Ensure fair and democratic capitalism

Modi is perhaps putting minimum government, maximum governance back on the table.
For representational purposes. (File | Reuters)
For representational purposes. (File | Reuters)

The Wizard of Words is back at it again. Last week, Prime Minister Narendra Modi went where no other prime minister has gone before. “The government has no business being in business,” he declared. He swore that “the culture of abusing the private sector is not acceptable any longer. We cannot keep insulting our youth like this.” Using trademark disruptive and neoteric political philosophy, Modi has unsettled the settled model of governance. The art of the unexpected is what you can always expect from him.

Has vikas-ology returned, now that Lord Ram’s saga has finally found its rightful place in Ayodhya’s sacred gestalt?  Modinomics will now define the contours of Modism. By his words and actions, Modi has become an ideology that defines cultural nationalism and democratic capitalism. His binary belief is that there are two Modis — head of the government and head of the nation. 

In the first, he is a staunch Leftist who believes in ensuring direct transfer of monetary assistance and services to marginal farmers, women, labourers and unemployed youth. As a national leader, he aggressively promotes private entrepreneurship. Modi is perhaps putting minimum government, maximum governance back on the table. Only Modi could make such a major ideological shift from the practice of his predecessors who were wary of being publicly associated with corporate captains, let alone espousing their cause ferociously. Even his staunch admirers are shocked by his new pro-business posture at a time when the Congress is accusing his government of promoting crony capitalism. But those who know Modi aver that conviction is not a matter of convenience for him. He rarely cares about what others say about his decisions when he feels he has acted properly in the public interest. 

In fact, Modi is following Margret Thatcher’s path when she was the British prime minister in the early 1980s. Thatcher came in at a point when Labour had run the economy into the ground. She was ardently pro-privatisation. She wrote in her biography that it is essential for “reversing the corrosive and corrupting effects of socialism”.

The sale of many British public enterprises hid her real objective to dismantle the socialist scourge. Thatcher gave respectability to the word ‘privatisation’ as her government supervised giant government corporations such as British Airways, British Telecom, British Steel, and British Gas. Her economics and politics have come to be known as Thatcherism.

Modi is on his way to create Modism — a unique combo of a capitalist bulwark with a Socialist heart. During the past six years, his government has moved fast to sell selective rail lines and routes, airports, national highway projects and power distribution contracts to private players. It has now allowed the government to do business with private banks.

It is planning to minimise the number of public banks, ensure dilution of equities in LIC and privatise numerous Public Sector Undertakings. The Prime Minister was dismissive of the bureaucracy running government undertakings—“Babus cannot do everything. An IAS cannot run a fertiliser factory, a chemical factory or fly a plane. What do we want to achieve by giving the country in the hands of babus?” 

The majority of the 250 odd PSUs are making large losses. Some exist only on paper since they do no business. Modi has rolled out a unique blueprint to deal with government corporations. Since all PSUs are sitting on humongous land banks, he has directed relevant ministries to  ‘monetise and modernise.’ Simply put — modernise viable public corporations to monetise their output in the future. The PM’s ultimate objective is to collect money by divesting PSUs and investing the funds in public welfare schemes. He has refrained from imposing high taxes on corporates. Corporate tax is currently at the lowest in India’s recent history in contrast with personal income tax whose slabs are quite high. 

However, excessive faith in private enterprise is a double-edged sword. The PM must have convinced himself that should the de-nationalised sector betray his trust, it would pay a heavy price. Unrestricted and unregulated capitalism has never brought equitable distribution of wealth created by capitalist czars. In India, the gap between the rich and the poor has widened since 1991.  

Private management of public services and trade sounds quite titillating. But in a country where a little less than one third of the population lives below the poverty line, the denial of affordable health services, housing, public transport and more aggrandisement by corporates fuel public outrage. Ever since the economy was opened up to the private sector and FDI in the ‘90s, the cost of public services has shown a dangerous vertical trend. 

Capitalism is for capitalists since they decide the terms of trade. With high cost operations, they inflate the prices of products and services. For example, as part of its reforms process, the government had allowed the private sector to operate the Indian insurance business. While public corporations were offering policies at reasonable premiums, private companies are arbitrarily enhancing the cost of their financial products. Health insurance is unaffordable. India is perhaps the only country where senior citizens above 65 are either not provided health insurance or are forced to buy for very high amounts. 

Even auto insurance companies have been hiking premiums during the past few years even as the percentage of claims kept falling. If a vehicle owner claims reimbursement for repairs, the company increases the next yearly premium by almost half. Private banks are now charging their clients for every service which public sector banks have been offering for free. Airlines are fleecing passengers by charging over Rs 10,000 for a one-way flight lasting less than 45 minutes. Private players who manipulate the stock market exploit small and retail investors.

Privatisation without an effective deterrent is a threat to the political and economic stability of democracy. Sadly, India followed the Western self-regulatory mechanism model without invoking accountability from the regulators. In the West, all regulators are answerable to elected bodies like Parliament or Congress. Their conduct and actions are heavily scrutinised by lawmakers. But none of the Indian regulators from SEBI, TRAI, IRDAI to PFRDA can be questioned by public institutions. Created by an act of Parliament, each one is expected to look after the interests of the public. Instead, all they do is protect corporate bottom lines. More shady sultans of private enterprise have gone AWOL with public money than heads of public sector entities. 

Moreover, if the government is withdrawing from doing business, it must also ensure that business does not interfere in the government’s business. Since the private sector depends on the government for orders and concessions, it must be held culpable for mismanagement and misadventures. The principle of privatisation of profits and public ownership of losses defeats the very idea of democratic capitalism. Thatcherism lost public endorsement because capitalism failed her. 

The government should never abdicate its power to tame ardently avaricious capitalism. Pusillanimous public pandering to private piracy should alert the Pasha of Panaceas that ‘business opportunities are like buses, there’s always another one coming,’ as Richard Branson quipped. Virgin opportunity is innovation’s inspiration. Until the next quip from Modi the Master of Maxims upends established wisdom once again. 

prabhu chawla
prabhuchawla@newindianexpress.com
Follow him on Twitter @PrabhuChawla

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