Scams, FIRs and business sentiment

www.firstpost.com/business/cbi-case-against-km-birla-corporate-india-should-not-cry-wolf-1183133.html

Is India Inc. under unprecedented attack? And is this going to dampen business sentiment?

India Inc. would certainly expect the nation to believe so. Days after the Central Bureau of Investigation (CBI) named industrialist Kumar Mangalam Birla in its first information report (FIR) in the coal blocks allocation scam, the Supreme Court has asked the investigative agency to look into undue favours shown to top corporate houses. There are reports that the CBI is planning to name more businessmen in fresh FIRs.

Corporate bigwigs have been careful not to comment on the Supreme Court order but have come down heavily on the government and the CBI in the Birla FIR case. This is going to affect business sentiment and kill investments, they have warned. One can understand such alarmist statements from them – after all they will come out in strong defence of one of their own.

But it’s different – and worrying – when ministers also start holding out such veiled threats. Five key economic ministers berated the CBI for its action, with oil minister Veerappa Moily even invoking the sceptre of Aurangzeb, no less.

Almost exactly two years back – on 10 October 2011 – then law minister Salman Khurshid said much the same thing, when corporate big shots were put in judicial custody for alleged corruption in the 2G scam case. “If you lock up businessmen, will investment come?” he said in an interview to the Indian Express.

Commerce and industry minister Anand Sharma said he couldn’t “fathom how a case of impropriety can be made against Birla, an iconic industrialist respected all over the world”. It is equally difficult to fathom how Sharma arrived at the conclusion that iconic, respected people cannot commit improprieties. There are far too many examples in the recent past of businesses logging dizzying growth and their promoters becoming respected icons of their respective industries only to have these companies implode.

This article is not implying that Birla is among these fallen icons or that he is guilty of impropriety in Coalgate. Nor is it giving him or his company a certificate of good conduct. This article is not about Birla or Coalgate. It is about the rather shady nexus that has come to mark the business-politics interface.

The statements made by ministers are flawed for two reasons.

One, they only serve to reinforce the impression that the government is batting for big business houses and treating them with kid gloves – the bigger the business, the softer the gloves. It has given a handle to all opponents of India’s liberalisation process, who have always argued that this is benefiting only a few big industrialists. To that extent, the ministers speaking out like they did at a time their government is headed for elections on a pro-poor and inclusive growth agenda is only proof of utter political incompetence.

Two, if a country’s investment climate is going to be affected by companies being investigated for alleged wrong-doing, and if ministers are going to warn that India could end up going the Russia way “where investors are not prepared to go and billionaires are put behind the bars” then it is a very sad reflection of the way business is done in the country. (Someone should point out to Moily that Birla and other iconic industrialists may not exactly be flattered by the Russia reference.) It is an admission that the Indian businesses do not function in a transparent rule-based system. Who is that an indictment of?

Just look at some of the issues that the Supreme Court has asked the CBI to probe, based on intercepts of corporate lobbyist Niira Radia’s phone.

*  supply of low floor buses by Tata Motors to the Tamil Nadu government.

* allotment of coal blocks to Anil Ambani’s group and iron ore mines to Tata Steel

* kickbacks in the aviation sector

* favours shown by a former director general of hydrocarbons to Reliance Industries Ltd.

Some of the biggest names of India Inc. will come under the scanner (of course, they could well come clean). If, as Firstpost editor R. Jagannathan has argued, the FIR against Birla was designed to ensure that the Coalgate investigation doesn’t reach the Prime Minister, could it be that the panicky statements of ministers are designed to put off closer scrutiny of a slew of dodgy policy decisions that have not yet come to light?

There are a host of reasons why India is a bad place for business. Infrastructure sucks, money is expensive, permissions don’t come through, decisions are not taken, rules are not transparent. Addressing these issues will provide a strong foundation for healthy businesses and a robust economy. But this does not get the kind of attention that is showered on possible action against one corporate house. Ministers, instead, indulge in turf wars, squabble over clearances, green-light economically ruinous policies, introduce opacity into policies and create any number of rent-seeking opportunities. In fact, they do everything possible to make India a difficult investment destination. Corporate India would like the more fundamental issues to be addressed, but it is quite comfortable in operating in a shadowy environment, so long as it can get away with it.

So, yes, India’s investment climate will be affected if investigating agencies and the courts try to clean up this messy operating environment. Companies that have got used to prospering by managing the system will take time to adjust to an environment where they will have to play by a different set of more transparent rules. They will try to scuttle any move to a more transparent system by creating a scare about investments drying up.

India’s liberalisation saga till now has been more pro-large business than pro-market (the latter is what it should be). Economists championing an open economy – including present Reserve Bank governor Raghuram Rajan - have lamented this time and again. It is often said that it requires a crisis for India to reform. Perhaps the unravelling of a series of scams and sweetheart deals will be the crisis that India needs to reform its business environment. 

