Observers have from time to time drawn a contrast between the reformist activism of the Congress government in which Manmohan Singh was finance minister, and the self-satisfied somnolence of the Congress-led government of which he is prime minister. But this contrast is overdrawn. It is not that the present government has been inactive. If a count is taken of its policy actions, it is unlikely to lag much behind that of the Narasimha Rao government. After all, once the crisis of 1991 was overcome, that government was not conspicuously active. An illusion of the present government’s sluggishness has arisen because there is no obvious strategy or pattern behind what it has done, and because the motley measures it has chosen to take do not form a larger picture. It can also perhaps be said that what it does or contemplates is not the result of deep thought.
This is the case of the removal of the 24 per cent cap on investment in small firms by larger firms. The 24 per cent cap was itself not very intelligent. The idea was that a small firm would be a company, and that if a large firm’s investment in it was kept under 24 per cent, it would not have the right to nominate a director. It was forgotten that small firms are not always limited companies; they are often proprietorships or partnerships. And if a small firm was a company, there is no reason for a larger firm to take a 24 per cent share of its equity, given the fact that most private limited companies give no dividends; such a share would have been a gift to the small company, with no benefit for the large firm. Only a government body could be so stupid as to think of such a possibility.
With the removal of the cap, large firms can in theory own small firms, for no other cap has been put in place. The question therefore arises, what remains of the policy of small industry promotion? What remains is the reservation of a few hundred industry for small firms. The list has been whittled away in the past 15 years. It has been so consistently underplayed, if not ignored, in recent years that no one knows any more how many industries are still reserved. When the reservation policy has fallen into such desuetude, it is difficult to figure out what purpose it serves. A functionary of a state industry department can, of course, find it useful. All he has to do is to dig up the list of small firms registered over the past 50 years, call on them and tell them that they have exceeded their authorized investment, but can rectify this infraction instantaneously by gratifying him. Many regulations of the socialist era survive only so that some minor government servants can collect a dowry for their daughters.