Business & Economics

Ideas of India: Building Innovation in Industry

Shruti Rajagopalan and Naushad Forbes discuss R&D in Indian companies, the effects of protectionism and the importance of free trade

To grow its economy, India should invest more in R&D. Image Credit: Mayur Kakade/Getty Images

Ideas of India is a podcast in which Mercatus Senior Research Fellow Shruti Rajagopalan examines the academic ideas that can propel India forward. You can subscribe to the podcast on AppleSpotifyGoogleOvercastStitcher or the podcast app of your choice.

In this episode, Shruti speaks with Naushad Forbes about his new book, “The Struggle and the Promise: Restoring India’s Potential.” They discuss why Indian companies spend so little on R&D, how companies learn and innovate, protectionism vs. open markets, higher education reforms and much more. Forbes is the co-chairman of Forbes Marshall, India’s leading steam engineering and control instrumentation firm. He chairs the steam engineering companies within the group. He is also the chairman of Ananta Aspen Centre and was president of the Confederation of Indian Industry in 2016-17. Further, he is the chairman of the Centre for Technology, Innovation and Economic Research in Pune.

SHRUTI RAJAGOPALAN: Welcome to Ideas of India, a podcast where we examine academic ideas that can propel India forward. My name is Shruti Rajagopalan. Today my guest is Naushad Forbes, the author of the new book “The Struggle and the Promise: Restoring India’s Potential.”

Naushad is the co-chairman of Forbes Marshall Company and was president of the Confederation of Indian Industry in 2016-17. He has a Ph.D. in industrial engineering from Stanford University and chairs the steam engineering companies within the Forbes Marshall group. He is also the chairman of the Centre for Technology, Innovation and Economic Research in Pune.

We talked about how firms learn and innovate, the impact of liberalization on research and development in India, why Indian firms don’t invest more in R&D, cronyism and protectionism in India, the Forbes Marshall family history, Parsi exceptionalism and more.

For a full transcript of this conversation, including helpful links of all the references mentioned, click the link in the show notes or visit Discourse Magazine DOT COM.

Hi, Naushad. Thank you for joining us.

NAUSHAD FORBES: Thank you. Great to be with you, Shruti.

Impact of Liberalization on Research and Development

RAJAGOPALAN: I want to start with some of your research on research and development. You’ve written a lot about it, but I want to start with, what was the impact of liberalization on R&D and innovation more generally? I also want to know how it changed your thinking at Forbes Marshall, and what kind of changes you put in place 30 years ago.

FORBES: When you mentioned that you’d like to start with my research, I was saying, “I haven’t done research in a while.” Then you said on R&D, and I said, “Ah, very good. That’s the one area where I’ve done some.” So I feel a little more comfortable with that as a perspective. Let me start with how liberalization has changed R&D and changed innovation and the innovation ecosystem in India. I think the big change obviously has been in product and service markets.

The market opened up, and as a result, we’ve gone from, let’s say, an India in 1991 when the products and services that we had access to in India were much more limited than people in much of the world. This is true of both products and services. It’s true of consumer products and industrial products. It’s true across the spectrum. That much more limited offering has just vanished.

I think over these last 30 years, what we have available in the country today is on par with the rest of the world. Whether we’re talking about cars or whether we’re talking about foodstuffs, whether we’re talking about services of various kinds, it’s on par. Whether we’re talking about an airport or whether we’re talking about a car, it’s on par.

That’s the big change. That is a reflection of innovation because my definition of innovation—not my invention of the definition, but my definition that I like to use of innovation—is something new for commercial advantage. The Indian market has been characterized by many, many new things that have become available over these last 30 years. That’s the first big change.

When we start talking about the role that R&D has played, there is change, but it’s not been transformative. While the product and service markets of India have been transformed in these 30 years, I think our R&D ecosystem has been much more incremental in the changes. And the place where we are today would look very familiar to someone standing in 1991, which is a sobering thing. Because if you look at our product and service markets, things look completely different, and this is on various elements. In 1991, the bulk of R&D done in the country was by the state. It remains so today. The share has fallen a bit, but it’s fallen from maybe 75% to 65%, so, some change, but not dramatic.

Second, if you look at the investment by Indian industry in R&D, it’s grown, but again, the change is not dramatic. We used to invest maybe 0.2% of GDP in R&D; we today invest 0.3% of GDP in R&D. So these are incremental changes, and this is over a 30-year period. I think that our R&D ecosystem has not, at the aggregate level, changed dramatically in the country.

Now, your third point was, how has it changed for us, Forbes Marshall, what have we done, et cetera? That reflects, I think, much more significant change, and we’re not unique. There are many Indian companies that have gone through similar patterns of transformation and change in these last 30 years. Unfortunately, not enough companies for it to show in the aggregate data being transformed as well.

The story that I talk about in the book is my brother [Farhad Forbes] and I hearing Manmohan Singh’s budget speech of 1991 and resolving to do two things. We resolved to, number one, enter international markets, and we decided to enter international markets as a way of forcing ourselves as a firm to learn how to compete with the best in the world. We said, “If we can compete with the best in the world, outside of India, we can compete with the best in the world inside India as they come into India.”

Second, in terms of R&D, where we went from R&D being indigenization, being doing something where we develop something locally, which we previously imported, we went to developing products that we could sell worldwide. It took a while for us to figure out how to do that. It took three or four years before we started seeing a regular flow of innovative products coming out, but in those three or four years, we started seeing that. It’s continued and only grown since then.

Today, I think the essence of our organization, our company and its success, is built around our ability to compete with the best in the world, and our ability to compete with the best in the world also in our innovation output in the new products that we introduce.

Going Global

RAJAGOPALAN: I want to unpack that last part. You said that you decided, after the budget speech, you and your brother, Farhad, that you’re going to start competing globally.

FORBES: Yes.

RAJAGOPALAN: What was the binding constraint for doing that before the liberalization moment? Was it that tariffs were so high you couldn’t import the relevant inputs that you required? Was it that foreign exchange was almost impossible to get it? Was it the director general of the technical certification you needed? What was the control that was the pain point that got lifted in 1991?

FORBES: All of what you mentioned. Not only in 1991, but if you go back to the early ’80s, you could not import technology as an Indian firm freely. You had to go to the government and try to get permission to import technology from a foreign firm, whether in the form of a joint venture or in the form of a technology license. The government would often say no.

We personally experienced a really interesting, important technology, a fairly sophisticated technology for making pH electrodes. We had a joint venture agreement signed with a Swiss company, the world leaders, actually, in the field worldwide. We went to the government for permission, they said no. They said no why? Because they said, “We’ve got a laboratory in Chandigarh that has this technology. Go there.” We went there; the technology they had was a good 10 years, 15 years what we already had as a company, so there was no point. The joint venture didn’t happen, and today, India continues to import all of its pH electrodes. We missed out on many things like that as a result of the regulations that were in place that kept sensible business things from happening.

The same was true of total manufacturing output. India must have been unique in the world in having maximum capacity restrictions. Much of the world had minimum capacity restrictions. You must set up a plant of a minimum volume. Only India had this brilliant idea that business was bad, so you cannot produce more than this. If you get more efficient, that’s your problem. Get less efficient; limit your total output. These were absurd restrictions that went away starting in the ’80s for technology imports. Then these capacity restrictions, big bang—1991, went away, and tariffs coming down. Tariffs came down. To give you an idea, in 1991, they came down from a maximum of, for our industry, from 400%. 400%.

