Last week, there were reports in the Indian media that the government would announce in May that state governments would henceforth not acquire land for industrial projects and, if they did, it would be restricted to a maximum of 10% of the required land.
Subsequently, the Prime Minister, while inaugurating an institute for studies in industrial development, wondered if India was going through a phase of crony capitalism. Whether he posed his view as a question and if so, what he intended to do about it, was, not very clear.
The same day, another news report suggested that the Prime Minister’s Office was having second thoughts about asking state governments to cease and desist from land acquisition after some industrialists allegedly expressed concern over potential delays if the acquisition was left to be handled between private buyers and sellers.
The cloak-and-dagger approach to policymaking, laced with ad hocism, continues to flourish in the country.
Instead of making policies and then executing these, we plunge into action with half-baked measures, refine them over a long period of time and hope for some semblance of coherence. That is how the telecom sector was liberalized and that is how the power-sector reforms are still being conceived and implemented. All interest groups have a say at all stages of policy evolution and implementation. No one counts the real and the opportunity costs of such a blatantly incompetent and indifferent approach to policymaking, which is at once a tragedy and a farce.
In the case of acquisition of land for Special Economic Zones (SEZs), the issue is not about acquiring land.
All land in India is classified as agricultural. Some of it is fertile and some of it is not. For marginal land owners, land is the only security they have. Naturally, they resent it being acquired without an offer of meaningful compensation in return, both for the present and for the future. Thus, the issue is one of proper valuation and pricing. The state has no business intervening to acquire land for industry. So, the issue is about the state interjecting needlessly to collect rents from industry. It is not about the spread of SEZs. It is about unfairness and about profiteering, with the state colluding to partake of the profits. Therefore, the debate is neither about SEZs, nor about a trade-off between industry and agriculture.
SEZs do not come in the way of an agricultural renaissance. Agriculture needs reforms. It needs growth in productivity. In the absence of this, output will continue to stagnate. We need a minister who understands this and who will pursue this with as much zeal and single-mindedness as Suresh Prabhu pursued electricity reforms, Arun Shourie pursued privatization and B.C. Khanduri pursued the golden quadrilateral. We need a minister who does not have a dual responsibility for cricket, for starters.
But the developments show that we do not operate in a free-market economy. About 15 years after the so-called reforms, the mindset had not changed still, both within the government and outside. To paraphrase Dr Raghuram Rajan’s book, capitalism in India is endangered by India’s capitalists.
It was disappointing that industry did not oppose a role for the state. It should have prodded the state to formulate a new policy on private parties (the industrialists and the farmers) directly negotiating and settling the transaction. Worse, when the government is responding to public protests, as it should in a democracy, industry, it appears, is clamouring for a role for the government! It is a race to the bottom in the morality league tables. Surely, they know, as well as anyone else in India, that the mere presence of the state as an intermediary would not expedite matters, except when the state flexed its legal and other muscles. Is that how they prefer to deal with their fellow Indians?
Once Indian industry invites the government to be on its side vs. farmers, it loses the moral right to ask the government to stay away where its interests are hurt—such as higher education in urban, elitist institutions. Public policy soon becomes orthogonal to public welfare everywhere.
In the US, lobbying is pervasive, but it is mostly open and the interest groups and their agendas are clear and in the public domain. In India, lobbying takes place discreetly and is devoid of public scrutiny.
Discussions of the virtues of market economics often take place outside a moral framework, as though the former is a values-neutral construct. In reality, capitalism is built on the foundations of trust, reciprocity, fairness and sanctity of contracts. As countries evolve into liberal societies and open economies, they turn swords into ploughshares. India risks doing the opposite with its “mixed economy robber-baron capitalism”.
V. Anantha Nageswaran is head, investment research, Bank Julius Baer (Singapore) Ltd. These are his personal views and do not represent those of his employer. Your comments are welcome at email@example.com