So if the current churn is going to bring a directional shift in economic policy making – from pro-business houses to pro- free markets, then it needs to be welcomed. There will be some short term pain. But the gains that will come will be far more sustainable and provide a stronger foundation for the economy.

 

Two Roads For The Country

What if India had followed Masani's and Rajaji's vision rather than Nehru's?

http://timesofindia.indiatimes.com/home/opinion/edit-page/What-if-India-had-followed-Masanis-and-Rajajis-vision-rather-than-Nehrus/articleshow/20279198.cms

Today is the death anniversary of two noteworthy Indians. They started off as ideological comrades but later became antagonists, each representing two opposing economic worldviews.
Their anniversaries too will be observed in contrasting ways - one with pomp and publicity, the other in obscurity. There's a certain irony in that.
Jawaharlal Nehru will be feted at various functions and the United Progressive Alliance (UPA) government will pledge itself to his ideals, never mind that the country has turned its back on his eponymous model of development, which was heavily biased towards state intervention in the economy. This shift away from socialism — half-hearted though it is — would not have pleased Nehru had he been alive, even though his name has been constantly invoked by the Congress to show continuity with his policies.
There will be no public functions to mark the 15th death anniversary of Minoo Masani, co-founder of the erstwhile Swatantra Party, even though since 1991 the country has been travelling the road he tirelessly championed for 40 years along with another political stalwart, C Rajagopalachari or Rajaji - that of a liberal, market-oriented economy. But Masani, too, would shudder to have his name linked with all that is happening today, in the name of the model he advocated.
Nehru and Masani forged a deep friendship when they were both in the Congress, strengthened by their common love for socialism and admiration for the Soviet Union. Masani was one of the founders of the Congress Socialist Party within the Indian National Congress, in the early 1930s. Soon, disillusioned by Stalinist excesses in the Soviet Union, he became one of India's foremost and forceful critics of communism.
In 1947, he articulated the idea of a mixed economy, with three sectors - a small sector of nationalised industries (which would be decided by an independent commission), a larger sector of new public enterprises in areas where what he called 'free enterprise' was unable to venture into, and a third, largest sector of free enterprises. "Such a programme of state plus free enterprise is, in fact, the only practicable programme that the government in India can possibly adopt in the coming years...it is important that it is done, not sullenly for lack of anything better, but with enthusiasm and drive," he wrote in a paper detailing the idea.
After Independence, his nuanced approach would bring him in direct conflict with Nehru and what he called the latter's zeal to foist the Soviet pattern of state capitalism. Since the only non-socialist alternative to the Congress in the 1950s was the Jan Sangh, with a strong Hindu bias, Masani teamed up with Rajaji and farmers' leader, NG Ranga, to form India's first conservative-liberal Swatantra Party in 1959. Through the party's short life and after its demise, Masani never tired of pointing out that state involvement in industry, trade and commerce would result in the neglect of its primary responsibilities of maintaining law and order and the provision of drinking water facilities, primary healthcare, primary education and physical infrastructure.
He also relentlessly pointed to the lurking dangers of the licence-permit-quota raj that Nehru and later Indira Gandhi promoted. Nehru apologists argue that his model was vilified because of the distortions that his daughter introduced in the 1970s. But Masani and Rajaji always warned that the model was susceptible to such distortion.
So when, in 1991, India took its first steps towards a freer economy, Masani should have felt vindicated. Though he was glad, he also had a sense of foreboding. The government, he noted, took the path of liberalisation out of compulsion and not conviction and he fretted that this would not be sustained. He was clearly quite prescient.
State meddling in the economy continues; in the name of helping the poor, the government continues to artificially suppress prices and distort markets rather than working seriously for a shift towards targeted subsidies; inefficient public sector undertakings continue to be cosseted; inspector raj continues to throttle small and medium enterprises. Despite what the critics of liberalisation might say, India is not a market economy in the true sense of the word.
While Masani, were he alive, would have been pained by this, what would have horrified him is the prevailing rampant corruption - the result of a pernicious cronyism that marks the relationship between government and private business. What would devastate him is that this is happening in the name of liberalisation.
Crony capitalism is not the post-1991 phenomenon that those railing against what they dub 'neo-liberal economic policies' make it out to be. Though a strong supporter of private capital, Masani took a dim view of most Indian entrepreneurs of his time who, he believed, took the easy way out by bribing ministers and bureaucrats instead of facing up to competition. Naturally, he blamed the controls-driven system for fostering this. Masani would have been the first to speak up against the shenanigans in the telecom, coal and airlines sectors.
As economic liberalisation increasingly comes under attack for fostering oligopolies and sowing the seeds of plutocracy, there are not enough voices pointing out that the mess the country is in is a direct result of the state continuing to have the power to make or mar fortunes of entrepreneurs, that the country needs more economic and governance reforms to strike at the root of corruption. Masani would have been that voice.
Minoo Masani, the country misses you.
The writer is a senior journalist and author.