It’s unbelievable today, 400%. Tariffs were capped at 200%. This was reform. To cap tariffs at 200% was progress. Today, we take all this for granted because today you can import anything in our industry, free of duty. It’s a transformed legal system, and those changes that happened in 1991—I think today, 60% of India wasn’t born then. It assumes that the India we have now was always the India we had. I don’t think we appreciate how messed up our policy environment was in the ’70s and ’80s, and how very directly our policy environment of the ’70s and ’80s kept us, as a country, poor, and kept us, as a country, achieving less than we were capable of.

RAJAGOPALAN: Absolutely. At the Mercatus Center, we have the 1991 Project, talking about how India was before 1991 and how impossible it was to get anything, a pair of sneakers.

FORBES: 1991 was a vintage year. It was a wonderful year because it’s the year that the Soviet Union collapsed. It’s the year India opened up to the world.

RAJAGOPALAN: But I’m old enough to remember the 1991 moment, which, as you rightly pointed out, that two-thirds of Indians aren’t. It was remarkable, even to me as a child, now when I look back, from having two types of chocolates, you suddenly had many kinds of chocolates.

FORBES: Correct.

RAJAGOPALAN: Even for a young child, it was very clear that something had really changed.

FORBES: Suddenly television. Private airlines. I use the wonderful quote by Seshan, where Seshan said that “Look, Indian Airlines used to publish its timetable for the sole purpose of allowing you to calculate how late you were.” We lived in an environment of inferior products and services.

How Do Firms Learn?

RAJAGOPALAN: Coming back to both the liberalization movement and R&D in the context of liberalization, how do firms learn? Is it learning by doing? Is it learning by copying? I don’t mean copying in a disparaging way, I really mean by looking to other firms and looking up what’s going on in the market. Is it learning by reverse engineering products of a superior design or a superior kind of innovation? Or is it a combination of all of these things? Is it entirely indigenous? What is, according to you, the model by which firms learn, especially post-liberalization?

FORBES: It’s all of the above. And it’s indeed, I argue in the book, that there’s a hierarchy of learning. At the base is learning by doing. In other words, simply as a result of doing, as a result of manufacturing and selling, one learns. There, the objective is not learning; the objective is to make—to make and to sell. In the process of making and selling, you get this costless by-product of learning where you understand what goes into not only making a product but making a product that works, making a product that’s efficient and that can be manufactured efficiently, a product that maybe even can be improved over time.

Then there’s learning that’s much more explicitly targeted. For want of a better phrase, I use the phrase learning by explicit action. It’s a reflection of the barrenness of my imagination, [chuckles] so, learning by explicit action.

RAJAGOPALAN: It’s clear.

FORBES: It’s clear. It’s clear. It says what it is, and that comes in different buckets again. You have reverse engineering, so, that’s learning by analysis because you simply buy a product, you take it apart—someone else’s product. You figure out how it works; you figure out what are the essential elements. If you’re good, you maybe buy five different products and learn how each of the five work, and what’s best out of each of the five. By the way, all firms worldwide do this, so your point about copying not being something pejorative is very powerful. It’s not; it’s what firms worldwide do. Firms largely learn by looking at what other firms do and learning from them, and then you do something better.

Then learning by analysis also includes analyzing what you do, so, documenting work processes. Turning tacit knowledge that reflects the skills that are in people’s hands into something that’s more documented and scripted, and because when you write something down, then that’s a basis for further improvement. You go from tacit to codified knowledge, and that is a powerful way of learning by analyzing.

Then some firms, not so much unfortunately in India, but some firms—if you read the story of the East Asian miracle countries, you read the story of South Korea’s takeoff, particularly South Korea, Taiwan to some extent, but South Korea especially—you see this very explicit attention to learning, where when they started making cars, they import these cars from Japan. They have licensed cars from, I think at that time, Nissan. And Hyundai is making the Hyundai Pony for the first time, which is originally a Nissan-designed model.

They import these cars from Japan, and what do they do? They disassemble and reassemble the cars, and then they did the same thing with microwave ovens from GE. It’s this crazy thing where they’re literally disassembling and reassembling the same product. They practice this until they can do it as efficiently as the Japanese company that they got the car from and the American company that they got the microwave oven from. That kind of learning by a very clear, focused attention is quite unusual, but it’s very powerful in fostering that competitive approach to manufacturing.

The last category is R&D because R&D is also a form of learning. Very often, we think that when someone writes a paper, publishes a paper, that’s free—freely available to everyone. That knowledge contained in the paper is available to everyone in the world. It is and it isn’t. It is, in that it’s available free. It isn’t, in that, to understand it, you need a certain amount of base knowledge. You need to invest in a certain amount of knowledge creation yourself to be able to understand the cutting edge of knowledge creation elsewhere, so R&D becomes the firm’s formal learning unit.

It then also becomes the firm’s formal creating unit, but before it can create, it has to be the firm’s formal learning unit. Those are all, if you like, the hierarchy in which firms can learn. I have always found it very, very valuable in our own company to think in those terms. I think it’s also powerful at the country level to think in those terms.

If we talk about a new technology, artificial intelligence, robotics, et cetera, I think we should think in terms of that learning hierarchy. Start with learning by doing, then learn to do efficiently by analyzing. Then learn through looking at what others are doing, and taking things apart, and reverse engineering, and so on. Then learn by some actual explicit practice to become more efficient, and then R&D.

RAJAGOPALAN: This is also helpful, as you said, not just for the firm and for the country, but also, thinking about the broader arc of development across the world. It’s a very useful model because, as you mentioned, South Korea to me is the greatest miracle that’s happened in the last 100 or so years.

FORBES: Yes, to me as well. More so than China.

RAJAGOPALAN: More so than China according to me, exactly. I also say more so than China because they had no natural resources. At the time when they started on this journey, they were, I think, the second or the third poorest country in the world.

FORBES: Same per capita GDP as India in 1960. Today, 15 times.

RAJAGOPALAN: 1950 is even lower.

FORBES: Yes, exactly.

RAJAGOPALAN: Substantially behind India for a while, no real natural resources, completely torn by civil war. Both of us agree on this. But to me, when I look at South Korea, I can see each of these stages happening as the country was developing. Initially, they’re really learning by doing, which is basically, as you said, doing. You need to do something to make something, and as you go along, you do what you need to do. Then all the other stages of bringing things in, reverse engineering or picking them apart, and learning with great intention. Now South Korea is at the frontier of R&D. They invest a fairly large proportion of their GDP in research and development—the highest in the world.

FORBES: 4.8% of GDP in R&D. South Korea and Israel are just under 5% each. That’s a lot higher than the U.S. The U.S. is 3%.

Why Don’t Indian Firms Do More R&D?

RAJAGOPALAN: Now, India has had more hiccups in its liberalization than Korea but has had relatively free trade for 30 years. What are the major constraints for India in moving from the small-scale learning by doing to the large-scale R&D that you’re talking about? Is the binding constraint lack of scale? Is it lack of public investment? Is it lack of skilled labor because of brain drain, and the best researchers tend to go abroad? What is the reason India has not followed this trajectory?

FORBES: I think there are three pieces to it. One is firms need to be forced to be competitive. The best incentive to innovate is the threat of being pushed out of business if you don’t. That’s the best incentive to innovate that there is. Where does that threat of being pushed out of business come from? If it doesn’t come from another domestic firm, it should come from an international firm. In other words, trade liberalization is an essential element in forcing competitiveness on firms and creating the right incentive structure for firms to innovate.

It’s necessary, it seems to me, but not sufficient. For it to be necessary and sufficient, we need to take care of two other things. We need to take care of, first, talent flow. Talent flow is a policy issue, unfortunately, because we made the call, going back to the ’50s, that the government would locate its publicly funded R&D in autonomous independent governmental laboratories instead of in the higher education system. That single big call has led to the level of public research being done in our higher education system being a very small fraction of what it could be, and a small fraction of what it is in the world.

