Clash of idea

The India story is grappling with opposing ideologies of welfare schemes v reforms, entitlement v meritocracy, inflation v growth 

By Mohan Sule

The tearing down of the Berlin Wall in November1989 signalled the end of textbook Communism as spelt out by Karl Marx and Frederick Engel and also the Cold War that was triggered after World War II in March 1945. The ideological clash hinged on the best way to prosperity. The developed world credited freedom of choice for its success. In contrast, Communists believed the state had to take care of its citizens by ensuring equitable distribution of wealth. With the disintegration of the Soviet Union, the debate appeared to have been finally sealed in favour of the ways of the west. As it increasingly looked that the world was once again going back to being a peaceful place, bothered about bread-and-butter issues, political scientist Samuel P. Huntington in 1992 disturbed the complacency by warning that another clash was imminent. He explained in detail his thesis in a 1996 book, The Clash of Civilizations and the Remaking of World Order.  Post 9/11, Huntington’s exposition gained gravity.  He predicted India would swing between opposing cultural and religious identities. Looking at the current situation, it looks like India instead is wrestling with an identity crisis of being a superpower in the making to being a perpetually developing economy.

What are the crises that India is grappling with? The notion that elections can be won on welfare schemes guaranteeing employment and food security rather than boosting investment is being severely tested. To run a benevolent state, the treasury has to be in surplus. This is possible only in a booming economy, when tax revenues are buoyant. As it is, the subsidy on petroleum products has been causing a severe strain on finances as crude oil prices are never static and, in fact, tend to rise when demand surges, throwing into disarray all calculations made in the budget document. Another source of revenue is from sale of assets. A good price can be fetched only when the stock market is in a cheerful mood. The bottom line is that even to dole out handouts, the investment climate has to be conducive. In fact, a measure of a country’s outlook is to examine how the assets of the state are used, resources allocated and prices of services and products determined. As is seen from the examples of PSU aviation, banking and oil marketing companies, interference in the demand-supply equation can be at the cost of the health of the supplier. Another controversial idea that has caught the fancy of some people with influence on policy making is to make the private sector pay the bill for social services. Mining companies have to share royalty and profit with those displaced, and the price tag for land acquisition to build factories comes embedded with a premium. The new Companies Act awaiting parliament’s approval mandates a share of profit on social programmes. The best way to make companies conscious of their environment is by recognising that all the stakeholders — clients, suppliers, employees and shareholders — are important. The IT sector offers competitive rates, is run by professional managers, and has turned employees millionaires through stock options. In the bargain it has provided handsome returns to the shareholders. Many IT bosses are active in charity work.

It is also common for policymakers to allow concerns of containing inflation to subvert policies to promote growth. However, this way of thinking met with a neat burial post Lehman Brothers’ collapse in September 2008, when governments announced fiscal stimuli packages and central banks injected liquidity to enable investors to take on risk, which is essential to promote growth. It is now conceded that some amount of inflation is good as it signifies positively on the investment climate, indicating scope for further expansion to match the growing demand. Yet, our Reserve Bank of India has been proclaiming that it is willing to cap growth to bring down inflation. Pricey onions have known to cost an election but not unemployment. So seems to be the muddled reasoning just as promoters grooming their children to occupy the corner cabin feel nothing wrong in keeping a company run on public money family-controlled. Even first-generation entrepreneurs who have made it big are laying the groundwork for the second tier to take over. This practice is equally rampant in politics, mostly in Congress (the next generation of Deoras, Dixits, Scinidas, Pilots, and Gandhis are waiting in the wings), reinforcing the view that in India bloodline counts though royalty has been abolished (by the same party). In contrast, many MNCs, PSUs and even private sector firms are being managed successfully by professional CEOs. Whether India’s growth engine can run without any bumps will hinge on how this clash of ideas is resolved.

Mohan Sule