Executive Interviews: Interview with Anil Bharadwaj on Managing Troubled Times
March 2009 - By Dr. Nagendra V Chowdary

Anil Bharadwaj
Anil Bharadwaj, Secretary General, Federation of Indian, Micro and Small & Medium Enterprises

First, many of India’s spectacular companies were in sectors where a collusive relationship between the state and capitalmattered a great deal. Second, capitalist development was being driven by a few large houses, and third, that small businesses and consumers weren’t protected enough from effects of ‘crony capitalism’.
There are around 100 million people that are coming out of agriculture for jobs every year. It is sad for a poor country like ours where there is no sustainable avenue for job creation other than by enterprise creation through industry and commerce.

• How do you describe the current economic times in the wake of the US Financial Crisis. Is it correct to say that the crisis is a derivative of derivatives (financial)?
  That would be too simplistic an answer. Bust and booms are part and parcel of capitalism.What started as a housing bubble got converted into a full blown crisis because of host of reasons. I feel the current crisis is largely a result of institutional failure—of oversight and regulatory mechanisms, and political shortsightedness. The impact has been exacerbated in era of globalization as the capital moved freely across national frontiers. Warren Buffett’s statement that “derivatives are weapons of mass destruction” has to be seen in the context of prevailing regulatory mechanismin the US. The removal of restrictions in 1990s imposed by the Glass-Steagall Act – which had prohibited separated commercial banking and capitalmarkets activities, created fertile ground for the disaster to take root in the first place.

  Derivatives are important financial innovation and will survive this crisis, albeit theywill be under greater scrutiny!

• What lessons should countries, companies and individuals draw from this unprecedented crisis? Is it correct to say that this is a Great Depression II?
  No doubt that crisis holds important lessons for all of us. The first lesson is that market economies require strong regulatory oversight on a sustained basis. The second lesson is that any market mechanism with risk and reward imbalance is unsustainable. As Rajan Raghuram had warned years back, incentives were horribly skewed in the financial sector, with workers reaping rich rewards for making money, but being only lightly penalized for losses. Thirdly, while correcting the mistakes we need to avoid a regulatory backlash (akin to what happened during Great Depression) as tendencies to raise protectionist barriers and overregulate the financial markets are rising. If countries overdo the regulation and ring protectionist jingoism, the financial crisis which started in the US and later spread in to EU and Japan affecting all countries, could well turn into the most severe economic crisis equaling or even surpassing the Great Depression. There is a need for taking a more nuanced and pragmatic approach.

• How do you think Indian economy is affected by the US Financial Crisis? Specifically, which industries do you think are effected more?
  There is consensus now that much of economic growth in the world since 1990s was the result of excess liquidity which largely became available due to lax regulation and massive use of new financial instruments like derivatives, credit SWAPS, CDOs etc. Trillions of dollars were freed from banking systems to find way into the markets. India was one of major beneficiary countries of these global financial developments attracting huge portfolio investments, FDIs and Venture Capital. Besides giving a fillip to exports as demand grew around the world and our export capabilities enhanced for higher value-added products such as automobile and petro products, this was particularly reflected in rising sectors housing, white goods and auto in domestic market. Growth in these sectors was largely driven by hugely unmet demands of young nation thriving on demographic dividend leveraged by easily accessible finance through EMIs.

1. Troubled Times Case Study
2. ICMR Case Collection
3. Case Study Volumes