The Rs 1 lakh question

How do corporates intrigue? By saying liberalise for me, not for others

Ratan Tata has told NDTV, 8220;Let me just say it the Singur controversy is not just political, because I happen to know that some of our competitors are also fuelling some of this fire. They would be very happy if the project got delayed.8221; There are three separate statements within that quote. First, the controversy isn8217;t just political. Second, competitors are fuelling the fire. Third, competitors will be happy if the project is delayed. This is not very different from what the Left Front chairman, Biman Bose, had earlier said. According to newspaper reports, the Trinamool Congress has taken umbrage and has decided to file a defamation suit against Ratan Tata. Trinamool will speak for itself. But it is worth pondering, which of these three statements Trinamool is upset about. If the expression 8216;political8217; is identified with political parties, clearly, Singur isn8217;t only political. There is an economic issue and it is more than the Left Front in the Red Corner and Trinamool in the Blue Corner, even if the latter goes blue in the face appropriating all the credit for opposition. NGOs, activists and media have descended on Singur, not to speak of political parties other than Trinamool muddying waters.

So far, regardless of expertise, every educated Indian has had a view of cricket, films and Pakistan. To that list we can now add Singur. On the third statement of competitors being happy if the project is delayed, Ratan Tata meant corporate competitors, but left it implicit. Other states are competitors, as potential investment destinations, to West Bengal and they should certainly be happy if relocation to their states occurs. There is no dearth of producers and competitors in the automobile market, especially in certain segments, and why shouldn8217;t they be happy if production of the Rs 1 lakh car is delayed? Hence, the first and third statements are relatively innocuous and Trinamool8217;s umbrage must be because of the second statement. Note that on the second statement, Ratan Tata was far less direct than Biman Bose, the latter having alleged that the fuel was monetary.

Moving away from the specific, on which one has no information, let us ask a general question. Is it believable that the corporate sector funds political parties, even for specific agitations? Given our electoral system and patterns of political funding, one would have to be extremely naive to believe otherwise. If corporate funding hadn8217;t existed, many political parties would have withered away.

Indeed, most western textbooks on corporate strategy are irrelevant for that reason. Typically, these will talk about a strategy that focuses on variables internal to a firm and on strategies followed by competitors. However, the key ingredient of Indian corporate strategy has been an element of managing the executive, the legislature and the judiciary. And even the opposition, since one hears about planted parliamentary questions. A part of this is the relationship between the individual firm and the government, such as favourable tax decisions or special treatment that reduces compliance costs.

However, there is an even stronger strand of keeping the competition out. To use a cliche, liberalise for me, but not for others. In competition policy parlance, restricting barriers to entry for potential rivals classifies as an unfair trade practice. But one won8217;t find usage of the government to restrict entry listed in examples of unfair trade practices and, in erecting entry barriers, the opposition is often as powerful a tool as the government.

In the shortage economy of the licence raj, quotas and licences were scarce and this became a zero sum game; your obtaining a licence implies I wouldn8217;t get one. The Hazari Committee 1955, the Mahalanobis Committee 1964 and the Dutt Committee 1965 provide innumerable illustrations of how licensing was abused, both by the corporate sector and the government. The solution should have been to abolish licensing, but it wasn8217;t accepted then. And with industrial licensing gone, one often forms an impression that such discretion and abuse are now history, with the mayhem of competition prevailing. But this isn8217;t true at all. Forget defence procurement and defence contracts. In the civilian domain, in infrastructure and a host of service sectors as also in privatisation of PSU contracts, there is plenty of discretion and bribery floating around. In the transitory phase of economic reforms, discretion and resultant corruption often increase, instead of decreasing. Unfortunately, we can8217;t usually have a L1 system, with global tendering and contracts awarded to the highest bidder or the lowest cost supplier, as the case may be, without any deviations from the price principle. Wouldn8217;t it have been bliss had the Bengal government auctioned the Singur land to the highest global bidder?

It is because complete transparency is impossible that we have had a succession of controversies 8212; telecom, airlines, modernisation of airports, privatisation of power distribution, privatisation of water supply and so on. In Russia, people speak snidely of privatisation of the privatisation process. On a much smaller scale, we have had privatisation of the reform process, without the positive association that the word 8216;privatisation8217; usually carries. Pre-reform, we used to talk about purchase and price preference in favour of the public sector, indigenous production and small-scale industry. There have certainly been instances of purchase and price preference in favour of selected entities in the private sector, for an informal price that was paid. This is a bald statement of fact and no defamation concerns should be raised. More importantly, if we can8217;t attain complete transparency, can we at least reduce non-transparency? The Right to Information Act helps, except that some of its teeth get knocked out, because complete information is not supposed to be in the public interest.

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There is a comfortable nexus between some sections of the business community and the government. Why disrupt this, introduce uncertainty and increase compliance costs by treading into the unknown? Change would certainly have been better for business in general, and for citizens. However, that8217;s on no one8217;s agenda. Who has ever said that Singur is about Bengal8217;s economic interests? Such naivety is alarming. And any statement that reduces Singur to economic issues is one that is a prime candidate for a defamation suit.

8212;The writer is a noted economist