By the way, things are getting better, I should say, too. If you went back 20 years, India did less than 1% of its national R&D in the higher education system. Today, we do 7%. Things have improved significantly, but it’s improved significantly relative to where we were. Relative to the world, we’ve still got a long way to go because relative to the world, the world typically does between 15% and 25%—in most major economies—of its national R&D in the higher education system.

You see this in play in the U.S., in all the great research universities that you are more familiar with than I am. You take Stanford University, which I spent a lot of time at. Stanford’s annual research budget is more than the total research done within the entire Indian higher education system. The IITs, the Indian Institute of Science, every university in the country put together, one university. A big university, but one university and whatever number our of universities is.

RAJAGOPALAN: And a private university.

FORBES: And a private university, but by the way, that private university relies for over 90% of its research funding on the federal government in the U.S. The role that the state plays in fostering a vibrant higher education ecosystem is vital because of its research funding, provided that research happens within the higher education system and not in these autonomous governmental laboratories. Why is it so important? It’s so important because then researchers, the people who are learning how to do research, are learning how to do it alongside the leading researchers in the country instead of your leading researchers being in these independent R&D institutes.

Meanwhile, the students who are learning are in higher education. There’s no crossover that takes place of that capability. Here, these researchers are learning alongside people who are learning, who can later on go out and join companies, join labs themselves, et cetera and become the research talent that the country needs. That output from the higher education sector of talent is its essential output. I think, again, too often we think that the reason you should do research in the higher education sector is because you want the research output.

The argument that I make in the book—and it always gets me into trouble when I say this at Stanford—is that if Stanford is seen as this great model of doing relevant research for society and industry and so on—and the argument I make is that if the world had not seen any of Stanford’s research output in its entire history, it might be slightly worse off. It might be slightly worse off.

If the world had not seen the talent that Stanford University has produced, people who went on to start companies, people who went on to work in the government, people who went on to start various institutions, people who went to work for companies, the world would be much worse off. The key output of a higher education institute is not research. It’s like learning by doing. In the process of doing research, it produces wonderful talent. That wonderful talent is what makes the difference to societies and their well-being in the long run.

We need to keep coming back to that. I gave the example of Stanford. The same is true of the real example that I think in India, the University Department of Chemical Technology, or which is now called the Institute of Chemical Technology in Bombay. They have the closest connection with industry in terms of research and so on. Again, if you never saw the benefits of any of that research, no one would notice. Look at all the graduates who have come out of UDCT, from Mukesh Ambani to Madhukar Parekh to a whole bunch of others—Anji Reddy, so many others, and what they’ve done for their companies and for the country. That’s what makes the difference ultimately. The second big thing is talent.

Third is really, Indian industry needs to invest a lot more in in-house R&D. That’s a mindset change. I’ve asked myself this question time and time again: Why does Indian industry invest as little as it does in R&D? Because we do invest little. We invest 0.3% of GDP in R&D, as I mentioned earlier. The world average is 1.5%. That’s what Chinese industry invests as well. We need to invest five times as much. We need to scale our investments by a factor of five.

We invest less, if you go by different industry segments, in the pharmaceutical industry, which is our most R&D-intensive industry, we invest about half the world average as a percentage of sales, R&D as a percentage of sales. In the auto and auto components business, we invest, again, about half the world average as a percentage of sales. In the software industry, which is this huge profitable industry that we have in India, we invest roughly one percent of sales in R&D. Chinese—the top 10 firms in India.

The top 10 firms in China, which, again, are software services firms, invest 8%. Why do we invest one-eighth as much as Chinese software firms? It’s clear to me that we underinvest in R&D, but when I’ve gone around and talked to my friends in industry, they don’t think so. They think we invest a lot in R&D. The first thing that needs to change is this mindset, and to recognize that there’s this big gap between where we are in Indian industry and where the world is and where the top firms in the industry are.

If we want to be serious players in producing innovative products and services, we better get serious about in-house investment in R&D. Those are, if you like, the three pieces.

Changing the Mindset About R&D

RAJAGOPALAN: I want to make the connection between point 1 and point 3 that you just talked about. This, we need to open up, and we need to actually face competition and have this mindset change. It’s not that I disagree with you, but I feel like mindset changes when other circumstances change. Do Indian entrepreneurs not see the value in it because they can’t get a return from it? Or is it because we produce so much for our domestic consumers, the domestic market is just so enormous that there’s very little need to then serve the rest of the world, which means there’s less need to compete with the rest of the world?

What is driving that mindset? Is it the lack of openness, or is it other constraints, that we have a ridiculous taxation system? We force our companies to put 2% in CSR [corporate social responsibility], and whether that may or may not be a good idea—companies doing CSR is a separate issue—but the government basically penalizing companies and adding a criminal penalty. Do firms feel like they’re already doing a lot for the people, and this is just one area that feels unnecessary? They might as well enjoy the profits, or there aren’t great returns?

FORBES: I think it’s a very good question, and I think you’re exactly right that mindset can sometimes be a kind of grab-all excuse. As you say, where does that mindset come from? I think the mindset comes from that internal perspective, that inward-looking orientation. That is part of the mindset. That’s changed significantly in these last 30 years. There’s still more change that’s needed. It’s changed significantly. It needs to change more as a part of the wider opening up and reversing the tariff reversals and tariff reform that we’ve had in the last five years.

We need to do that, but there’s been some significant progress. In the end, I’ve concluded that it’s not actually that Indian industrialists have a large flow of proposals for R&D projects that they say no to. I’ve gone around asking them that: “How many projects did you say no to?” The answer almost always is zero. In other words, any proposal that comes to them, they support, they back. It’s not that they are deciding not to invest in R&D. That’s why I say mindset.

RAJAGOPALAN: Yes, and pipeline, clearly, right? In addition to mindset?

FORBES: Yes, that’s right. You need to build that mindset, you need to build that pipeline of projects, that capability within R&D. One of the things that we’re doing now, by the way, is that a think tank that we set up in Pune some years ago called CTIER—the Centre for Technology, Innovation and Economic Research—and Ahmedabad University. We’re currently actually, as we speak, running a four-month program for creating R&D managers of the future. Because one of the things that we said was that, “Look, we need to build that capability in R&D within our firms, to conceptualize worthwhile projects for our firms.”

The project we’ve asked all the companies to work on is how will you set up a world-leading R&D capability? There are six firms in this first cohort of the course. They’re going to present at the end of May. We’ll see what they come up with. Hopefully, it’s meant to do just this. It’s meant to start changing some of these—I’m going to use the word again—mindsets. [chuckles]

RAJAGOPALAN: No, I don’t fault you for using that word. But what I meant was, there are a lot of reasons for that mindset.

FORBES: Correct.

RAJAGOPALAN: It’s sometimes helpful to unpack that.

FORBES: It’s a reflection of history. It’s a reflection of what we’re used to. It’s a reflection of not wanting—

RAJAGOPALAN: [crosstalk] —rewarding.

FORBES: That’s right, yes, and not knowing that there’s something better out there that we could do.

RAJAGOPALAN: Even it’s sometimes as simple as that we don’t have major awards for best R&D by different firms, even within industry. But we do have awards for highest amount of CSR done, or the greatest amount of philanthropic or charitable donations made and so on. When I say reward, I don’t just mean profit.

FORBES: No, I know.

RAJAGOPALAN: I also mean, culturally, we don’t look to people who invest in R&D as our heroes.

FORBES: I agree. I agree. I think we need to do much more, and we need to judge firms on innovative output. Unfortunately, innovation can too often be a kind of apple pie and motherhood thing. Everyone is in favor of it, right?

