The choice of topic, ‘Inclusive Growth—Challenges for Corporate India’, by CII was surely masochistic, and the PM, reeling under attacks from within and without, readily accepted the whip handed to him by the organizers of CII’s recent meeting. In many ways, they had it coming.
That these issues have been on PM’s mind for some time is obvious. He has expressed unhappiness on earlier occasions over the emergence of crony capitalism, jobless growth, corruption being the responsibility of both the giver and the taker, as well as gaps emerging between those who can demand large wage raises and those who are merely sources of supply in the labour market. In an economy driven by the Sensex and stories of mergers, it is heartening that the person at the helm thinks ahead about the society that is emerging. At present, he is the sole articulator of these concerns—not the media (with their eye on corporate sponsorships) or the academicians (whose expertise lies in criticizing government).
The emerging picture of valuations and individual wealth, fanned in no small measure by private equity funds and both the visual and print media, is the first of his concerns. When one examines recent overseas acquisitions by large companies, be it Kingfisher, Birla or Tata, a common feature is the apparent disregard for true value and lack of transparency. An investment banker abroad commented that India Inc. wanted overseas acquisitions, the costlier the better. Surely, this is more about proving one’s status than about the corporate responsibility of Indian industry. Would the same level of investment not have provided more jobs in India, and created value here?
His second concern is over tax ‘planning’ and private wealth. CEO remunerations are under considerable public criticism in the US. Yet, one does not see the heads of Microsoft, Body Shop, or hedge funds in designer dresses, flaunting wealth—they are more into genuine community charity and T-shirts. In a country with so much poverty, the level of conspicuous consumption in our corporate world can be quite gross. Even its charitable forays seem more for media attention than from genuine concern. It is interesting that industry chiefs have rejected PM’s exhortations on remunerations to CEOs.
Clearly, in the PM’s eyes, society is regressing into a feudal mode, back into the days of a large number of minor chieftains and kingdoms (now the new capitalists), paying obeisance to Delhi, and indulging in wild consumption, while the multitude lives in the squalor of the past. We must thank the PM for articulating this. The only change that democracy has brought about is that a larger set of people, politicians and bureaucrats at the fore, want to enrich themselves so they can also belong to this set.
The problem is that the government has taken no responsibility. Consider skill development. There have been a large number of studies in the last two years, which point to the poor output from the ITIs, and to the need to change curricula in engineering to reflect market needs. At a time when skilled labour is so much in demand, it is in short supply, and government cannot distance itself from the need to think through this problem. The alternative for capital is to move overseas, where productive labour is available.
On employment, the policies for external borrowing and investment actually encourage creation of manufacturing jobs overseas, not in the country. The slew of tariffs, poor attention to infrastructure, and an obstructive environment, be it the power sector, mining, petroleum and chemicals, cement, steel, et al., are forcing capital to look for opportunities overseas.
Finally, on non-competitive behaviour, the government is solely to blame. Is large-scale retail bad per se, or only if foreign companies hold equity? Are we looking for efficient investments in power and mining or only to limit the set to Indian companies? Why is ownership of private banks by FIIs, and FDI through the back door, good, and new foreign banks upfront bad? Why are there non-tariff barriers on cement imports, after reducing import tariffs? Several of such barriers protecting existing players have come up in the last three years—‘the obstruction to the forces of competition’ has been government policy of late.
The most important facet to inclusive growth is to make a success of agriculture and to help those who depend on it. Despite many announcements, little has been done. Indeed, with more lending in the last two years and stagnant production, there is greater indebtedness.
The UPA government has two years left. It still has an opportunity to dismantle purely executive barriers that have come up (no political issues in these) and to move forward in agriculture. A truly open competitive environment, with equal opportunities for all, is the solution for the problems that the PM has raised.
S. Narayan is a former finance secretary and economic adviser to the Prime Minister of India. Comments are welcome at email@example.com