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Business News/ Companies / People/  Manu Bhaskaran | Getting governance right
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Manu Bhaskaran | Getting governance right

The director of Centennial Group on what India needs to do to become one of the top three global economic powers

Bhaskaran says that when compared with 20 years ago, corporate India now knows that if it puts its mind together, it could take on the best in the world and win.Premium
Bhaskaran says that when compared with 20 years ago, corporate India now knows that if it puts its mind together, it could take on the best in the world and win.

Singapore: When Washington DC-based strategic and policy advisory firm Centennial Group released its 30-year projections for India in 2009, the country seemed poised to make a transformational leap. The Congress-led United Progressive Alliance (UPA) had been voted back to power, and expectations were high that India would sustain its recent economic success over the long term.

“What went wrong in the last few years, the story is very well known. The second term of the UPA—not that the first term was full of reforms—was bad as there was a huge focus on distribution, rather than on creating engines of growth," says Manu Bhaskaran, director of Centennial Group International and founding director and chief executive officer of Centennial Asia Advisors Pte. Ltd.

“They were tied up with environmental and other regulations. Thirdly, governance where you had all the scams, completely hijacked the government’s agenda—it was a wasted opportunity. There were external shocks as well," he said in an interview.

As the architect of the think tank’s India projections, Bhaskaran said the report emphasized that the central theme towards the country becoming one of the top three global economic powers in 30 years, involved getting its “governance right".

“We felt that if India got governance right, it could easily grow at 8.5% per annum in US$ per capita terms, which means in gross terms, it is something close to 10% growth," he said.

Using the expertise it had built in making the “India 2039" predictions, Centennial Group has now expanded his model globally, and has since come out with several other studies such as “Asia 2050", “Latin America 2040", “Africa 2050", and will soon be launching the emerging economies 2050 report.

At the same time, Bhaskaran said one must be realistic when expecting immediate big-bang reforms and structural reforms from the Bharatiya Janata Party (BJP)-led government.

“What we are seeing is that there are a lot of small measures that focus on improving governance and effectiveness of government operations—to me, this is really important," he said. While the reforms carried out by Modi so far may appear timid, the process is cumulatively paving the way for the successful implementation of larger reforms, he added.

“Standout reforms include Modi’s ‘Make in India’ campaign, privatization of coal mines, reduced stakes in public sector banks and upgrading India’s Planning Commission, among others. Efforts have seen the easing and streamlining of regulatory processes, which are untangling policy logjams and red tape that have accumulated over the years. While larger reforms tackling land acquisition processes, labour laws and addressing the country’s impoverished population are yet to come about, I believe that the current refinements will ease future reformations, sustaining India’s economic lustre," he added.

Bhaskaran joined Centennial Asia Advisors as a partner in 2002 after a 12-year stint with investment banking and brokerage firm Societe Generale Securities. As the chief economist and chief strategist at the securities house, his role involved advising on asset allocation and his team put together country ratings for Asia.

“In 2002, Societe Generale Bank basically shut everything that we helped to build up in this part of the world. I had an offer from Centennial Group International to join them as they did not have anyone in this part of the world. The Centennial Group has seven partners and all are ex-World Bank or ex-IMF (International Monetary Fund), except for me," he said.

Bhaskaran was recently appointed as a member of the regional advisory group for Asia and the Pacific of IMF.

After completing his Bachelor’s degree in economics from Cambridge University, Bhaskaran returned to Singapore to join the civil services, and was posted in the defence ministry. During his seven-year stint as a civil servant, he took a two-year break and headed to the John F. Kennedy School of Government in Harvard University for his Master’s degree in public administration.

Bhaskaran left the civil service because the private sector provided him both intellectual freedom and the opportunity to pursue his passion—economics.

“I was 31 and had no idea of leaving the service. Just a few months prior, I had taken a lifetime membership for the civil service club as I was so sure that is what I would be doing. The longer you stayed in the civil service, the tougher it is for you to leave—you become less marketable—the cost of leaving becomes higher. If you want a different career, you’ve got to decide fairly early whether to leave or not. I decided that I did not want to be locked into the civil service. I left because I wanted a certain degree of freedom," he added.

On India, Bhaskaran said one would have to give the Modi-led government another year “to get a feel of its performance". “So far, so good is what I would say," he added.

According to him, the uncertainty over India’s tax regime had hurt Modi’s cause, and the recent controversy over the government trying to impose minimum alternate tax on foreign funds had damaged India’s reputation.