RAJAGOPALAN: Yes.

FORBES: But what do you actually mean? Really, when you say you want to be more innovative, are you willing to pay the price of being more innovative? My friend Jim Adams, who I talk about in the book, used to always say that the difference between an innovative firm and a noninnovative firm is not how you treat success. All firms, innovative and noninnovative, reward success. It’s how you treat failure and not trying that makes the difference. An innovative firm will punish not trying and accept failure. No one rewards failure, but you accept it.

A noninnovative firm will punish failure and tolerate not trying. Now, it’s not easy to do. I know because we’ve tried to do it in our own firm. How do you punish not trying? How do you punish a non-act? It’s not easy. You have to keep talking about, tolerating failure is easy, but how do you punish not trying?

RAJAGOPALAN: Yes. No, you’re right. It’s difficult. It has a lot to do with within-firm culture. It has a lot to do with leadership. It has a lot to do with more generally the culture in which the employees in the firm were raised—what kind of universities they’ve been to, or what kinds of other factory floors they’ve worked on, and what they bring with them.

FORBES: I agree.

RAJAGOPALAN: It’s very difficult to explain that. It’s an intangible.

FORBES: I think you’re onto something when you mentioned what kind of universities they’ve been to and so on. How do I put it? If I look at my Stanford experience, people who come out of Stanford, there are many nice people, but there are many people who think they’re the absolute cat’s whiskers. Not a particularly nice feature, but if you want the confidence to go out and try new things, you have it in spades.

I’m going to get into trouble here, but we need a degree of confidence. Not getting all the way up to arrogance, but enough confidence to try new things, to say, “Listen, I know I can make this work.” We’re seeing some of it happen now with our startups and our startup ecosystem. I think that’s very powerful, and I hope some of that culture of startups and aggressiveness and confidence starts showing up in our large firms’ R&D departments. It needs to.

RAJAGOPALAN: Yes. When you talk about failure and the trial and error that is required, sometimes it’s easier to incubate that in a very contained way in a startup, and fund a startup as part of your pipeline, than try and change a huge pipeline or supply chain within your firm, which is already set in its ways. It might actually be easier to support these smaller ventures and spin-offs when it comes to this kind of innovation, especially in India, which is a country that genuinely punishes scale. In every possible way, scale is looked down upon by pretty much every government that’s existed.

Indian Industry, Protectionism and Cronyism

RAJAGOPALAN: You are one of the few people I have come across who is from industry. You’ve actually led CII [Confederation of Indian Industry], but you are a staunch free trade advocate. Because what I have seen is Indian businessmen—and I don’t mean anyone in particular—but everyone is, in theory, in favor of trade, except for their firm or their sector.

FORBES: Correct.

RAJAGOPALAN: Then you immediately want a whole bunch of protections, whether it’s in the form of tariffs and so on. You also want lots of special privileges, whether it’s breaks in GST [goods and services tax]—and the lowest levels of GST.

There are two parts to this question. One, how have you successfully led CII, when that is not the way Indian businessmen function when they band together? It’s always about getting favors from the government, and you are quite clearly against it. Second, how do we think about forming an advocacy group that is coming from the business and the entrepreneurship community, which supports more free trade as opposed to, “As long as my sector is okay, I really don’t care much about free trade”?

FORBES: Another great question, especially the second one. The first one is easy. It’s, yes, sometimes when people look at what I’m saying, they say, “Listen, no one else is saying this in CII, or no one is saying—” It’s actually not true. There are many others who think like me. Unfortunately, the people who we hear who are more prominent and visible are the ones arguing against free trade agreements, and we must drop out of RCEP, and Chinese imports are a disaster for Indian industry and all of that stuff—unfair trade and all this stuff.

Those are the people who we hear and who make the most noise. There is, though, a substantial number of industrialists who believe we should have open markets. I’m not unique. We have a substantial number who believe in open markets, who believe in innovation, who believe in doing business around the world. Many of them are, by the way, very happily doing business very successfully around the world. They leave it to some of the inward-looking colleagues to make the noise and talk against free trade agreements because they’re too busy doing business successfully in Singapore and in Brazil and wherever. There is that body.

My best example of that is that when India dropped out of the RCEP—the Regional Comprehensive Economic Partnership free trade agreement, which was bringing together 16 ASEAN countries, now 15 after India dropped out—when India dropped out, the general view was that this was a reflection of Indian industry being against the RCEP process and, therefore, not wanting to be part of that free trade agreement. Certainly, there were many loud voices in Indian industry that were anti-RCEP. We took a poll, and by the way, we tried to get firms in India to articulate their interest in the free trade agreement. We struggled, and we didn’t succeed particularly well. This is within CII where we brought groups together, and so on.

After we dropped out of RCEP, we took a poll of some of our leading industrialists at a meeting that we had. It was an anonymous poll. Everyone answered, I think, honestly. What did we find? 57% of the industrialists there thought it was a mistake that we had dropped out of the RCEP process and not signed. 27% thought it was right that the government withdrew from the RCEP process. 27% is not small, but 57% is a lot higher than 27%.

These were the leading industries in the country that were sitting around that table. My takeaway from that is that the people who are in favor of trade are actually more numerous than we think or than we hear. What we need to do—and this comes to your second question, which I think is the critical question—we need to give articulation and voice to that group. The people who we hear in our public discourse are the inward-looking ones. We need to give utterance, if you like, to the ones who are outward-looking and in favor of free trade and want to sell and do business everywhere in the world.

RAJAGOPALAN: I want to push back a little bit on this. I do agree with you that perhaps I have not heard of the 57% who are in favor of free trade, and I can quite easily understand why. After all, the inputs are going to be more expensive if they don’t sign free trade agreements. There is a lot of interest even among different businesses to actually drop tariffs, so the whole thing makes sense.

FORBES: Correct.

RAJAGOPALAN: Now, when you’re talking about the CII and the CII internal poll, we’re talking about some of the most influential, important, successful business firms in the country. How is it that they don’t have more clout with the dispensation, the current or previous dispensations, that they’re not able to put forth this idea and get the trade agreement signed? Not that that’s their job, but if 57% of them believe it—these are the richest, most privileged, most powerful, so I find that quite surprising.

FORBES: I think everyone has this impression that the 57% is a minority. Everyone has this impression. I had this impression. I was very surprised by the poll result. I was very pleased, by the way, with the poll result, but I was very surprised by it. I expected it to be the other way around. I didn’t expect the people in support of RCEP to be zero, but I didn’t expect it to be 57%.

I was surprised, and that’s what said to me, “Hey, listen, in CII, we need to do a better job of capturing this voice of the 57% and making sure it is adequately and publicly and clearly represented in our public discourse, with the government, in our policy recommendations, in all the work that we do.” Yes, the 27% needs to be represented too, but they already are, so let’s make sure that the 57% voice is clearly heard.

RAJAGOPALAN: What’s the difficulty? Is it that there is a lack of purpose or unity, and people just come together when there’s a poll or something like that?

FORBES: No, I wasn’t the only one who was surprised. I think everyone was surprised. I think too many Indian industrialists think that when they’re outward-looking and doing business around the world, and so on, they think they’re unique. They don’t realize they’re the majority.

RAJAGOPALAN: It is good to know they’re the majority. This is about RCEP and the free trade agreement, and there, I understand that there’s a very simple yes and no, right?

FORBES: Yes.

RAJAGOPALAN: Should India join the RCEP or not? And if yes, or if no, what are the parts that need to be renegotiated or dropped, and so on? There are a lot of problems that Indian industry faces. I think Manish Sabharwal called it the regulatory cholesterol that clogs the entire system. Now, the taxation, and the administration and enforcement of taxation, is just frightening the way it’s taking place right now. I feel like License Raj may have died, but the Permit Raj is still very much alive. Of course, it came back in a big way when the lockdowns were going on. Even modern-day, young Indians got a glimpse of it.

