Market-oriented reform is the only way forward for the Indian economy. But the failures of private businessmen have set back that process.
It used to be the accepted wisdom in influential circles that much of India’s public sector was a blight on the economy, while the private sector served as a shining light for the future. That narrative was shaped by juxtaposing Airtel, which created value, with Bharat Sanchar Nigam Ltd, which destroyed it; by the private airlines which spurred the growth of aviation while Air India went from bad to worse; by the turnaround achieved by metal companies privatised in the Vajpayee years; and by the poster boys of the tech industry who created a story line sharply at variance with the business practices of India’s more traditional entrepreneurs.
That was then. It is very different now. The scams of the United Progressive Alliance (UPA) involved government players, but their partners in crime in coal and telecom were private business houses and plain carpetbaggers. Most of the massive sums of bank loans that have gone sour were given to private enterprise; the losers are the banks, but the losses are on account of private business. Now, in the National Democratic Alliance’s final year in office, the stories once again have to do with private sector failures and wrongdoing. The once-shining private sector is regularly hitting the headlines for the wrong reasons.
Consider the recent list: The problem at ICICI Bank, seemingly confined at one stage to a chief executive who did not understand conflict of interest, and a board that did not know its job, now threatens to grow into a bigger and broader issue about window dressing of accounts and associated sins. Reputation damage is to private banking in general, though its performance has been much better than the government banks’. Then, the Winsome-Modi-Choksi trio has cast a huge cloud over the successful diamond-processing industry, the question being how much it has been a cover for shady financial flows.
In aviation, we have the pay-off charges against Air Asia India and/or its sacked chief executive, involving also the venerable house of Tata. Another storied though much younger enterprise, Infosys, has had to face tough questions over the price of corporate acquisitions, pay-offs to departing financial officers, and the like. Almost all the telecom companies have been accused of routinely misreporting their numbers to the sector regulator. For good measure, you have companies in the extraction business failing to meet environmental and safety norms — provoking public protests, violence and deaths. Meanwhile, the continuing saga of the Singh brothers, who used to run Fortis Hospitals and Ranbaxy Laboratories, plays out against the backdrop of reports pointing to doctored research findings and production facilities that failed the test of quality processes.
This is not an exhaustive list, but it covers most of the successful business stories of the reform era: Tech and telecom, pharmaceuticals and diamond exports, banking and aviation. The banking problems created by the steel and power sectors may have been bad luck because of ups and downs in the business cycle. But while one blames bankers who failed to assess risk correctly when lending, what about the business judgment of leading entrepreneurs? And the stories of nexus that, once again, involve private business?
It may be that business in a corrupt polity will also be corrupt; that politicians looking for funding will favour crony capitalists. Such politicians and the ideological advocates of dirigisme (like the Swadeshi Jagran Manch) will welcome stories of private sector malfeasance, since these provide an excuse for expanding the role of government rather than reducing it. Those who want no part of a system moving in this direction, associated as it is with the risk of increased business uncertainty and also the threat of raids by tax, investigative and enforcement officials, will simply leave the country. Many already have.
The systemic cost is that the failures of private businessmen have set back the process of market-oriented reform, though that is the only way forward. Privatisation becomes a riskier proposition politically, and relaxing controls is seen to run the risk of private gain at public cost. Not for nothing has the debate on reform all but dried up, while populist promises multiply.
By special arrangement with Business Standard.
Barring the IT industry, business and government have always been in bed with each other. Some thought of managing the environment as a painful necessity, for others is was the escalator that was faster than the stairs. What is causing surprise now is that even in professionally, ie non promoter driven, managed companies like ICICI Bank, standards have fallen. One would like to believe that probity is still the norm in what were earlier called the FERA companies.