Ask anyone on the sidewalks of New York or Auckland to name globally recognized brands from different countries and the following would form a sub-set of their responses:

Japan has Canon, Sony, Honda …..

Taiwan has Acer, HTC …..

South Korea has Hyundai, Samsung, LG ….

India has …………………………………..long pause……scratching of head….. Jaguar/Land Rover {these were acquired brands and so constitutes cheating here}

What India lacks is a clutch of world-beating products. Herein lies the rub. Its Asian neighbours had 60 years of thoughtful leadership which marshaled agriculture, manufacturing and finance policy-makers towards the one goal of collective prosperity. The progression of Japan, for example, from a broken country and one on its knees in 1945 to a formidable economic powerhouse in 2015 was through small-holding agriculture to small-scale manufacturing to a world-leading manufacturer with Nikon, Komatsu and other internationally recognized brands in its stable. This progression was underpinned in its entirety by a finance and manufacturing policy that encouraged exporters and fostered intense internal competition.

Prime Minister Modi launched his Make In India campaign immediately upon taking up office in mid-2014. He recognizes the importance of manufacturing in driving economic prosperity. However, this manufacturing has to be of a particular type to achieve his lofty goal, viz., one that is export oriented.

Over the past six decades since independence from Britain, the various Indian governments gave scant attention to local manufacturers, except if they were run by favoured industrialists, but were quick to prevent imports, for both production and for consumption. In this manner, local competition was stifled and mediocre products were turned out.

QUANGO’s {Quasi-Autonomous non-Governmental Organisations} flourished under these artificial conditions and some were even able to come out with goods of unquestionable excellence. Hindustan Machine Tools (HMT) is a prime example of such an entity.

Walk into any hardware store in India and ask for a screwdriver. The tool handed to you is mediocre, except if it is an import—usually from China—and comes without a warranty. Against this backdrop, Modi intends to make India into a manufacturing titan fully capable of turning out stealth fighter jets and high-speed bullet trains and, that too, during his tenure as PM, say by 2020. This is a laudable objective but the timeline is hardly realistic.

For him to achieve success here, he has to look first towards education. The British, plantation style of education that India has had thrust upon it by its Colonial masters cannot produce the hordes of technocrats necessary to drive his dream. If he looks towards the much vaunted IITs as producers of the calibre of individuals he desires, he’ll be sorely disappointed. Over the past two decades, India has provided the world with IT professionals of exceptional quality. However, only about 3 million of an estimated 500 million in the Indian workforce are in IT. Had the graduates of the IITs and other colleges gone on to industry rather than IT or finance, which has been their wont, there would have been no need to have a Make In India campaign.

Almost 5 decades of policy neglect have created a situation where only 10 per cent of the work force is employed in manufacturing. Contrast this with South Korea where the focus was industry-based development for the past 3 decades and fully 30 per cent of the labour force is drawn into industry. So, secondary and post-secondary education will have to be re-aligned along the German, Italian and Swiss models with industry providing internships. They will become the incubators of the new crop of technocrats.

The next item on his To Do list is to look to the crumbling infrastructure. The roads and railways connecting the various cities and the road systems within the cities themselves have to have a serious expenditure in analysis and then monumental capital outlays have to be planned for upgrading most of these. Electrical capacity building will have to be an imperative. Private-Public partnerships may work in this context.

Finally, he will have to corral bureaucrats charged with land, labour and capital policy to provide the last supporting pieces. Agriculture land will have to be made available for the factories. Buying farmland and converting it to build factories is tremendously complicated and expensive; by law, companies have to pay four times the market price in rural areas The Special Free Zones, where enterprises are given special treatment, also will not suffice.

India continues to provide heavily subsidized power to agriculture and, at the same time, charge prohibitively high rates to manufacturing. China, and other countries hoping to develop, follow the reverse logic. Price baselining and making available a plentiful and regular supply has to be a given here.

The cost of labour in India is lower than in China. With the spectacular growth in China, wages there have moved up considerably. India has a plentiful supply of labour available at attractive rates.