But you still need permits for pretty much everything. I’m sure you know more about this than I do. There is a question of simplifying, whether it’s different factors of production, land, labor, capital movements across the world. Earlier, we used to have capital controls; we still have capital controls. We also have FCRA [Foreign Contribution Regulation Act] and other kinds of weird capital controls now.

FORBES: Yes.

RAJAGOPALAN: I can imagine each of these causing a major problem for some or other big firm in India. A lot of them are in the CII. Why is it that we don’t see a strong coalition to deregulate and further liberalize coming from industry?

FORBES: If you provide an alternative, then you don’t need to do it. What’s the alternative? The alternative is protection. You go to the government, you ask for protection, you get protection. You ask for incentives, you get incentives like the Production-linked Incentive scheme for local manufacturing and so on. You go, and you ask for incentives and protection, and that’s what you get. In return, you then accept that you don’t have a level playing field. Now, do we have a level playing field?

RAJAGOPALAN: No.

FORBES: I agree. We don’t because we have all the regulatory hassles that you mentioned. We are a difficult and expensive place to do business for all those reasons. We can at times be a perverse place to do business because of weird interpretations, by some bureaucrat, of the law and a different interpretation by a state government bureaucrat.

We don’t have a level playing field. Now, how do you get a level playing field? One way is that you say, “Open up to the world. We’re opening up to the world. We’re going to compete with the rest of the world, and the only way we can compete with the rest of the world is if you give us this level playing field.” You have to address these regulatory problems. You have to address infrastructure and infrastructure constraints. You have to affect all these regulatory things that make it so expensive and painful to get goods shipped out of the country and goods brought into the country.

You use opening up as a way of improving the regulatory and business environment in the country. That’s what I’m advocating. The alternative is: “Protect us, give us incentives, and we won’t make a noise about the regulatory environment because you’ve protected us and given us incentives.”

Moving Toward Free Trade

RAJAGOPALAN: How do we move from protectionism equilibrium when it comes to CII and all the industry groups to openness?

FORBES: First of all, I think CII is very much in the reduce tariffs, open up to the world, certainly improve the regulatory structure, remove these constraints on doing business, these costs on doing business. The reducing tariffs is not a constant enough refrain, in my view, but it’s a solid, coherent, loud voice. In CII, it’s not constant but it could be more constant.

The regulatory approach, the improvement in the business climate approach is a constant refrain from CII, and it covers the work we do with the union government, the work we do with state governments, the work we do with various regulatory authorities. I can point to things that we’ve worked on in the last week in that category. That’s very much a part of CII’s focus and has been on an ongoing basis.

RAJAGOPALAN: You suggest this in a fleeting portion [of the book] when you talk about free trade agreements, is if we could have some kind of eclipse clause—so over a 10-year period, we slowly wean away all the protectionism. They tried to do this a little bit in the Vajpayee government, where they said tariffs are going to be used in a very systematic manner. And they gave credible deadlines, and they actually stuck to those deadlines.

It seems to me like that might be the only way out, because if you have a 10- or 12-year plan to credibly wind down the protectionist infrastructure, then everyone knows that they have to compete each year a little bit more. Then the pressure can start building on lowering all the other regulatory roadblocks for the industry. How does something like that work when it comes to industry lobbying with government?

FORBES: In terms of industry lobbying with government, I’m not sure industry lobbies for reducing tariffs.

RAJAGOPALAN: I mean credible commitments. Industry would benefit from credible commitments even if it is reducing protectionism. Because I think the regime uncertainty of the Indian state is a really big problem for any firm right now.

FORBES: That’s been one of CII’s budget recommendations consistently over these last five or six years. For example, we will say that these tariffs must go away over time, and we could go further and faster. If you have, for example, as we’ve seen in this last year, if you see steel companies making profits as a percentage of sales that are ahead of software companies—literally, 25% and 30% of sales, incredible profits—why do they need tariffs?

It makes no sense to me. This is an opportunity to get rid of all the tariffs of steel. That will have wonderful multiplier benefits through the efficiency of much of the downstream industry. You can move faster, but at least let’s have this nice schedule of getting rid of tariffs. That, if it’s 25% now, next year it’s 20%; the year after, it’s 15%; the year after, it’s 10%; and so on, and it goes away in five or six years.

What I’ve argued is that you combine that with the Production-linked Incentive scheme. You have this reduction in tariffs. You have the Production-linked Incentive going away in five years. Then you have to compete in five years, and you’ve got five years as a window in which to establish the scale or whatever it is that takes. And especially invest in the technical capability, so that you have an ongoing basis to compete without tariffs then.

CSR and FCRA

FORBES: You mentioned in passing both the 2% CSR and then FCRA. I wanted to comment on it because when the CSR regulation first came in, I was against it because I thought it should be a voluntary action on the part of firms. I’ve changed my mind. I think the 2% CSR is actually a good thing for India. If we were Norway, you don’t need firms to be playing that role in wider social development. But we’re not Norway, we’re India.

We’re India with very limited state capacity, which means the state has less ability to implement useful policies at the last mile on the ground. There’s a role, it seems to me, for those who have implementation capability, which is the firms in the country, to engage with education and education outcomes for schoolchildren, public school children, the most disadvantaged public school children; to engage in public health issues; to engage in women’s empowerment issues.

I think there’s a lot of merit in that 2% CSR regulation. I think the criminalization of CSR and the culpability of officers and so on is wrong, and indeed stupid and counterproductive. I think the 2% CSR regulation itself is sensible and is productive for the country.

RAJAGOPALAN: I agree with you that it has turned out quite well because, at the end of the day, Indian firms do have capability, and they’ve done some wonderful work. I have two problems with it on principle.

FORBES: So do I.

RAJAGOPALAN: My problem is that, fundamentally, in India—as a culture, and the relationship of the state and citizen—we think about for-profit companies as terrible things that need to be punished and taxed. We will keep education, healthcare, a lot of important sectors out of the realm of the private sector. They can only be the government or the nonprofit sector; they can’t be for profit. Then you have extreme state failure, and then you say, “Oh, you can’t do this for profit.” There are a lot of private firms which would have done it for profit.

Then, you say, “Oh, we don’t have this, and we have the private capability, but we won’t allow it for profits.” Now we must put a gun to your head, quite literally, because it does carry a criminal penalty to have 2% CSR. My problem with CSR is more of that. If we opened up and liberalized a lot of important sectors which are now just predominantly under the purview of the state sector or the third nonprofit sector, then we said, “You can additionally add these capabilities,” I would be happier because there is a discipline to the for-profit sector.

There’s a discipline that comes from competing in the market, and then it ensures that resources are more efficient. They go to their highest-value use. My problem is more at the principle level. On the details, both you and I would completely agree that the way CSR has turned out in India has been hugely beneficial. I don’t think India would have survived the COVID lockdown without the CSR money, to be very honest.

FORBES: Absolutely. I fully agree with you on the principle. It’s a wrong principle, but it has the right effect. If we’re talking as economists, it’s wrong. If we’re talking as political economists, it’s right.

As they say, politics is the art of the possible. This is one of the things that was possible. It’s, in that sense, a sensible thing to do. I think the country is better off for the CSR regulations and the way it ends up being implemented by firms that have increasingly taken it seriously. I think many NGOs, nongovernment organizations in India, have benefited hugely in the work that they have done as a result of the CSR funding, that’s come only as a result of this regulation.

