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Indian industry’s bipolar disorder

Indian industry’s bipolar disorder
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First Published: Mon, Oct 17 2011. 12 33 AM IST

Updated: Mon, Oct 17 2011. 12 33 AM IST
Last week, a section of Indian industry that likes to identify itself as “a group of like-minded citizens” shot off another open letter to Prime Minister Manmohan Singh condemning, among other things, the strong nexus between “certain” firms, bureaucrats and power brokers. They then went on to identify this axis of evil as it were as one of the “greatest” threats to the Indian economy.
It is an interesting turn, given that members of Indian industry have rarely ever publicly taken on the polity and in most cases are particular to be seen to be subservient to the establishment. Significantly, they had dashed off a similar letter 10 months earlier.
Moreover, the tenor of the latest missive sounded harsh, given that they were uttered by an otherwise soft-spoken lot that includes Deepak Parekh, Narayanan Vaghul and Azim Premji.
Even while their new-found candidness is welcome, as a very erudite acquaintance pointed out, Indian industry seems to have acquired a Dr Jekyll and Mr Hyde persona. A bipolar disorder, wherein one personality of Indian industry is rebelling against the other half.
Broadly, there are two dominant strands of Indian industry. One is made up of those who operate in the sectors of information technology, consumer goods, automobiles, software companies and so on. Their emergence is linked closely to the gradual opening up of the economy. They operate largely independently of government control and influence. Industrialists forming part of the like-minded group of citizens come from this genre.
And then you have the other segment of Indian industry, whose fortunes have been closely linked to the commodity boom inspired to a large extent by the runaway growth of the Chinese economy and its insatiable appetite for raw materials. This sector would, therefore, include mining natural resources such as coal, iron ore, natural gas, etc., and infrastructure development such as telecom, highways, airports and so on. Since these are crucially dependent on exploitation of natural resources, government control and influence is almost a given.
This does potentially offer itself to exploitation at the hands of the “axis of evil: referred to by the group; crony capitalism, is as we have seen in recent economic history, par for the course. As a result—as the Supreme Court inspired crackdown in the mining scandal in Karnataka has amply demonstrated— rent-seeking behaviour is a natural consequence of such a cosy relationship. This is not to suggest that all industrialists in this category employ such means to enrich themselves; certainly not—it is just that there was a greater incentive to bend the rules and, hence, a better opportunity for corruption to thrive.
The emergence of the Indian economy onto an entirely new growth trajectory coincided with the peaking of Chinese global ascendance. Consequently, global demand for commodities got an unprecedented push, even as surplus liquidity stoked speculative bubbles—with the end outcome that global commodity prices, even agricultural goods, have not been spared and have in the last decade witnessed a dramatic spike.
This in turn only made it potentially that much more lucrative for the unholy nexus. But the key to its success was the lack of transparent rules and vesting of discretionary powers with politicians. Before we go ahead and condemn all, it is important to note that the New Exploration Licensing Policy to tap the country’s hydrocarbon reserves put in place in the 1990s, ushered in the desired transparency—not surprisingly, therefore, there has hardly been a scandal associated with the awarding of contracts. So clearly, if there are transparent rules, the wherewithal for crony capitalism can be denied; also, there is a blueprint for action if the government so desires.
Of course, those who chose to follow the rules are now indignant. Not only has this phenomena spawned corruption of a scale never seen before, it is also beginning to exact a cost. The economic cost is well-chronicled and is gradually affecting the competitiveness of Indian industry. At the same time, it has also severely knocked the reputation of Indian industry globally; uncomfortable questions are beginning to be posed at global conferences as the high-profile corruption scandals are keeping the media, domestic as well as international, riveted.
Matters have come to a pass, because the drift that seems to have possessed the United Progressive Alliance in its second tenure at the helm is assuming frightening proportions—at a time when domestic growth impulses have virtually disappeared and some major policy responses are imperative.
So, what the like-minded group of Indian industrialists are trying to do is admonish the truant among them and at the same time goad the government into action—the unlikely case of killing two birds with one stone. The question is, will they succeed?
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com
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First Published: Mon, Oct 17 2011. 12 33 AM IST