Although I don’t get the chance to meet him often enough, I consider Sitaram Yechury a friend. He is an honest person, has a good sense of humour and is great to argue with; we both like Old Monk rum; and while I often don’t agree with his economics, he certainly has a good grasp of the subject. It is a little known fact that Sitaram topped his MA in Economics from Jawaharlal Nehru University. The JNU course used to be pretty rigorous during Sitaram’s time, and topping was no mean achievement — especially since he was also actively involved with the Students Federation of India, the students’ wing of the CPIM.
While Sitaram will vociferously disagree, I think of him as a quintessential Left-leaning social democrat. This is a fast dying tribe of genuinely decent, well read, socially committed people, whose members can be occasionally spotted in Britain, France, Germany and, with a bit of luck, in Italy. Sitaram is too well versed in contemporary history to believe in the efficacy or sustainability of a classical communist regime — by which I mean workers’ ownership of the means of production and distribution, and a single party-based dictatorship of the proletariat. It didn’t work in the Soviet Union; it failed throughout Eastern Europe; it is the harbinger of misery in North Korea; and, for all the propaganda of an aging Fidel, it has destroyed the economy of Cuba.
Left to himself, I reckon that people like Sitaram would prefer a more humane and redistributive society — one where the focus of economic growth is not just to increase a country’s GDP, but to create a more equal and just social order with greater opportunities for the poor and the disenfranchised. In India, this would translate to a political economy which placed greater emphasis on agricultural and rural growth, on universal education and literacy of the girl child, on affordable basic health, on the supply of affordable power and potable water, and on an administrative and judicial system that expeditiously protected the rights of all the citizens. There are many in India — and I count myself as one — who believe in this vision, and rue the fact that not enough of the fruits of growth has reached the poor.
This view, however, is not in the least bit antithetical to selling inefficiently run public sector enterprises PSEs to those who can possibly manage them better, or to pursue policies that attract greater foreign investment. After all, few would ever argue with the premise that it is far better to redistribute growth than to dole out poverty. Let me take up the PSE divestment argument first, before moving on to the case for foreign investment.
Barring the odd ones like BHEL, the only profitable PSEs are the ones that operate in sectors where they are either protected by state monopolies or have historically high market shares. ONGC, Oil India, Indian Oil, HPCL, BPCL and GAIL live in a state of blissful monopoly; so too do NTPC and NHPC; and, notwithstanding the growth of private operators, companies like MTNL, BSNL, LIC and the four non-life public sector insurance companies continue to enjoy high market shares. Not surprisingly, they contribute to the bulk of PSE profits. Take them out of the pool, and profits plummet. Moreover, as Sitaram knows fully well, profitability is not an appropriate measure of efficiency. In most of these cases, much of the profits reflect monopolistic rent, not best-in-class operational efficiency.
Therefore, the case for divestment or privatisation does not rest as much on revenue as on dynamic efficiency gains. But even if it were for revenue, I would argue that it is a perfectly correct means for a socially caring government. Sitaram would be the first to privately admit that the marginal economic and social benefit of spending an extra crore of rupees on education, health, minor irrigation or poverty alleviation programmes is significantly greater than on subsidising inefficient PSEs. Therefore, a government that cares for the greater good of India should systematically dispose most PSEs and spend every paisa thus earned on programmes that are directed to increase the economic empowerment and entitlement of the 250 million who live in abject poverty. Unfortunately, Sitaram belongs to the CPIM and, therefore, cannot agree to this view. Protecting the interests of the trade union membership becomes paramount. Hence, if there is a decision to be taken to sell even state-run luxury hotels to finance a rural insurance programme, Sitaram and his colleagues will get into the act of masterly prevarication.
The Left’s case against FDI is stranger still. Take any macroeconomic model for India that has empirical credibility. Each of them will tell you that if the country is targeting 7-7.5 per cent GDP growth over the next decade, it will face a growing domestic savings-investment gap — which will have to be made good by FDI. Estimates of the gap in 2010 vary within the range of 25 billion to 35 billion. Today, the best we get is 4 billion.
That brings me to China — that wonderful bastion of communism — which attracts over 45 billion of FDI per year with metronomic precision. And let me end with a story of Chongqing, a relatively poor western Chinese province with a population of 31 million located along the upper reaches of the Yangtze. Chongqing is determined to grow fast and increase employment — and has realised that the best way of doing so is to attract FDI. It has cut administrative licenses by half and abolished over 1,000 local statutes that came in the way of encouraging FDI. Except for weapons manufacture, foreign investors can invest in anything in Chongqing. Approvals are secured in a matter of weeks. Tax breaks are offered — zero for the first two years, and 15 per cent versus the norm of 33 per cent for the next eight. Manufacturers can import capital goods duty free. And visas are available on arrival at Chongqing Airport.
Chongqing is a communist province in a communist country. Nearer home, I’ll bet that Buddhadeb Bhattacharya of West Bengal will not say ‘‘No’’ if a British, US, European or Asian company wanted to invest in telecom in his state. He, too, is a communist. So, my friend Sitaram, am I missing something here? Your turn…
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