The Prime Minister’s recognition of the role of the private sector as wealth creators, performing a vital role in the socio-economic development of the country, was long overdue, and most welcome. Nothing can be gained by constantly deriding the business class as exploiters of the people. Having failed to deliver the economic and social goods wilfully, according the public sector the status of the commanding heights of the economy, if the political class now acknowledges the legitimate role the business community can play in the nation’s development, it marks a refreshing change in government policy.
In particular, Modi 2.0 has opened up the economy to the private sector, as against the centralising approach of Modi 1.0. The massive privatisation programme unveiled in the budget, the opening of the insurance sector to foreign capital, the reform of the stilted labour laws and the controversial agri-sector reforms, all point to the fact that the Prime Minister is alive to the limitations of the public sector. That an authoritarian state like China has grown at an extraordinary fast clip only by allowing the private sector to play a major role ought to be a relevant lesson to India’s economic planners. To revive the animal spirits, the private sector can no longer be accorded step-motherly treatment.
Of course, in a rule-based system, the regulatory agencies will have a vital role. (Remember before the SEBI, more fortunes were made by insider trading than by genuine entrepreneurship). But the private sector too would be expected to play with a straight bat --- unlike all through the years of the licence-quota-permit raj when the real crony capitalism thrived under the guise of 'samajwad'.
Having said that, how far the privatisation drive will succeed remains to be seen. Recent experience does not evoke hope. Maybe the Opposition compulsively playing a dog-in-the-manger role acts as a drag on the opening up of the economy --- as can be seen from its full-blooded instigation of the protests against the farm sector reforms.
But Modi should take heart that the Opposition is too weak and too divided to be able to play a major spoiler in the reforms process. Therefore, after ensuring that the fear of false charges of wrongdoing does not haunt the bureaucrats handling the privatisation process, the PM must ensure that the budgeted target for disinvestment is actually achieved this year.
But a key area where the government seems to be making a grave mistake is in its handling of foreign direct investment. Its actions do not square with its stated policy to invite foreign capital to participate in the country’s economic growth. Whenever the government declines to accept an arbitration award which goes against it, as per the pre-agreed terms of engagement, whenever it arbitrarily drags foreign business into endless litigation, it sends a negative message to potential investors.
Thanks to the retrospective amendment of the law, Vodafone is still denied its rightful dues despite the Indian Supreme Court and the Singapore-based panel of arbitrators pronouncing in favour of the telecom company. The same cussedness is visible in the case of Cairn Energy. Instead of honouring the arbitration award, the government has chosen to prolong the litigation by deciding to go in appeal.
Again, the increasing troubles of the retail behemoth Amazon India in recent months too could be ascribed to a mindset that looks askance at foreign players. Whether or not there is any truth in the charge that Amazon is sought to be harassed to help competing Indian companies, the government needs to be clear-headed about the role of the foreign capital in the economy. If it invites foreign capital to aid growth, it has to ensure that it does not take sides between rival players for market dominance, stealthily collaborating with local companies while officially claiming to provide a level-playing field to everyone.
So long as foreign capital plays by the rules, there should be no attempt to subvert its operations -- especially after laying out the welcome mat for it. Unfortunately, the new-found love for the private sector does not seem to extend to foreign capital though we recognise the dire need for it to contribute to India’s economic growth and development. Such a conflicted mindset can end up making a mess of the new-found liberalisation policy.