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Journalism of Courage
Chief Economic Advisor Krishnamurthy Subramanian on Saturday said “pro-crony policies are something that we have to stay away from” and “related party transactions need to be tracked the most” to increase the governance standards in the country.
“Pro-business policies are those that enable fair competition in the country. We have some distance to go in terms of enabling that fully,” Subramanian said. “Pro-crony policies on the other hand just help incumbents and that is something that we have to stay away from in enabling the invisible hands of the market,” he said while speaking at the alumni conference of IIT-Kanpur.
He said India is not fully out of policies that benefitted crony interests, and more work needs to be done on the shift to be fully pro-business. It will be the pro-business policies that will enable the hand of the “invisible hands of the market” and also take the country to achieve the US$ 5 trillion GDP goal, he said.
Subramanian said investor returns from “connected companies” — or crony companies — have been very low as compared to the broader indices. The problem with cronyism is that it is not a better business model and processes which drive the growth, he said, adding we should aim for “creative destruction” where the incumbents are challenged.
As per Subramanian, if the governance standards in the country have to be improved, there has to be a greater focus on disclosing the related party transactions. “In our country, related party transactions are what really need to be tracked most … disclosures of related party transactions are far worse among willful defaulters when compared to non-defaulters or distressed defaulters,” he said.
Several frauds like the one at DHFL and IL&FS had recently created problems in the financial sector. A Sebi panel recently proposed strict measures to curb the misuse of related party transactions.
“Scholarly work isn’t something that was written in the last 100 years but dates back millenia,” he said making a strong case for not depending only on recent work in economics to make our choices and neglecting age-old texts like the Arthashastra.
The Arthashastra stresses on ethical ways of creating wealth, he said, adding that “we need to focus on creating trust in the markets as well.”
He said the Budget’s thrust on assemble in India should not be seen as substitute to the government’s flagship ‘Make in India’ programme, but as a complementary aspect which will act as a precursor to other goals. Asked about the Budget’s thrust on imposing tariffs on certain sectors and how it is criticised as being protectionist, he said, “We need to make a distinction on those that are imposed on finished products against those on raw materials or intermediate goods which hurt exports.”
“We need to move towards far more open trade policies on intermediate goods and raw materials to enable exports,” he told reporters on the sidelines of the event. To a question on the plea of some RBI Monetary Policy Committee members for more structural reforms and stimulus, Subramanian said all the work, like rate cut and reforms, function with a lag and we should allow time for the benefits to accrue.
