economy: What’s an economic reform, as we know it?


By Dhirendra Kumar

It’s hard to recognise something that does not follow an expected pattern or fit a conventional template. For investors and analysts, this is the exact case while observing the wave of reforms that is happening in the Indian economy. These changes on Indian businesses are deep and hugely impactful but since they don’t fit the established ‘reforms template’, all of us talking heads sometimes fail to recognise them.

Last week, I had an opportunity of participating in an interesting discussion organised by S&P Dow Jones Indices. While listening to the astute insights of the speakers, I realised that, to some extent, we are all prisoners of what we think is implied by the word ‘reform’. Most of us have this conventional idea in our head as to what ‘economic reforms’ are. Mostly, it’s the 1991 template that was first created by the PV Narasimha Rao government. Lower tariffs, no licensing, foreign ownership, free trade, PSU divestment, privatisation and more. This template had great value but in the long run, it turned out to be composed of a set of low-hanging fruit. What we are seeing happening now is something much deeper. There was a whole way of doing business, dealing with the government, dealing with governance, with shareholders, with employees, with lenders, with customers, with suppliers, about taxation which has come to an end. An overwhelming number of Indian business have a legacy belief in maintaining illusions (I’m putting it politely). What they tell all these other stakeholders about their business is essentially a manufactured story. I mean not just the big businesses but everything down to the neighbourhood shop.


This is now over, and everyone is in shock, basically because what we are seeing is a complete overhaul of the operating system of Indian business. There was a whole way of working which was about maintaining these illusions, with chartered accountants and bankers and such playing a big role. This shock is going through the system quite deeply, but we will emerge much stronger at the other end, and quite soon I think. Earlier this year, in his annual letter to shareholders, Warren Buffett said that a large part of his success in life could be attributed to what he called ‘The American Tailwind.’ That’s an interesting idea. Remember, no matter what you do or not do in terms of personal finance, most of it is fated to be just a small deviation — a little higher or a little lower — from the country you live in. In the decades past, the life potential of crores of Indians was wasted — ground into the dust, all potential bled out — because of the blight of socialism. We’re lucky to live in a time when most of us can finally start looking up and make a real escape from that hell, so the rough must be taken with the smooth. The biggest determinant of how successful you are in life is how things go with our country. Some people will rise higher than the mean and some won’t manage to reach it — means are mean that way — but even the worst-off will be moving in the same direction and will reach somewhere near the same destination.

We live in a world where culturally, there is a great deal of premium placed on the idea of excellence, of being the best, of being among the top. Every child is brought up to be amazing. Every company is an awesome place to work. Uber drivers actually get offended if you rate them four stars. There is no moderation anywhere. And so every investor wants to choose the fund or the stock that will give absolutely the best returns.

However, in reality, it’s actually OK to be OK. It’s OK to be average. If you can be average consistently for years and decades in investing, then you will do very well actually, you could end up quite rich. That’s something that investors should take to heart.

The writer is CEO, Value Research. Views expressed are his own

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