RAJAGOPALAN: I agree. Now, I want to come to FCRA. One, I don’t like the idea of capital controls, especially money going to the third sector. The second part of FCRA is the incredible discretion that a few bureaucrats or a few politicians have. They just bring their hammer down on anyone they like or they don’t like. It becomes very political and ideological.

It’s not just about this government. I think this has been true of capital controls since war controls were introduced by the British colonial government. This has been a problem. FCRA now has this additional issue, which is, on the one hand, you’re forcing Indian firms to pay up because the NGO sector desperately needs these funds. There is foreign money that is very happy to bring these capabilities to India, and then we clamp down on that through FCRA.

What is your economist perspective? But I also want to know from you from the point of view both supporting the third sector and its capabilities, but also research and development and learning. A lot of NGOs are also working in that area.

FORBES: I think the FCRA regulations are completely wrong. They were not invented by this government; they were invented actually by Indira Gandhi and first brought in by her. They have been, in a sense, perfected by the current government. The provisions that make it so restricted on what foreign funding can flow to NGOs, I think is completely counterproductive for India and wrong.

Now, does that mean that every recipient of foreign contributions was this wonderful paragon of virtue doing fabulous work for India? No. The NGO sector has its rotten eggs like every sector. Should you make regulations to suit the dishonest or to suit the honest? I think it should be to suit the 90% some that are doing wonderful work. I think the FCRA regulations are wrong and counterproductive.

What we’ve done where we’ve basically cancelled, I believe, 19,000 FCRA registrations, we’ve asked everyone to apply again. Because all the NGOs have applied again, we don’t have the capacity in government to actually clear those approvals. Every three months, we send a letter off to these NGOs saying that, “Your FCRA permission is continued for another three months, because we haven’t got around to clearing yours yet and looking at the application.”

It’s an absurd way of operating. I don’t understand what we are doing, why we are doing it. I think it reflects petty instincts trying to control things, trying to restrict a flow of funds that India needs and these NGOs need. I think it’s damaging to India’s development. It’s wrong.

RAJAGOPALAN: It flies in the face of everything else the government claims to do, which is that India’s open for business, and we want ease of doing business, and we want foreign firms to come and collaborate, and so on and so forth. This distinction between a firm versus a nonprofit versus a global foundation, you would agree that this is just so completely absurd.

FORBES: It makes no sense

RAJAGOPALAN: I work on a grants program at the Mercatus Center called Emergent Ventures, and it is so difficult to send money to India. It’s just really, really hard. We do it on a very small scale. But by the time we can get money to India, sometimes it’s like six months. And these are startups, and individuals and people who are innovating, and it’s very difficult for them to survive six months sometimes.

FORBES: We come up with some strange regulations. On CSR, not FCRA, with CSR, we suddenly said that you cannot use CSR funding for corpus. You cannot contribute to an NGO for corpus. You can only fund an NGO for CSR funding for its own project expenses and operational expenses, not for corpus.

Now, at a stroke, if you want to build classes for higher education institutions, you want endowed professorships, for example, in the country. An endowed professorship, as far as I’ve checked, is a corpus; it’s nothing else. Now, when I’ve spoken to people, they’ve said, “No, that wasn’t the intention.” It may not have been the intention, but that’s what they’ve done. I’m sure they’ll do something to sort out the problem, but why create the problem in the first place?

RAJAGOPALAN: When they sort out the problem, it’s always done by exception. We won’t allow corpus except in the case of this chaired professorship.

The Forbes-Marshall Family

RAJAGOPALAN: You come from this incredible family, and your family’s history is run parallelly with the country’s history in one sense. I hope I’m getting your family tree correct. Your great grandfather, Nanabhoy Marshall.

FORBES: Yes.

RAJAGOPALAN: He’s the founder of the Marshall Forbes—

FORBES: The industry, yes.

RAJAGOPALAN: Then, Jeejeebhoy Marshall.

FORBES: My grandfather, my mother’s father.

RAJAGOPALAN: He is incredibly important person in a sense. He’s the official founder because there are a lot of changes that go on between the generations. Of course, your father, Darius Forbes, during the post-independence moment and through, I want to say, up to the Emergency, he’s a really important figure.

Now yourself and your brother are the leadership of the Forbes Marshall company. Can you give me a sense of, what do you think might have been the great challenge for each of these generations?

FORBES: It’s a good question. Now, for Nanabhoy, I’m going to guess because I never knew him. He died way before I was born. I only know of what he did. My sense is his challenges, at that time, were British rule. It was running an enterprise in Bombay where we were a colony and the constraints that went with that, in terms of restrictions on what kinds of fields you could get into, which were encouraged, which were not.

One of the things that he did, one of his businesses was to supply hay to the horses that pull the trams, because the trams were horse-drawn at that time in Bombay. He supplied the horses with hay, the company that ran the tram system. You became a peripheral player in supporting what was being done by the colonial power at the time. I suppose that, to the extent that I know enough about him.

For my grandfather [Jeejeebhoy], when he started his career—he started his career in 1926—he started selling mill stalls. Didn’t make anything until my father joined him in 1946. Then, they started the engineering business, didn’t start manufacturing really until my father wanted to set up manufacturing in 1958, ’60.

For my grandfather, I think, this was an exciting time. It’s when India got its independence. It’s when many new things, new enterprises got started. We started working with new companies at that time, representing them in India. It was a very exciting time to get into business, but then we had a series of restrictions, capital controls, controls on imports, et cetera. We were importing and selling in India.

That fostered actually setting up a local manufacturing base then, which took a while. But we were generally the first to set up manufacturing for each of the products that we got into. We were successful, but we were small. We were a small company all through this time.

My father and my mother were also involved in the business, and really dealt with the License Raj, dealt with increasing restrictions on what we could do, what we could import, what we could get technology for, who we could sign joint ventures with. The ’70s, ’80s, I think, were the worst time in India’s history. The regulatory mechanisms that came into play then were really damaging.

In a sense, I got involved in the business in 1986. My brother got involved in the business a few years earlier in 1981. In 1991, we were both just coming into our own, and we’d been in the company long enough to start playing a serious role in it. It coincided with this wonderful, great opening to the world and many new opportunities. Both of us feel hugely fortunate that our careers have matched an India that was more open and an Indian industrial environment that was so much fuller of opportunity.

How Do Firms in Developing Countries Catch Up?

RAJAGOPALAN: This is, I think, where your academic work and your business work coincide. How do developing countries play catch-up when it comes to firms, and firms getting bigger and firms innovating and becoming like world-class firms? Because you’ve had to deal with that at a very personal level, but you’ve also written about this with David Wield and so on.

FORBES: I must compliment you, Shruti, on being incredibly briefed on things about me and what work I’ve done.

RAJAGOPALAN: I’ve actually read everything you’ve written. That was fun.

FORBES: I’m impressed. The new book is, I think, a much easier read than the old book.

RAJAGOPALAN: The old book is more technical. It’s very specific, yes.

FORBES: It’s more academic, technical.

FORBES: It’s more academic and more technical. Catching up is very much a part of—that’s what the book 20 years ago, “From Followers to Leaders” with David Wield, was about. Catching up, I think runs at the level of the country, and it runs at the level of the firm. Because at the end of the day, it’s firms that will need to move further and faster and, between them, help the country catch up.

For many, many years, our company mission statement was to be a developed company in a developing country. That was the phrasing that we wanted to get. We said, “How is India going to get developed?” It’s going to get developed as a result of many enterprises in the country getting there.

The enterprises will need to get there first, and that means that, in terms of value-added per person, individual productivity, our value-added per person needs to catch up with the world as a company first. And if it happens for enough companies, then it will start happening for India, and value-added per person at the country level, as we know, is GDP per capita. It’s the same thing, it’s productivity per person. It’s a clear productivity metric.

