Why underwrite?

N. Vittalacirc;euro;trade;s call, at a seminar in Chennai, for scrapping the Sick Industries Companies Act and the Board for Industrial and Financial Reconstruction will sound very revolutionary to many. After all, these entities have been around for a long time and are so much part of the industrial landscape that it is hard to imagine life without them. Sometimes, however, revolutionary ideas have a core of practical sense and this is one of them. Speaking in the context of the rise in non-performing assets in the banking system and in industry, the Central Vigilance Commissioner was of the view that three things would reduce NPAs: simplifying the rules, transparency in the system and effective punishment. Much has been heard of and a little has been done about the first two elements of this remedy. What is missing from the medicine chest is 8220;effective punishment8221;. The establishment baulks at letting the grossly inefficient, the technologically unsound, the unprofitable and even the incorrigibly corrupt go to the wall.This reluctance to let punishment fall where it is deserved has little to do with what is hypocritically described as the inherent compassion of the Indian system. It is a diversionary tactic to bring up hard-nosed Anglo-Saxon attitudes in this context and contrast them with Europe8217;s 8220;social market capitalism8221;.

The sick companies debate is not about capitalism-with-a-human-face, it is about using public money wisely and well. Compassion has nothing to do with the argument about whether sick units should be closed or salvaged. Nor do hard and soft schools of thought come into the picture. It is simply a question of ending a system that has become massively corrupt. The original intention behind SICA and BIFR may have been good and no doubt some companies have been nursed back to health and profitability. But the record in general has been dismal. When the very definition of 8220;sickness8221; depends on political clout and lobbying, what hope can there be of new investment or reconstruction plans actually producing results? For far too long the excuse has been that workers8217; jobs were being saved whereas the reality was the diversion of funds and asset-stripping. Governments should not be holding the hands of those who have deliberately turned their companies sick or made bad business judgments or for whom there is just noplace in the market. And sympathy is entirely misplaced when taxpayers8217; rupees are being sunk into bottomless pits of corruption and incompetence.

Of course, it is silly to make a fetish of the market and to claim that the invisible hand8217; left to itself always achieves the greatest public good. Nevertheless, as far as industry is concerned, many things have changed since the reform era began in 1991 and there are options for companies in trouble, new sources of investment and technical and management expertise, new opportunities. There is no need to turn to the government even as a last resort but as long as bodies like the BIFR continue to exist, managements will clamour to be rescued by the government. Take temptation out of the way. Scrap SICA, let BIFR offer consultancy services only, strengthen policies for voluntary retirement schemes and worker retraining and skills acquisition programmes.