second idea is to promote new thinking through R & D and managerial
innovations. You will be surprised to know that, based on the World Bank database; India
spends only 0.75 per cent of its GDP on R & D. This compares poorly with the OECD
countries' 2.5 per cent, China's 1.7 per cent, Russia's 1.3 per cent and Brazil's 1.2 per cent
of their GDPs. We have just not been paying enough attention to our scientific advancement
of late. After achieving technological and organizational breakthroughs that delivered the
Green Revolution, the White Revolution and then pushing textile, machine tool and software
exports, we seem to have lost momentum. Take the case of agriculture. Are we doing
enough to push agriculture in our semi-arid areas and harness greater yields? There is much
more potential for application of biotechnology and genetic engineering to raise more crops
in a wholesome manner. These should become our focus areas. We should bring
appropriate productivity inputs, maybe from Punjab and Andhra Pradesh, to the backward
regions of Bihar and Bengal etc. We should, actually, be spending more on R & D than the
advanced economies.
15. The third idea relates to how to get small and medium enterprises (SMEs) to realise
their true potential as also to ensure that the sector receives its fair share of institutional
finance. SME entrepreneurs, though proficient in the core production process, require
support in other functions to nurture their businesses. There is a need for starting SME
Service Centres, may be by some of the IIM graduates, on a cluster basis, to conduct
research and provide ideas on management of productivity, marketing and distribution. Their
research should also be seized of the need for adequate institutional financing of small firms
which face more constraints compared with large firms.
16. The fourth idea, of course, stems from my long-cherished goal of seeing meaningful
financial inclusion in the country. Improving access to finance for individual households, who
are financially excluded, is an important public policy goal without which sustainable growth
and development is not possible. We should ensure availability of finance to needy
entrepreneurs by making credit dispensation extendable to them. Of course, this is without
losing sight of the fact that aspiring entrepreneurs should also be credit-worthy. On its part,
the Reserve Bank has taken significant steps to promote financial inclusion. The Kisan Credit
Card (KCC) Scheme has immensely improved farmers' access to bank credit while banks
have disbursed credit for non-farm entrepreneurial activity under the GCC Scheme. During
2012-13, the public and private sector banks issued 3.5 million additional KCCs and
0.8 million GCCs. But, universal financial inclusion still remains elusive. What can we do
about it? Our banks are still struggling to evolve a cost-effective delivery model to extend the
banking services to the far corners of the country. It is inexplicable why a country which is the
backyard for providing the technology solutions to the world cannot develop a cost-effective
solution for our banks. We need to harness technology more systematically to ensure
scalability of such services at reduced costs. We need to direct our financial inclusion efforts
towards what the poor need and are likely to demand, rather than trying to impose the
supply-led solutions upon them. In this context, I would like the IIM students present here
today to serve as the leading lights and ensure that the mission of financial inclusion does
not remain only a fashion but becomes a national passion. It is expected that ensuring
access to institutional finance to all individuals will itself increase the GDP by 1.5 per cent.
What is needed is efficient governance. With good governance from authorities such as the
government, there should also be a revival of the animal spirits among the educated
graduates from IIMs and IITs. We have descended into a languishing stupor, ennui, a
melancholy feeling that nothing is happening or is likely to happen. We have to break this
melancholy and revive optimistic spirits and optimistic thinking.
17. We are often reminded of our burgeoning fiscal deficit. Let me emphasize that there
are a few very simple steps that need to be taken to rein in a sizeable chunk of the deficit.
We must look to reduce wastage in the system and curtail the subsidies- in urban transport
system, power distribution, LPG and diesel. If we can improve our governance and minimise
such wastages in the system, the fiscal deficit will automatically come down. Efficient use of
subsidies will reduce expenditure, which will, in turn, reduce imports of fuel and help bring
down the Current Account Deficit.
18. So it behoves on us, the public at large, and the government in particular, to adopt
fuel conservation as a national priority. We should also stop the matter-of-right cornering of
subsidies by all, which undermines their efficient and economic use. We must appreciate that
these are difficult times for our economy and, therefore, we should be willing to make small
sacrifices. We should be willing to live with smaller wage hikes. This is applicable to all
sections of the society, especially, the elitist section.
Infrastructure
19. A very disquieting aspect of infrastructure usage in the country is that we demand
the best infrastructure but want to access them for free. In India, VIPs get access to
subsidies and infrastructural services first, and there is little concern for whether or not it
reaches the poor and needy. We should stop this culture from becoming a moral hazard.
Again here, the need for good governance comes to the fore. While on the subject of
infrastructure, I would like to add that one cannot fund the growth of the infrastructure sector
based on debt alone. As the situation stands, many of the stalled infrastructure projects have
been financed solely by debt and promoters' equity contribution is absolutely minimal. Our
observation is that often debt is raised in the holding companies and is down-streamed as
equity in subsidiary ventures or SPVs. This is a risky practice. Corporate groups have
become hugely leveraged and their debt servicing abilities have been severely constrained.
The promoters of stalled infrastructure projects have little incentive to bring the projects on
stream. As future business managers of the country, I would like to impress upon you to
realise the importance of equity in running successful businesses, as it creates an incentive
for managements to eschew excessive risks. We need ideas to be able to raise fresh equity.
Concluding message
20. I would like to conclude by giving you three messages, which I always do, whenever
I get an opportunity to interact with students. My first message is that you must strive to be
"third generation literate". All of you have acquired the first and second generation literacy i.e.
gained subject knowledge by reading books and the knowledge about computers and
information technology. What I mean by third generation literacy is to become "information
literate". I read somewhere that every day, we create some 2.5 quintillion bytes of data and
more than 90 per cent of the data has been created in the last two years. I do not know how
many zeroes a quintillion has, but, that definitely means a whole lot of information. Every day
in your professional and personal lives you will come across volumes of information and that
is why I want you to be information literate. Try to be aware of the things happening around
you. You should be hungry to learn more and constantly update yourself by keeping alive
your quest for knowledge. Information literacy envisages not just seeking information, but
developing the ability to assimilate the same and to apply it in decision making. My second
message to all of you is to never be complacent in life. Think positive and avoid
complacency. It is all the more important for the people who ply their trade in the area of
finance as moments of complacency can bring disastrous results. My third and final message
is, be prepared for bad times. In your career you are bound to encounter tough situations.
During such situations, lie low and pray to God. Do not get desperate, as good times will
surely come back. You will always be successful in your life and professional career, if you
follow the above three commandments. The knowledge that you have acquired in India's
most premier academic institution, will open the doors of success for you in whichever field
you choose. I leave you with a quote from Francis Bacon which aptly sums up the power of
young men and women like you. "Young men are fitter to invent than to judge; fitter for
execution than for counsel; and fitter for new projects than for settled business". I hope many
of you will nurture your ideas into entrepreneurial ventures and truly contribute to the
economy and the nation.
I once again thank the organizers for inviting me to this seminar which provided me an
opportunity to engage with the brightest minds in the country. I wish you a very fruitful and
engrossing two days of interaction ahead. I hope you would find time to ponder over the point
I made about narrowing the courage gap during your deliberations which is so very crucial to
ensure that not only ideas are generated, but also find their way into execution. If good ideas
could be incubated and acted upon, India would soon return to the higher growth trajectory
and gain its rightful place in the world order.
Thank You!