We’ve been using that as our key performance metric in the company for, now, the last 30 years, and it’s a very powerful metric. I use value-added per person and compare different industries, different firms. It’s a very powerful metric. It really tells you how well you are doing as a company on all the key elements—margin, productivity—does your margin, does your value-added percentage keep rising? That’s a reflection of how good one’s R&D is, how innovative one is. Are you going into the right markets because you can sell then at better margins again? And where’s your growth coming from?

RAJAGOPALAN: Can these ideas of convergence between different firms globally also be used to extrapolate more generally convergence between different countries, or that’s too much of a leap?

FORBES: No, I think it’s one-to-one, and that we need to get enough companies in India that converge with the world. As that happens, India will converge with the world. It needs to happen across industry, across enterprises and over time across agriculture because we have too many people—

RAJAGOPALAN: That’s the most restricted sector still in India.

FORBES: Yes, most restricted, very low productivity, maybe one-twentieth the productivity of modern manufacturing. That movement of people from low-productivity agriculture into much higher-productivity industrial enterprises and modern services is something that we still need to see in the country.

RAJAGOPALAN: Absolutely. That’s the next big opportunity. The 1991 reforms unshackled industry. The next big bang reforms really need to unshackle agriculture.

FORBES: The farm laws were meant to do that. The farm laws, which were done wrong, but they were the right changes.

RAJAGOPALAN: They were one part of the change. There were so many parts.

FORBES: They are one part. There are many others.

RAJAGOPALAN: They were basically the market element of the change. Every agricultural input is so controlled.

FORBES: Our fertilizer subsidies end up subsidizing companies instead of subsidizing the farmer. Some of these are nutty.

Higher Education Reforms

RAJAGOPALAN: Other than Pune and thereabouts, where your family’s business is set up, and that’s where most of your time has been spent, the other place in the world is Stanford. You briefly talked about what makes Stanford University great.

You’ve also written about the challenge of higher education in India. Your model of what higher education should look like is very much based on your experience at Stanford. What are the various roadblocks toward achieving that in India? Is it a commitment from both public and private sector? Is it a quality problem? Is it a regulatory problem? Is it a talent problem? Is it all of the above?

FORBES: It’s, primarily, a regulatory problem. The biggest single leap forward that we can take is by changes in policy, not only at the union government level—definitely including the union government level—but also at the state government level. Because education, as you know, is a joint subject in India. What do we need to address? Well, first we need to address the quality problem, because we’ve seen a huge entrepreneurial response as there was limited opening up of the higher education space over these last, actually, maybe 40 years.

Early ’80s is when some states started allowing private engineering colleges, and then private management institutes get started. You’ve seen this huge explosion in the number of engineers we produce. We produce 40,000 engineers a year. 40 years ago we produced over 1 million engineers a year, and now, with almost all of that increase happening in the private sector.

It’s been a very entrepreneurial response. It’s also been a response that’s then led to the quality problem because we’d expanded it 40 times in 40 years. You’re going to have a serious shortage of qualified faculty that’s going to show up in institutional quality and the quality of education that people receive. How do you start to address it? Now, our way of trying to address it has been to try to regulate quality into the system.

RAJAGOPALAN: It’s impossible.

FORBES: Decades of trying to do that, it’s failed miserably. The only thing that you can actually do is, I think, rely on competition and autonomy, which is what I learned from the U.S. system. You need both. You need competition. You need institutes to compete one with the other, but not just compete one with the other with one hand tied behind their backs, et cetera—with autonomy and freedom to do whatever they wish.

They should be free to charge what they wish. They should be free to add as many seats in different fields as they wish, not get approval for 60 seats for mechanical engineering. No, you want to go to 120, no, you can’t. You can get 60 in civil engineering, which no one wants to study. These are not sensible. Autonomy and competition, that’s the combination that is powerful to improve quality over time, at least in the professional system. That’s one piece. This will improve quality across the wider education system.

Second piece is, at the top pyramid, you need these research universities. That’s the point we talked about earlier on, about moving over time the research funding from the state, from the public sector that goes currently into these autonomous R&D labs. Freeze it in nominal terms is what I recommend. And give the annual increase to the higher education sector, and award those grants on the basis of peer-reviewed proposals.

It’s a mechanism that can be put in place very quickly, very efficiently, and it can be quite transformative in a few years in improving the quality of education at the higher end. The great bulk you take care of through competition and autonomy. The higher end you start addressing through these research universities that start to operate with this extra funding that comes into the system for research.

Third, we need to worry about the humanities, social sciences and physical sciences. Professional education will take care of itself through the entrepreneurial response that we’ve seen, the job market prospects that engineers and MBAs have and so on. For the social sciences, humanities, physical sciences, more of a challenge. That’s where there is a need for the state to play its role. To encourage our IITs and Institute of Science and IIMs to become full-service universities, to encourage institutes to come together.

The New Education Policy talks about all of this. We have to see how it gets implemented. I hope it gets implemented in the right way to bring about these wider institutions of higher education, these universities of higher education, that are not these fragmented smaller professional colleges—only engineering, only management, et cetera, only pharmacy. We need these wider institutes of higher education.

Very much a big role for the state. Very much where the union government can play a key role by incentivizing state governments to take care of their own state system and give their own institutions funding to move in this desired direction, and then open things up to the private sector. We’ve seen a few great experiments start recently—Ahmedabad University, Ashoka, Krea, Plaksha, the Nayanta University that we at CII, our members are setting up.

These are, I think, all experiments that we should really encourage. That’s what we need as a country. We need 100 great universities that really compete for the best students, compete for the best faculty, are research-intensive, are free to operate as they wish, teach what they wish, hire whom they wish, admit whom they wish and where students can, over time, get loans, get funding to actually attend.

If you ask me, we have the potential, in the next 30 years, to build the world’s best higher education system. When I say best, I mean a combination of quality and size. If you are in Singapore, you can have the world’s best higher education system—which, by the way, they are clearly working on—per capita. If you want to build the world’s best higher education system, India can do it, but we need this whole combination. We need to move on many fronts at once.

RAJAGOPALAN: I know that there’s this quality and mass or quality scale tradeoff in education, especially in the very short run. On that, I’m firmly on the side of scale. I feel that sometimes these objections, they’re a little bit elitist. People just need to go to school. It’s not that it is an excellent institution versus a slightly marginal institution. You are giving them the choice between an excellent institution and nothing.

FORBES: And none, exactly. I’m all for massification. I’m all for it. You hear this argument in many different things. Before the Tata Nano was a disaster, everyone was, “Look at the Indian roads. Where will all these cars be put? Where will they drive? It’s so crowded now.” I was like, “Hey, listen, you have a car, which is much more expensive. I have a car. That poor fellow should not have a car because we don’t want him to encroach on the space that we have on our public roads?” This is a very elitist argument. It’s the same for higher education.

Parsi Exceptionalism

RAJAGOPALAN: You are from a Parsi family. What is it about Parsi exceptionalism, especially Parsi exceptionalism in India—in particular, about Parsi exceptionalism when it comes to this very strong classical liberal leaning? In India, even previous classical liberal movements have been funded by Parsi businessmen. They’ve been supported by Parsi intellectuals and even great constitutional lawyers like, say, Nani Palkhivala and so on.

That movement has very much come from the Parsi community. What is it about Parsis and Parsi exceptionalism that makes them both incredibly successful in India, as a very, very small minority, but also very classical-liberal-leaning, which is very odd in India?

