Taking stock

With the market capitalisation of many johnny-come-lately dotcom ventures running close to that of his two-wheeler giant, it's hardly surp...

With the market capitalisation of many johnny-come-lately dotcom ventures running close to that of his two-wheeler giant, it’s hardly surprising that CII’s outgoing President Rahul Bajaj chose to defend the old economy so stoutly at the chamber’s annual session. But to give the in-your-face Bajaj his due, much of what he said is absolutely true. For one, as the old economy man put it, the cutting edge of the new economy, the Internet, is really a tool of disintermediation.

By reaching directly to buyers and sellers (or seekers and givers), it removes the number of levels or the number of layers that any routine transaction has to go through. So, while it could be cheaper to buy books over the Internet, removing the profits earned by the wholesaler and the book store along the way, the fact is that the book still has to be printed and published, doesn’t it? And it still needs to be delivered, doesn’t it? And, yes, the entire process also needs to be financed, just the way that it does in the old economy. So, to that extent, the new economy cannot even take off until the old one is in fine fettle.

And if you’re able to step back a bit from the wild passions of the new Nasdaq clone called Dalal Street, you’ll find that much of the hype being made about dotcom stock, or even the genuinely `knowledge’ ones such as pharmaceutical and software firms, is very similar to that exhibited for mini-steel plants and polymers in the ’80s, and petrochemical plants in the ’90s basically, there’s a very large element of flavour-of-the-season to the so-called new economy stocks today.

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That, of course, is reinforced by the fact that newspapers these days are full of predictions by all kind of gurus predicting that nine out of ten new economy stocks will crash.

A more fundamental issue is, how prepared is India to take advantage of the new economy, given its abysmal number of computers, its pathetic telephone and cable network, and so on? Clearly, if the larger part of India is not connected, it cannot take advantage of the Internet-based new economy. More important, let’s assume that Indians do start transacting on the Net very aggressively. Obviously, then, they’ll buy goods from the cheapest source.

But given that Indian industry suffers from various maladies, such as significantly higher power costs than its international counterparts, higher interest rates, very little room for manoeuvre as far as labour policies are concerned, and so on, Indian industries will be less competitive than those abroad.

Indian suppliers, therefore, may not even benefit from the Net. Even if all buying and selling takes place only within India (high import duties may make buying from the US too expensive), the fact is that some suppliers will benefit a lot and some will lose out completely. But if none of the losers are allowed to exit, due to perverse labour laws and the 20-year delays in courts even for companies that wish to close down, India is going to have a lot of sick industries on its hands thanks to the intense Internet-created competition.

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That, again, is an old economy issue if the old economy is not allowed to get better, the new economy will seriously aggravate its problems. That’s the lesson of the CII session: you can’t have the new without the old.