“The current mess on the tax issue could have been avoided—it is very important to signal and communicate effectively to all investors—not just foreign investors. You can’t blame bureaucracy on the tax issue, although there appears to be a certain kind of bureaucratic resistance to several new measures like caps on foreign investment. The bureaucracy ultimately responds to the political leadership. If political leadership establishes the way forward, and exerts leadership, these kind of things will not happen," he added.

Bhaskaran, who is regarded as a leading commentator on Asian financial and economic affairs, says Singapore faces both a challenging and exciting future. He pointed out that it was vital to distinguish between cyclical short-term and the long-term when looking at the future of the city-state.

“The economy in the short-term faces tremendous head winds as we have economic restructuring going on, and a real estate sector that is deflating. We have to deal with that, and we will deal with it like we have handled issues in the past. If we look long-term, Singapore is a global city in the heart of South-east Asia, with China, India and Asean (Association of South-East Asian Nations), the three most incredible growth stories for the next 100 years—that is what we are plugged into. If we don’t mess up, we should do reasonably well," he said.

Edited excerpts from an interview:

Has Modi been a game changer for India?

When you talk about game changers, everyone focuses on Modi and the BJP government; while that is right, it is not the only game changer. India can never be the story of one person coming and miraculously leading the country to the Promised Land. It is too complex for that. There are several other game changers. I think (Reserve Bank of India governor) Raghuram Rajan has been a game changer. A lot of people don’t agree with this, but what Rajan has been trying to achieve with inflation targeting, it is a game changer. If you can bring inflation down in stages so that it is in line with that of your trading partners, reduce currency risks, you will reduce volatility and unpredictability, and that will bring the cost of capital down and investment will rise. That is very powerful. I hope Rajan will be given the space to do this. He operates in a different way—I hope that the system in India is mature enough to accommodate both Modi and Rajan. RBI is a high-quality institution and it has produced excellent leaders, and even with that track record, Rajan stands tall.

The other game changer is the mindset change. This is a revolutionary change, and this is what drives economic transformation. When you talk about GDP growth, these are just numbers—for a country to develop, you need transformation, and that is happening. Look at how individuals think—look at their expectations, the decisions that they are making, whether it is the schools they go to, whether it the investment decisions of companies in India...20 years ago, Indian companies bought second hand equipment, but today they buy top-notch, world-beating stuff. Twenty years ago, the ambitions of Indian companies were limited to the country, but today many think global. Corporate India now knows that if they put their minds together, they can take on the best in the world and win. This is a big-time mindset change—I believe that once the revolution in the mindset happens, like it did in China in May 1978.

Another game changer is what is happening in the rural sector. It is a compound interest—began with green revolution and people are safe when it comes to food, and have started looking beyond their immediate concerns—it has taken 30-40 years for this to happen. Today, village centres have become small-town centres and there is urbanization of rural India, too. That means high-value services start coming in, and you get non-agricultural incomes.

The other game changer is that state governments are beginning to compete with one another. The bias for investors must be to expect a positive outlook for India.

What are the risks for India?

India is a politically diverse and complex country. If the minorities are not treated well—there are so many minorities and even among the Hindu majority, you have minority groups—they will not be happy. Similarly, if Muslims and Christians are not treated well, you will get political discord and end up tripping yourself. One would hope that the current government would focus on the economic agenda and not some of the other issues.

Do you see China being a threat to India and for the region?

China is evolving and changing—there has been a big structural change in the last few years. China’s economic growth allowed it to use the potential resources it has, to apply to its geopolitical and military ambitions, to reach a certain threshold. It reached a critical threshold that made it change its strategy completely. Now they have realized that they have come to a stage where they cannot be passive partners to the world’s political or economic order—they have to shape it themselves. Where it is not shaped to their advantage, like any another country, including India, they will try and shape it. Who are we to say the Chinese are wrong? In some ways, like their behaviour in the South China Sea, it is wrong, but on other issues such as setting up the Asian Infrastructure Investment Bank, they are right. They are telling the West, “as you guys don’t want to give us a fair deal in the World Bank, we will create our own".

China is complex—some things they do will be good and some wrong. How will China evolve—will it become a threat or not, depends on how the rest of the world treats it. If you treat China as an enemy, they will behave as one. But if you (India) say, “We have fundamental differences in world views, democracy and Tibet, but we are two big countries who have gone to war before, and don’t want to do that again", then you can work around your differences.

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Published: 29 May 2015, 12:47 AM IST
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