FORBES: I think, first of all, we’re a privileged minority; we’re very tiny. We’re a privileged minority. It’s not that there are no poor Parsis, but there are no starving Parsis. There’s two reasons for that. One is because of the privileges that we have as a community. We tend to be a more affluent community. Second, because many of the Parsis who have prospered as industrialists or landowners or whatever, in the past, have also been, I think, significant philanthropists and have set up trusts that have provided good-quality housing—especially that single big thing—at really tiny cost, to poorer Parsis.

There’s this park—it’s called Cusrow Baug in Colaba in Bombay—which is a very attractive place to live these days, because it’s smack in the middle of Colaba. You live in these two-story homes supposedly set up for poor Parsis, but there are a lot of Mercedes now parked at Cusrow Baug. It’s a very attractive place. Then the community takes care of itself in that sense.

Now, the second element, it seems to me, is when you say classical liberalism, what are the tenets of classical liberalism? You believe in the idea of progress, number one. You believe that the world and people are getting better with each passing decade. And there is that optimism certainly in the Parsi community, and I think it’s true in other communities too.

Second, you believe in education and education as a means of social advancement. Third, you believe in freedom, individual freedoms, that you should live your life as you wish—economic freedom, political freedom, freedom of what—you want to be free to eat what you wish. You want to be free to be entertained in the way that you wish. All of those elements of a nonintrusive state.

And dissent is essential to the Parsi community. We Indians argue a lot; the Parsi community argues even more. The joke that I repeat in the book is, how many Parsis does it take to have an argument is one, because, use a mirror. It’s part of who we are. An argument—dissent is, again, an essential part of liberalism because liberalism says that, through dissent—hopefully also through some understanding—but through dissent, through arguments, through discussion, through appreciating the view of the other, you end up with something better.

I think all those pieces, liberalism and the way in which we live as a community. I’m not particularly religious, but I’m very proud of being part of the Parsi community. It’s a part of who I am and what I grew up with.

There’s another element, by the way, which is that I think it’s no accident that the liberalism of the Parsi community is a reflection of where it is. The Parsi community is, if you like, headquartered in Bombay. I think things would have been very different if we’d been in Delhi. I think there is an inherent distrust of government, which is very healthy. It’s very healthy where the state is seen as something to be kept [away]. It’s very healthy that it’s a good 1,000 kilometers away.

RAJAGOPALAN: Yes, I know what you’re saying in the present moment, and maybe even the last few decades, but even going back to someone like Dadabhai Naoroji. This is not a man who kept government at bay.

FORBES: He was first Indian elected to the House of Commons.

RAJAGOPALAN: But very staunch in the liberal values and very against coercion. You know more about Naoroji than I do, I’m sure.

Favorite Books

FORBES: Probably not, by the way. I have a wonderful new book to read on it.

RAJAGOPALAN: Yes, there’s a lovely book by Dinyar Patel. It’s really fantastic.

FORBES: I’ve got it on my shelf.

RAJAGOPALAN: We just published an essay by him where he wrote about how Dadabhai Naoroji was India’s first economic reformer.

Maybe another reason I can think of is, it is so strongly endogamous that the cultural values can remain in the community in a very tight-knit way and be passed intergenerationally because it is so small and endogamous.

I believe you love reading P.G. Wodehouse. Which ones are your favorites?

FORBES: You know that I talk in my book about my five favorite books. One of those five favorite books—there are three nonfiction, as you know: Ramachandra Guha’s “India After Gandhi,” which I think is a wonderful history of India; “The Wealth and Poverty of Nations” by David Landes, who’s a highly opinionated economic historian; “Exit, Voice, and Loyalty,” which is by—

RAJAGOPALAN: Hirschman.

FORBES: —an economist but really a social scientist, Albert Hirschman. Then two works of fiction: Alan Bennett’s “Uncommon Reader,” which is a wonderful little book, and “Leave It to Psmith” by P.G. Wodehouse.

“Leave It to Psmith”—it was a tough time picking one P.G. Wodehouse because there are any number of Jeeves books that I would have picked, any number of Blandings Castle books that I would have picked. At any point in time, I’m reading one P.G. Wodehouse with whatever else I’m reading.

I should tell you, for example, “Leave It to Psmith” is my go-to book when the world is collapsing around me. Come March 2020, when, all of a sudden, we’re locked down, our factory’s shut, we don’t know what to do, all of that—that’s when I reread “Leave It to Psmith.”

RAJAGOPALAN: We have P.G. Wodehouse in pretty much every room in every level of the house.

FORBES: Very sensible.

RAJAGOPALAN: My husband would just . . . when in doubt, pick up Wodehouse. It seems to be the mantra in our family.

Writing Process

RAJAGOPALAN: You’ve written academic works, you write a fair bit in newspapers, you’ve written this book. What is your writing process like?

FORBES: I get better the more I write, and quicker and more efficient. I think it’s true for everyone. I still have to be ready to write. Before I write, I have to vegetate. I make notes about what I want to write about, which I may never use, but I make notes. I read stuff. I waste a lot of time. That seems to be an essential piece in the vegetation process, and then I’ll sit down and write.

If I want to be productive, then I need to be able to sit down and write in an uninterrupted way for as long as I can write. That can be an hour and a half for a 1,000-word column. And if it’s a whole chapter for the book, then I would try and set aside a good chunk of three, four, five hours and try and write as much as I could until I had to stop for whatever reason.

Then go back and edit and change. I found the process of writing a monthly column for Business Standard very, very valuable. Well, two things taught me to be brief. One was when I was president of CII and used to travel halfway around the world and could only give a speech that would last three minutes or five minutes with President Pranab Mukherjee or someone.

If you’re going to speak for only five minutes, you better make one point because if you make more than one point, no one will remember anything that you say. If you waffle and keep going on about honorable this and honorable that for your introduction, you don’t have any time left. You better get to the point, say what you have to say, and then sit down and shut up.

I think that was a very good disciplining process. What do I really want to say, and how can I say it in as clear and terse and precise a way as I possibly can? Just say it, don’t worry about qualifications, remove all the qualifying words. So it’s not what you do as an academic. You qualify everything that you say. You say, “To the extent that we know,” and so on. You get rid of all that. The same for a newspaper op-ed piece. You make your point and then stop. The 1,000 words, I found, limit is really valuable. I always end up with more. As a result of making it 1,000 words, it’s always better.

I listen to music when I’m reading. I listen to music when I’m making notes of what I’ll write about. But when I actually do the writing, probably not. I think I really need to concentrate and write.

RAJAGOPALAN: Now I’m going to ask you one last question which has been very important, since I’m meeting everyone after a long pandemic. What have you been binge-watching?

FORBES: I don’t watch television, by and large, I’m afraid. What I do watch is, I watch stuff on my iPad in the night sometimes in bed. What I tend to watch is, I tend to watch shows. In the last, let’s say, year, I rewatched the entire “Yes Minister” series. I’ve rewatched “Big Bang Theory.” I’ve rewatched “Modern Family.” I’ve rewatched—what am I missing? “Frasier.”

RAJAGOPALAN: Frasier has a P.G. Wodehouse quality to it.

FORBES: Especially Niles. There is that element. I love watching light stuff. I basically only watch comedies and the occasional mystery. I’m not one for really serious stuff. I don’t like science fiction. I can’t stand horror. I refuse. If my best friends were going to see a horror film, I wouldn’t go with them.

RAJAGOPALAN: Thank you so much for doing this. This was really wonderful, and thank you for your time.

FORBES: Thank you very much.

RAJAGOPALAN: Thanks for listening to Ideas of India. If you enjoy this podcast, please help us grow by sharing with like-minded friends. You can connect with me on Twitter @srajagopalan.

In the next episode of Ideas of India, I speak with Tripurdaman Singh and Adeel Hussain about their new book, “Nehru: The Debates that Defined India.”

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