A history lesson on India Inc for Manish Tewari

http://www.firstpost.com/politics/a-history-lesson-on-india-inc-for-manish-tewari-773197.html

Information and broadcasting minister Manish Tewari has sent out a word of advice for Corporate India through the media. Be careful of whom you support, he is supposed to have said while addressing journalists in Mumbai, according to this report in the Economic Times.
He also gave our industrialists a lesson in history. Remember Europe in the 1930s, he warned. The leader European businessmen supported wholeheartedly then “caused a lot of harm and destruction all over the world.” He left the leader unnamed but the Economic Times rightly identifies him as Hitler. And we all know who the Indian `One Who Tewari Did Not Name’ is. The Economic Times identifies him as well.
But why does Tewari have to go back eighty-odd years? And to a different continent, at that? Why not look within the country and go back just forty-odd years? Specifically, India in the 1970s?
Tewari was only ten years old during a certain dark chapter in India’s democracy and so he may not have any memories of this period. The history books he would have studied in school also would not have dealt with those events, so a lesson for him in recent Indian history is in order.
India was then ruled by the Congress Party and Mrs Indira Gandhi was the undisputed supremo of the party and the government. Buoyed by the stupendous mandate that she had got in the 1971 elections, Mrs Gandhi went about systematically destroying every autonomous institution that the founding fathers of the Constitution had created. The mess that the country now finds itself in has its roots in that period, when the notions of committed bureaucracy and committed judiciary were used to pack the civil and police service and the judiciary with loyalists. Loyalists not to the country, but to the Congress Party and by default Indira Gandhi and by further default a certain Sanjay Gandhi.
The arrogant disdain for democratic processes kept escalating, finally culminating in the declaration of Emergency in 1975. The Congress likes to paint the ‘One Whom Tewari Did Not Name’ as a dictator, but he will only be India’s second. Just as it has been the trend-setter in the case of dynastic politics, it is the Congress again which has the dubious honour of giving India its first dictator. India is Indira and Indira is India, we were told. (Before people turn apoplectic at the thought of equating Mrs Gandhi with a certain maut ka saudagar, I concede that there were no killings on the scale of the 2002 riots during her time.)
But the real point about this history lesson relates to the businessmen and entrepreneurs to whom Tewari dished out advice. As Mrs Gandhi went about making a mockery of India’s democracy, India Inc. of those days did not utter a squeak in protest. Worse, they went all out to back the Congress Party and Mrs Gandhi. When it was believed that she would resign following the Allahabad High Court setting aside her election in 1971 for electoral malpractices, a delegation of Indian businessmen went to her and pleaded that she stay. These were not small-time businessmen. They were respected industrialists, led by none other than K. K. Birla.
Why should we think these industrialists were better than those who, thirty years later, hugged the One Tewari Did Not Name and called him king of kings (disgustingly servile as that was)?
There’s only one thing that’s clear from all this. Industrialists and businesspersons aren’t bothered about the ideology of the party or leader in power. All they want is a stable business environment, tax sops and other freebies and if they can indulge in some crony capitalism, well, that’s icing on the cake. They are not even interested in parties or persons who espouse their cause if they are not in power. What else can explain the fact that the Swatantra Party, which kept championing the cause of free markets, hardly got any funding from business houses? Businessmen preferred to pay fat bribes to ministers and bureaucrats in return for assured licences and pour money into Congress coffers to ensure favourable competition-killing policies.
In the 2006 West Bengal assembly elections, it was well known that a significant section of businessmen in the state were hoping that the Left Front would return to power because Mamata Banerjee was not seen as a very credible leader. In fact, there’s talk now that during the next election, they will once again back the Left Front.
Nor are they unduly bothered by things like genocide. The only thing that worries them about riots is how it disrupts their supply chains and affects their business operations. Forget Gujarat, Indian businessmen have no qualms about setting up manufacturing bases in China, never mind a certain problem called Tibet.
This apparently cold-blooded attitude is not unique to Indian businessmen. The change in the United States attitude to China in the seventies and its silence over human rights violations in that country is dictated by the agenda of American businesses. So is its support of tinpot dictators everywhere from South America to West Asia. China will never be faced with an economic blockade, something other dictatorships with less attractive markets are subjected to.
So if you want India Inc. to stop singing the praises of the ‘One You Did Not Name’, Mr Tewari, just get your government to take away his USP. In the remaining months that your government is in power, get it to create an environment that is investment-friendly (no, that does not mean encouraging cronyism), end the policy paralysis, take policy and other measures to set right the infrastructure sector. Get the economy back on track and deliver results. When you do that, India Inc. will come running back into the Congress fold.