India’s cost of capital is one of the biggest impediments to entrepreneurs. These costs are among the highest in the world and the root cause is the closed financial system in India. So, Modi has much on his plate if he wants this to succeed and all the items are priority number 1.

The realistic estimate to make everything fall into place and to have all the policy parties aligned should, at the very least, take a generation. This is a long time horizon for any politician but Mr Modi has to be credited with at least being able to identify the current malaise in India.

The Make In India initiative is going to have to have a lot of thought expended into it. The results will be immense, if the execution is done right.

First Imperative: Addressing Corruption and Financial Crime

Part I – The genesis of the problem of corruption

Corruption is authority plus monopoly minus transparency.

The scale of bureaucracy in China and the break-neck pace of its economic development from an almost standing start are the two ideal conditions for the growth of corruption and unbelievably massive financial gain by underpaid government officials.

Official corruption: a long-standing pedigree

“The abuse of public power (gonggong quanli) by the occupants of public office (gongzhi renyuan) in the state and party apparatus for private interests,” is how China’s authorities define corruption.

Transparency International scores China at 36 (out of a possible 100) on its corruption index (http://www.transparency.org/country#CHN) where 0 is most corrupt and ranks it 100^th out of the 176 countries surveyed.

Corruption (fubai in Chinese, meaning decay and putrefaction) has been a part of life since many millennia.

In the face of rampant corruption, Confucius helped re-establish the ancient traditions of honour, morality and social hierarchy so as to check the empire’s decline in the later centuries of the Zhou dynasty (1045 – 265 BC).

Two millennia later, peasants in Guizhou province launched protests in 1851 amid famines and local government corruption as the Qing dynasty (1644 – 1911) drew to a close.

At that time, cheating in the imperial examinations was elevated to an art form: Confucian texts were sewn into the cuffs, fans had notes inscribed on their hidden side, miniature books were made available so that they could be concealed between the fingers of an open palm. Some examinees hired experienced scholars to sit exams in their stead. Then, of course, the easiest way to pass was to bribe the examiners.

Mao’s Communist Party of China rose to power in 1949 on the anti-corruption campaign against Chiang Kai-shek’s ruling Kuomitang. The communist party’s dominant position and the economic hardships of the population-at-large meant that poorly paid party officials could easily use their position for personal gain.

Official corruption re-emerged as a principal source of frustration in the late ‘80s fuelling the Tian’anmen Square protests of 1989. Despite the stated policy of President Xi to stamp out corruption, and with the exception of convictions of some high-profile individuals on the grounds of sleaze, little has been achieved.

A cursory glance at the passengers alighting from helicopters at the Hualapai Heliport at Grand Canyon shows that 9 out of 10 fee-paying passengers, who have just parted with USD250 per person for a 1 Hr ride down the Grand Canyon, are junior party officials of the Communist Party and their families. Macao casinos still have high rollers fly in to try their luck at the tables, who, when they are done go back to the mainland to their desk jobs in the local party apparatus.

Going hand-in-hand with market reform, corruption has grown over the past 3 decades relying solely on two factors: opportunity, presented to officials in the form of extensive role of government as a regulator, allocator, producer and employer and motivation, such as, ‘confusion over changing values, weakness of moral sanctions, relative impoverishment and a lack of alternative sources for self-enrichment’. Add to this the privatization of state assets has put numerous opportunities for official graft within tempting reach of poorly paid bureaucrats. Coupled with this, central government has devolved the decision-making apparatus to the local level in critical areas such as investment processing and law enforcement. As an example of this in context, our joint venture counsel teams often highlight the hidden costs of doing business which often appear as ‘fees’. Over the years we have had occasion to see birth control fees, public health fees, public security fee, tree planting fee, traffic control fee, fire department fee and so on.

Having set the stage of the level of corruption, the next important thing one has to come to grips with is the strategy to be implemented to reduce corruption and bring transparency to the dealings of the party and the dealings of the ordinary Chinese. If this is brought about, China will become a beacon for the continent.

Part II in this series will address the initial steps that should be taken to bring light to the dark corridors of power.