The Telegraph
Tuesday , June 10 , 2014
CIMA Gallary


- How a bolder government might promote private enterprise

Whatever one might say about Manmohan Singh, it would be difficult to deny that he had a unique style. No world leader can even be conceived who has his dress style. He was not demonstrative or expressive, let alone a show-off. That does not mean he was inactive; but he made a great show of inactivity, and he carried conviction. But his inactivity was not entirely for show; he was genuinely inactive if action involved risk. Enterprise is risky; so he avoided it. He did so not only personally; he also generally avoided entrepreneurs, especially big ones called capitalists. He was not against them; he did not rant against them, nor did he obstruct them. He let them do what they wanted, and went on to do what he wanted. This may not be the universal definition of laissez faire, but it was his definition. Capitalists may not dance with joy at his departure, but it is unlikely that any of them will shed tears at his departure.

This is unfortunate in one respect: India has grown to a point where its economic interests have to extend outside its borders. To do so, capitalists often need the support or cooperation of the government, and they did not get it from Manmohan Singh’s government. The most telling example is that of Reliance. It built the world’s largest refinery in Jamnagar. When it tried to sell its products in India, it found that it faced unfair competition from the government, which gave subsidies to products like kerosene made and sold by the refineries it owned, but refused to give the same subsidies to products made by Reliance. This forced Reliance to find markets abroad. The government could have done much to help Reliance do so; a nudge from the prime minister to the head of another government can sometimes move mountains. But I doubt if Manmohan Singh ever did that. It was not only he, but his ministers were equally inactive in promotion of private enterprise. It is very unlikely that he instructed them to be so. But the message was somehow conveyed, by the shake of the head or a dismissive gesture or whatever, that assistance to Indian entrepreneurs was not kosher, so they were left to fend for themselves.

Some of them did so with fair success. Kumaramangalam Birla, for instance, is highly dependent on the rest of the world for his industrial activities; he, for instance, has to have access to its mineral resources. He coped well; but I doubt if he got much help from the government. Mukesh Ambani also managed to find markets abroad for his refined products. NRE Coke managed to find coal abroad. So lack of a helpful hand from the government was not crucial; Indian entrepreneurs coped. But they could have done better with a more active government.

There has been one government in India which has been active in helping private enterprise, namely the government of Gujarat. The most famous example is that of Tata Motors — how Narendra Modi came to the rescue of Ratan Tata when the agitation started by West Bengal’s present chief minister stalled his car plant, and promptly offered him land in Gujarat and stole the show. Tata is not the only one. Another entrepreneur who has benefited from government assistance is Gautam Adani. His port and surrounding infrastructure could not have been built without the help of the government of Gujarat. He has pointed out that Gujarat governments gave him cheap land even before the advent of Narendra Modi. The point is, government help is useful for some industrial activities, and the government of Gujarat readily provides it.

That kind of help is necessary also at the Central level. One obvious instance is that of coal. Coal India has dutifully met the coal requirements of all the feckless state electricity boards. It went on opening one open cast mine after another to do so. When the environment ministry’s activism obstructed it, it went abroad. But it is near the end of its tether. Big coal resources of the kind India needs are concentrated in a few countries; a nudge to their governments from ours can expedite matters. And this does not have to be done for Coal India only; it is perfectly possible for Indian private enterprise to get coal from abroad. This is equally true of oil. Reliance has been trying to locate, lease and exploit resources abroad, including shale oil. It could probably get further with government help.

It is not just in economic expansion abroad that a more active and supportive government would help. Much needs to be done to develop infrastructure within the country. Electricity is an obvious example. As I said, electricity is supplied to most Indians by inefficient, bankrupt monopolies called state electricity boards. They are nearing the end of their lives. They are incapable of going out and getting hold of fuel; and without resources to invest, they have been serving their customers less and less well. Gujarat has demonstrated a different model. It has created two sets of distribution networks. One supplies cheap electricity to farms for irrigation at night, when the capacity utilization is low; the other supplies 24-hour electricity to other consumers at a profit. This is a model that can be extended to the entire country. It would work not only for electricity, but also for foodgrains. The government can give whatever subsidies it wants to whatever consumers it favours. But once they are given, the government should free up the foodgrain market. If it did, India would emerge as a foodgrain exporter, for after recent devaluations, its prices are internationally competitive. And it should not be foodgrains alone. If the market were allowed to determine prices, the prices and profits of foodgrains would fall, and other, more valuable exportable crops would be produced. For instance, India could produce more soyabean; more soyabean meal could then be sold to China, which has an insatiable hunger for pork and wants the meal to feed its pigs. And it need not be pigs alone. China’s farmers breed fish in little ponds and eat them. India could grow feed for the fish; and it could feed it to its own fish and increase fish supply across the country.

I will end with my favourite plan. India trades much less internationally than it could. One of the bottlenecks has been capacity of ports, and their transport links with the hinterland. Gujarat once had the plan of developing many ports. I do not think it got very far with the idea. India would do well to develop a dozen ports all along its coast that could take Panamax vessels up to 20,000 tons, and build similar ports along the coast of Africa; it could then import many primary goods from those countries. With the purchasing power such exports would give them, they would provide markets for our goods. This is the way forward to restore to India the status it had for centuries of being the prime maritime power of the Indian Ocean. We can think of other, bolder visions; all require a bold prime minister.