There are corporate houses which have served the country well. But the scandals involving the thugs and the noise generated by corporate corruption and sweetheart deals have obscured the good work
It is typical of the tunnel vision of many pundits of the dismal science that they view the fall of the rupee purely in economic terms. ‘Reform’ is the blanket label that connotes a slew of prescribed measures whose tardy implementation has discouraged investors at home and abroad and, if accelerated now, may yet save the country from sheer doom. What is ignored is that economies are deeply influenced by environments in which they function and which have political, social and cultural dimensions, that impact on decisions of entrepreneurs, investors, consumers and Government actions.
The environment in India discourages both foreign and domestic investors. The Government has become extortionist at every level. Palms of politicians and senior bureaucrats have to be greased hugely for getting projects sanctioned and proportionately lower amounts have to be shelled out to lesser functionaries on the ground for water and power connections and the registration and physical delineation of plots for factories and so on. In cities, many people have no idea about how much money a patwari can make through bribes!
Woes do not end even after a business or manufacturing unit starts functioning. Money —often very large amounts — has to be provided from time to time for political parties to hold rallies and regularly to municipal functionaries, local officials and excise and taxation officers to prevent harassment. A factory owner had pollution charges slapped on him because he sent a bill to the District Magistrate who had come and taken away several carpets. Another had regular problems of power supply until he began paying a fixed amount to employees of the State Electricity Board. Besides bribes, allied expenditures in kind and services range from expensive presents to paying for luxurious family vacations or the education of children abroad. All this adds up to cost, waste of time on non-productive work and mental stress caused by harassment. Besides, many countries like the United States prescribe stiff penalties for corporations indulging in bribery abroad which makes it difficult for its companies to function here.
Finnish telecom giant Nokia’s reported communication to the Government detailing the travails it has undergone in India, deserves serious attention. Besides such experiences, the rise in crime graph, particularly escalating instances of rape, and frequent agitations disrupting work for days and preventing smooth and rapid movement of raw material and finished goods, have sent the message around — India is not a very safe place to live and invest. Worse, there is uncertainty about the country’s political future. While the sharp decline in the present Union Government’s political credibility has put a huge question mark about its return to power, serious doubts persist about the Opposition’s ability to cobble together a stable coalition Government.
All this is known, as are the economic causes of the crisis. The harsh fact is that the rupee has become devalued vis-à-vis the dollar because it has become inherently weak and suffered a huge erosion in its purchasing power through rampaging inflation. Many factors have caused the latter including the raising of petrol and diesel prices to international levels, which has hit transportation costs, affecting a whole range of products ranging from food to popular consumer items.
Another important factor that has not received enough attention is the contraction of the public distribution system covering essential commodities. Many would doubtless argue that the perpetuation of the PDS and subsidies on diesel, petrol, kerosene, CNG and so on, would have meant continuation of huge subsidies which, in turn, would have reduced the amount available for critical infrastructural development in areas like power and highways upgrading and expansion imperative for India’s emergence as an economic powerhouse.
This might have made some sense had the growth in the power sector and road construction not been shockingly behind target. Besides, given the steep rise in the prices of most of these, the result has been a reduction in the surplus left with families for buying non-essential items, leading to a fall in their demand. Many urban poor families now have dal or vegetables instead of dal and vegetables in their major meals. The relatively poor think twice before buying torches, batteries, pencils, ball point pens, shoes, clothes and so on.
One needs to note here what John Kenneth Galbraith said on the impact of economic inequalities, which subsidies reduce by distributing essential items at lower prices, on demand. In The Great Crash 1929 he mentioned it as one of the five weaknesses of the American economy prior to the Great Depression of the 1930s and stated, “In 1929 the rich were indubitably rich. The figures are not entirely satisfactory, but it seems certain that five per cent of the population with the highest income received approximately one-third of all personal income.” He then added, “This highly unequal income distribution meant that the economy was dependent on a high level of investment or a high level of luxury consumer spending or both. The rich cannot buy great quantities of bread. If they have to dispose of what they receive it must be on luxuries or by way of investment in new plants and new projects. Both investment and luxury spending are subject, inevitably, to more erratic influences and to wider fluctuations than the bread and rent outlays of the $25-week workman. This high-bracket spending and investment was especially susceptible, one may assume, to the crushing news from the stock market in October 1929.”
About the second weakness, Galbraith wrote, “The fact was that American enterprise in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, imposters and frauds. This, in the long history of such activities, was a kind of flood tide of corporate larceny.”
Has something similar not happened in India in the recent decadesIJ Of course, there are corporate houses which have served the country well. But the scandals involving the thugs and the noise generated by corporate corruption and sweetheart deals tend to obscure their quiet productive work. Worse, it is no secret that a substantial proportion of entrepreneurial scum flourish under the patronage of the Union and State Governments and the increasingly criminalised neta-babu nexus spread over the nation. Given this, only the exceptionally naive would believe that we could have escaped the consequences.