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2010: a search for solutions

2010: a search for solutions
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First Published: Mon, Jan 04 2010. 09 00 PM IST
Updated: Mon, Jan 04 2010. 09 00 PM IST
After the disaster that 2009 was, 2010 is welcomed with large expectations (“Agenda for a happy 2010”, Mint, 28 December). But who will fill the Santa socks of expectations for Manmohan Singh? A global fund for climate change, the World Bank, Warren Buffett, Reliance or Tata? With burgeoning and seemingly perpetual subsidies, Pranab Mukherjee will have to come up with a long-term solution to the nation’s woes.
The finance sector was in the policy limelight these past few years. What do we have to show for it? A US-hatched financial meltdown, almost a timed conspiracy, that took a toll on our stock markets? A futures/forward market that has been partially handicapped? An insurance sector still awaiting the foreign direct investment nod from the government? True, Pension Fund Regulatory and Development Authority was a “small step, giant leap” kind of reform, but the rest of the policy in the finance sector did not benefit the masses that voted the United Progressive Alliance to power. Policy reform should be people-driven, not be forced by either foreigners investing in Indian markets or by our environmentally unrepentant and nouveau riche industry.
State subject or not, agriculture is very important, and so is the subsidy policy across states. Subsidy restructuring should be at the forefront of our policy agenda. I fear our agriculture sector is turning into a black hole that will waste the resources of a nation without improving its performance.
Our emphasis on regional equity, both as a concept and as a policy goal, is entirely misplaced in the context of uneven natural resources and geographical and climatic differences across the nation. Imposing regional equity by redistributing resources, besides engendering an inefficient economy, is likely to create mass protests of the Khalistan and Telangana kind, and eventually weaken the nation. Also, and as part of our policy restructuring, we must adopt a financial prudence system in which profligate, inefficient and poorly governed states pay the price for being so, incentivizing the values that go towards building a society and a nation. (Just imagine a government that impoverishes Andhra Pradesh and Reliance of its gas revenues and funds TVs, saris, cycles and other accessories for the masses in Tamil Nadu).
Streamlining bankruptcy procedures is a euphemism for early notification of bankruptcy that foreign institutional investors and other foreign investors seek in order to have an informational advantage over competitors and pull out early. I doubt foreigners would be interested in supporting bankruptcies in or outside the stock market.
The danger as regards renewables is in following Spain’s feed-in-tariff model. India cannot afford to subsidize grossly uncompetitive renewable power to the extent that more efficient and profitable investment elsewhere is crowded out. The loss of efficiency, when subsidized renewable power substitutes nuclear or gas-thermal power, is not an issue in today’s supply-constrained market, but could, perversely, induce expansion of coal at the expense of the environment in energy markets during recessions and periods of overcapacity.
Though the government is reducing its stake in public sector units, the proportionate reduction in board representation is insufficient to exclude conflict of interest. Ideally, the government would exclude itself from representation on the basis of ownership stake, and limit itself to representation required by law. Its ownership in PSUs would then represent the equity of the masses, and not a controlling stake. That would be closer to my definition of socialist capitalism, repugnant as the phrase may be.
Prediction of the year? “Green” money will not flow in to support a “brown” economy. Now what should I do with my stockholdings?
Ganga Prasad Rao is a freelance economist. Comment at yourviews@livemint.com
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First Published: Mon, Jan 04 2010. 09 00 PM IST
More Topics: India | Manmohan Singh | Agriculture | Equity | PSU |