Financial
and economic reforms in India started in 1991 when the country faced BoP
crisis. That is, the country started out on the path of reforms with a gun to
its head, aimed at by multi-lateral agencies like the IMF.
Tell
me what was the last time you heard of reforms of the finance dominated
economic system coming to an end? Never. You will never hear that. Reforms are
a perpetual motion machine, notwithstanding what you may have learned in
physics, thermodynamics particularly.
“Reforms
are still-borns.” “Reforms have slowed down/stalled.” “Reforms have to be taken
forward.” These are what we hear every day, repeat every day, on the front page
of the pink sheets – anchored by head honchos like bank chairmen/presidents
(Head of HSBC comes to mind) and corporate heavy weights. Of course, to join in
the chorus, you have the ever-ready clan of economic and political talking-heads
on TV (ironically not many of them may have even heard of the Chicago School,
and would be able to spot the difference between John Maynard Keynes and Milton
Friedman), talk-shops of industry lobby groups like CII, ASSOCHAM, NASSCOM, dinner
parties of the well-connected, page 3 celebrities and the water-splashed Bollywood
air heads at pool-side parties. Yes, on Indian economy, it is always about the
unfinished business of reforms.
What
are the general items of reforms the above refer to?
Ease
of doing business leads the list. What the sophisticates mean by this is doing
away with regulations. Why? We have to improve global competitiveness. In what?
Race to the bottom.
For
example, corporate tax rates have to be smaller than the smallest obtained across
the globe, to attract investors. If you do Game Theory on this, I suspect that equilibrium
will be achieved at zero rates of taxes!
Understanding
taxes as the main item on the revenue side of government finances, this leads
to the conclusion that fixing tax rates thus is akin to jettisoning sovereign
economic policy to global finance capital. All in the name of globalization.
What
exactly are the political leaders leading? A shell of a country. Global finance
capital calls all the shots. If you have any doubts, refer to the brouhaha created
last year about how the IT majors like Apple, Google, Amazon reduced their tax
burdens by doing all kinds of magic tricks with their spreadsheets; having
offices in a remote island of population of a single individual, to work on the
spreadsheet.
Ireland
had to hide its face in shame in how it succumbed to Google or Apple, I do not
recall. The US too was red faced, with shame or in anger I do not know. India
is waiting for its face to be blackened. With more reforms, nothing less.
Single-window
clearance is the pet project of those with capital. The easiest way to increase
the RoI of their capital. Returns come faster too. No environmental impact
assessment. No EIRR, only FIRR. Economic benefits, to include social benefits,
just do not matter.
No
social impact assessment, slowing down the process of getting the project off
the ground, impediments to land acquisition, creating much harm to Indian industry,
ergo to the Indian economy. A US Supreme Court verdict took the most extreme
view in an eminent domain case. It ruled that an individual’s property can be
acquired by the government for the public purpose of building a mall! Yes, it
declared that a mall will augment tax receipts of the local body and hence
satisfy the public purpose requirement. That is, finance capital works its
influence at the level ranging between sovereign and municipal governments.
Nothing is sacred.
The
environment has to be investor friendly. That is, agreements between the
government and private parties, going under the innocuous sounding name Public
Private Partnership (PPP) – some partnership this – must be heavily tilted in
favor of the investors. If even in this situation arbitration cops up, it can
be no more than a one-session affair, with confirmed decisions, in favor of
capital. Corporates will be allowed to rejig their financial model as and when
their RoI falls below a threshold value. They will not be held to their risk
analysis that has gone wayward. The contract in PPP holds no sanctity.
Labor
laws, the ones that make it easier to fire and hire (note, fire comes ahead of
hire!), de-legitimize labor unions and so on. India is going very slow.
Digressing
slightly, public sector bank employees are getting 15% pay rise as per the
agreement worked out between the unions and the government. There is nary a
mention of how this could feed into wage-price spiral leading to inflation. Why
I mention this is, in all the discussions on controlling inflation thus far, the
head line item was inflation risks through MGNREGS. I do not know about you,
but to me something does not compute here.
Now,
we come to subsidy. Of course, reforms have to continue to tackle subsidies. Of
what kind? Of the kind that goes to those who are at the bottom of the economic
pile. Subsidies to those who have it? By some reckoning, subsidies to the rich
are in multiples of those to the poor. Don’t worry. Such subsidies will lead to
more efficient use of resources, contribute to the economy in a positive way
(only in an aggregated measure, I hasten to add), whereas subsidies to the poor
are parasitic.
On
subsidies to the rich, let me merely point out that the land allocated to SEZs
have been utilized for the stated purposes to the extent of not more than 50%.
Something to keep in mind while talking about productivity of subsidies to
investors.
I
am not an economist, much less someone with his fingers in finance. So, you
must take what I have written as nothing more than an inchoate response to what
I read and hear, and understanding much less. Yet, I will tell you what bothers
me most.
It
is that one never gets to hear an analysis of what exactly have reforms,
however incomplete they might be, have accomplished thus far, after all it is
nearly 25 years since this age started. One of the things that the management
types always ask is, “What have you done for me since yesterday?” I ask what reforms
have done to the country over the past 25 years. I want to see both sides of
the ledger.
Yes,
some good must have been done. But, the whole thing could not have been an
unalloyed golden crown studded with diamonds. There must have been some losers,
some thorns. No, it need not have been a zero-sum game. But, there must have
been some negatives. Why can’t we discuss these? Then, we may be able to take a
rational decision on how to continue. After all, it is rational choice theory
that the Chicago School endorses. Global finance cannot afford to say no.
The
gun is still at the head of India. But, I believe it has to be turned to be
aimed at global capital. If we do not do this, India will be the world’s first perpetual
reform machine.
Raghuram
2 comments:
Reforms are for the big businesses, for you and me its deforms.
Yes Balu. Do you hear any aam a admi (not the party) talk about reforms? No. You are right on the money. Oops, that word again, money! Sorry ;)
Raghu
Post a Comment