Tuesday, July 17, 2007

Comparing the Indian and Chinese governments

I wrote an article in today's Business Standard titled Comparing the Indian and Chinese governments.

Just in case you thought things were going well, Business Standard has an edit which is bang on:

One minister approves a massive order for new telecom equipment, placed by the country’s erstwhile telecom monopoly, but his successor comes along, raises a series of questions and the board of the company concerned dutifully does a re-think. Oil prices go through the roof, and the state-owned oil companies lose Rs 190 crore a day, but the petroleum minister will not reverse the product price cuts that he announced in February this year and November last year. The food minister cancels one wheat purchase contract, then approves another at a higher price. The minister for chemicals and fertiliser and steel and mines (yes, ministers do multi-task) announces arbitrary price controls for pharmaceuticals and won’t pay the fertiliser companies the subsidies that are their due. The finance minister summons the chiefs of state-owned banks every now and then and speaks his mind—don’t raise interest rates, lend more to agriculture, reduce interest rates for exporters… In each case, the gentleman concerned must think that he is doing national service (the food minister even declares in a rare rhetorical flourish that price is not a consideration when it comes to feeding the people—as though the alternative to defective import decisions is mass starvation).

Taken together, these and other examples point to a fundamental problem with economic management: the continuing dominance of the public sector, and in turn its continuing subjugation to ministerial whim. This is not just when it comes to board-level appointments, where it turns out that the most appropriate and best-qualified people who can be made non-executive directors just happen to be faithful members of the Congress party. After 16 years of economic reform, the hard fact is that more than half of India’s industrial sector is still government-owned (including the bulk of the banking, insurance, power, rail transport, oil and gas, and coal industries, and good chunks of aviation, telecommunications, shipping, steel…). In most of those sectors, ministerial whim prevails, irrespective of the presence of supposedly independent regulators armed with statutory powers. And large parts of private enterprise are subject to the same policy whims—if in doubt, ask Mukesh Ambani why he is being denied an oil subsidy that his public sector counterparts get.

If it were collective decision-making through a cabinet system, that would act as a brake on individual ministerial whim. But with an unassertive Prime Minister, and Cabinet ministers who owe their positions to their party bosses rather than to the Prime Minister (Mr Raja’s appointment as telecom minister was made, not by the President’s office in Rashtrapati Bhavan but in Chennai by the DMK chief, Mr Karunanidhi, who had also decided earlier on Mr Maran’s resignation), everyone feels free to pull in his or her own direction. In an effort to curb ministerial freelancing, the Prime Minister has set up dozens of “groups of ministers” and charged them to take a view on individual ministerial initiatives; but this not only slows down decision-making, it also overloads the two or three senior ministers who can be trusted to chair the GoMs and guide their deliberations so that aberrant policy does not result.

But only policy matters go to GoMs. What about all the executive decisions where ministers intervene, and where they can run amok without a “by your leave”? Privatisation of all non-vital state-owned enterprises would be a solution, but the UPA government and its Left allies will not hear of it, and even the previous NDA government was enthusiastic about it for only a brief while. A variety of stratagems have been worked out to try and give state-owned companies operational independence (formal agreements on performance benchmarks, “navratna” status, and so on), but nothing can stop a minister determined to wade into a purchase order.

2 comments:

  1. Wow....truer words were never written...

    tks for sharing...

    ReplyDelete
  2. im a student of finance...its just enough if i read ur blog daily...ur doing a yomen service to the field of financial journalism...keep up the good work...

    ReplyDelete

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