India’s chief economic adviser K. Subramanian has some sobering, if curt, advice for the private sector. He wants them to act their age, stand on their feet, and not ask for government bailouts when in distress. Asking for bailouts, he believes, amounts to socializing losses, while private parties get to pocket profits when the going is good. In saying so, he has called upon the private sector to lead an investment revival to help the economy pick up pace.
Subramanian’s arguments make sense, particularly on the question of extending a fiscal lifeline to private entities. The practice of socializing losses and privatizing profits came into sharp public scrutiny at the height of the West’s Great Recession of 2008-09. The US government had then unveiled a $700 billion Troubled Asset Relief Program to fund with taxpayer money the rescue of large financial services companies, some of them deemed “too big to fail". Such bailouts go against the principles of free-market competition. They perversely reward poor business risk management at the cost of taxpayers, thus setting up a moral hazard—since businesses would be less likely to fear and mitigate their risks if they expect to be bailed out.
Are Indian private companies also getting overly dependent on public support? This is not clear, since many of them are merely asking the government to eliminate obstacles, rather than render financial help. So long as they seek reforms that allow market forces to operate freely, they should not be faulted. Asking for special sector-specific benefits, however, is quite another thing.