The Telegraph
Since 1st March, 1999
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- What is the government’s essential function'

Most of us who are forty or above were brainwashed to accept that the government knew best as to how business should function. We distrusted private businesses. We had great faith in government ownership. Despite the high income taxes, we thought government was doing the right thing by soaking the better off to uplift the economy and the poor. We were contemptuous of consumer-driven economies and thought we knew best in India by letting the government decide on directing the use of all resources to build the economy. We accepted that most manufactured goods were luxuries and did not protest at their high prices and shoddy quality. We were suspicious of private businesses that grew rapidly or made high margins. We did not then (nor now) demand that the government’s duty be beyond enabling growth with justice and equity. The government must ensure protection of the ecology and environment, competition, effective use of the nation’s physical resources and the accountability of all institutions, including the government, for these matters. Mere government ownership does not take care of these issues. It has not led to better safeguards for the future of our society.

Mani Ratnam’s latest film, Guru, brings back many memories of the days of intense command and control over business by politicians and the bureaucracy. The sequence of events that led to centralized control is well known. A committee was appointed by the Congress and drafted the “Bombay Plan” in 1946, a year before Independence. The most prominent members of the drafting committee, who unanimously agreed with the plan, were the then top industrialists of India, including J.R.D. Tata, G.D. Birla and Kasturbhai Lalbhai. They proposed an interventionist role for the state in the economic development of the country, through centralized planning. The document said: “We think that no development of the kind will be feasible except on the basis of a central directing authority.”

The industrialists contemplated the establishment of a national planning committee after Independence, which would undertake the task of economic planning in India, and represent diverse interests. They recognized that at that time only the government was in a position to raise the required large resources from within India and abroad.

This was the beginning of the key role of the government in raising and channelling resources into investment. We know the path followed over the years. The Second Plan gave concrete support to the objectives of the Bombay Plan and introduced measures for regulating the direction and size of private investments in industry. This regulation was in the hands of a bureaucracy that had no expertise in development expenditures and their control, was unable to ensure that the expenditures were honest and efficient, with benefits going to those for whom they were meant. As the public sector grew in size, bureaucrats took over the management of public enterprises. As the bureaucracy saw the many advantages of a spell at the top of a public sector undertaking, top positions in the public enterprises became the preserve of bureaucrats. A few were effective, though non-bureaucrats performed very well.

Regulation of private investment by the bureaucracy led to more and more detailed control. By the Seventies, private (and, of course, public) enterprises could take almost no decision of any consequence relating to their enterprise. Decisions were made by government ministries. The limit of absurdity was when industrialists were penalized, not commended, for getting more production out of their factories. Remuneration to managers and owners of enterprises was regulated by the government. Governments had so much power over enterprises that Indian managerial ingenuity went into overcoming the restrictions placed on them, not on improving productivity, reducing costs, creating markets, and so on. Every businessman had to pay obeisance to government officials and ministers to get anything done. Obeisance often went along with gifts of varying size.

In the film, Guru, Mani Ratnam has the industrialist, Gurukant Desai, saying that if he had to salaam many times, he would do so to help grow his enterprise. He says that he is an aam admi, a common man. He was certain that the common people whom Gurukant made into his small shareholders agreed with his ambition to build at first, the largest enterprise in India, and when that was achieved, in the world. His resources came from selling shares in small lots. His company, Shakti Polyester, had the largest number of shareholders of any company in the world (over 20 lakhs of them). His annual general meetings are huge jamborees. At most meetings, the shareholders vociferously support him except when a campaign in one newspaper and the hostility of the government lead to accusations of smuggling machinery and installing more production lines than permitted by his licences. Even then, a taxi-driver thanks him for improving his financial condition through company shares.

One wonders at government mindsets that limited the ambitions of enterprising industrialists to create national wealth. Instead, they prevented their growth. Now shareholders (and good regulation) must pay for over-capacity if the enterprise cannot sell the capacity. Why should the government intervene in an investment decision' It is for the enterprise to find ways to create markets domestically and overseas in order to make maximum use of production capacities.

This is what Desai says and does in the film. That is the order of business today as India races to become a major industrial power. Our companies have created the world’s fastest growth in tele-communications. Others are dominant exporters of refined petroleum products while some rapidly expand overseas. If such companies were as in Gurukant Desai’s time, limited in their capacities and investment, they would end up as cost inefficient and uncompetitive producers. As in the days of licensing, we would not have Indian companies moving at breakneck speed to become global in size and competitiveness.

Gurukant says in the film that Gandhiji broke laws that he considered wrong. He says he is no Gandhi. He only wants to build his business. The message of the film is clear. The rules, regulations and laws that prevent a company from growing are wrong. An ambitious and enterprising businessman has no choice except to go round the law, ‘manage’ the government and its officials and, if it comes to that, bribe them to allow violation of the existing rules. At the same time, Gurukant is caring of those who work for him, helpful to his friends, and does not use violence against his enemies. In his eyes, he is a moral man whose ambition is to work for himself, not for anyone else.

I recall many discussions when we debated what to do when government has bad laws and wrong controls. Almost every Indian broke some laws all the time. Many otherwise upright bureaucrats and others kept (illegally) some foreign exchange saved from trips abroad. Almost all companies paid varying amounts to employees in cash (violating income tax laws). This was to help with household expenditures since the balance left from salaries after extortionate taxes was inadequate. Sales tax evasion by consumers was rampant. With complicated and time-consuming procedures for import licences, practically every company, at some time, sent executives abroad to carry back urgently needed parts as part of their cabin baggage. Under the laws of the time, with duties at 350 per cent, this was smuggling and illegal. A highly statist government results in laws being broken and in corruption. A government that neglects its duty to protect the essential conditions for a good life — like the environment, ecology, and so on — has also failed. We need freedom but not licence, effective regulation, not minute controls.

The present generation that has grown up in the more liberal environment of recent years must see Guru and ponder the ethical issues that it raises about the individual in relation to the government, and the essential functions of the government.

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