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Mainstream, Vol XLVI No 44

Real Face of Manmohanomics

Saturday 25 October 2008, by Nikhil Chakravartty


After the smart management of the Parliament debate on the JPC Report, which was neatly turned into a panegyric session for Manmohan Singh, raising the suspicion that his resignation offer was really a stunt calculated to pre-empt attacks in Parliament on him and his Ministry for their supreme laissez faire on the scam, one would have expected that there would be some effort on the government’s part to wake up and save the country from the seamy side of its free-market policy. It appears, however, that the government has drawn a contrary lesson from its survival of the ordeal of the parliamentary debate on the JPC Report.

The announcement of the removal of the SEBI chief, G.V. Ramakrishna, to the Planning Commi-ssion was a clear surrender on the part of the Finance Ministry to the clamour of the stock-exchange brokers who were resenting Rama-krishna’s efforts to bring some discipline into the speculative anarchy and massive black-money deals in the share market. The warning by the JPC Chairman, Ram Niwas Mirdha, has been extremely timely:
A strict regulatory mechanism has to be enforced alongwith economic reforms. Otherwise it will lead to unmitigated disaster.

He made it clear that without some regulatory discipline in the financial sector scam of one type or another is inevitable in a free market economy.
The JPC Report, it may be recalled, fully endorsed the SEBI’s actions under Ramakrishna’s chairmanship.

In this context the removal of Ramakrishna from the SEBI raises the fear that the government is giving out wrong signals that it would placate the brokers even at the cost of the investor’s interests. Here is a forestaste of the type of reforms that the Finance Ministry would initiate in finance and banking as promised by the Finance Minister and the Prime Minister in Parliament.

Within a week of the Parliament debate on the JPC Report, the Cabinet has unfolded one more facet of Manmohanomics by deciding to offer guaranteed returns for seven foreign investors in the power sector. Never since the East India Company days when British investors in British-owned railways in this country were assured guaranteed interest, had anybody enjoyed this extraordinary concession. It is not just a case of removing all impediments to foreign investment in this country, but to offer special concessions to the foreign investors which no section of the Indian corporate sector has ever been offered.

This brings out the special bias for the foreign capital in Manmohan Singh’s economics. It is a major departure in the country’s economic strategy. Under the present dispensation, globalisation means not equal treatment for Indian and foreign capital, but a definite partiality for the foreign capital—a new form a economic colonialism. The economic arguments being trotted out can hardly hoodwink the public. To say that the expected investment by the foreign investors would enable the government to spend more resources in social sectors is a patently dishonest alibi, for the simple reason that the Centre would deduct the guaranteed returns to the foreign investors from the plan allocation of the States concerned. The 16 per cent guaranteed returns promised to the foreign investors would have to be paid in dollars and secondly, the cost of power through these foreign companies would be not less than Rs 3 per unit as against the present rate of Rs 1. So, the State governments would be fleeced to meet the 16 per cent guaranteed returns to foreign investors, while the consumer would have to bear a minimum of three hundred per cent rise in power tariff.

It is obvious the government is fighting shy of telling the public frankly what this surrender to the foreign investor really means. Otherwise, any democratic government is expected to place such a proposal before Parliament for its approval, since it marks a major shift in policy—not just free-market but special favours for foreign investor, favours denied to the Indian investor. Heavy dependence on foreign borrowing at one end, and guaranteed returns for the foreign investor at the other—what more can be done to mortgage the country’s economy?

It is now clearly established by the JPC Report that the foreign banks played an almost decisive role in the stock-exchange scam. In normal circumstances, one would have expected any self-respecting government to take immediate action to block the power of mischief wielded by the foreign banks. In his intervention in the Parliament debate on the JPC Report, the Finance Minister promised that these foreign banks would not be allowed to carry away the gains made by them out of the scam. But no concrete measure has so far been taken by the Finance Ministry to discipline the operation of the foreign banks in the country. With the pronounced bias of the Finance Ministry for foreign capital, it would be naïve to expect that it would make any move to discipline the foreign banks operating in the country. Judging by its record and its proclivities, one would rather expect it to back the foreign banks and protect them at any cost. More than the country’s interest and self-respect, promoting the interests of foreign capital has become a confirmed obsession of Manmohan Singh’s leadership of the Finance Ministry.

In this climate of abject surrender to the foreign investor, the Malhotra Committee Report recomending privatisation of the insurance sector comes as a precursor to the Finance Ministry’s move to provide one more opening to the foreign invdestor. The social objective behind the nationa-lisation of insurance is now about to be abandoned. Once this is pushed through, there is little doubt that Manmohan Singh’s next target would be the banks, which when denationalised would drive the nail into the coffin of the mixed economy. At this rate, the railways too should be on the privatisation list—a big prize for the foreign investor. And at the end of it all, why should the poor Maharajahs be deprived of their sacred privy purses?

Meanwhile, some of the important indicators of the economy show disturbing trends. For three years in succession, the industrial growth rate is confined to an average of only two per cent in contrast to eight or nine per cent in the eighties. In the capital goods sector, it is 12 per cent negative growth rate. There is no sign of export earnings picking up in a substantive way. The encomium of praise showered on the Finance Minister by the corporate sector, both at home and abroad, is no guarantee that his Budget will be hailed with enthusiasm. There may be tax relief for the Big Money, but what happens to the wider public, who constitute the great majority of this democracy? If Manmohan Singh tries to enforce the exit policy—which he has committed to the World Bank that he would carry out—then that may endanger the stability of the government itself.

The fact that all the economic reforms have so far been managed without much trouble is not due to their acceptability as such, but mainly because the Indian economy is still very much dependent on the monsoon, and on this count Narasimha Rao so far has been endowed with extraordinary luck by the gods. If by any chance the monsoon fails this year, there is no safety net left for the government to fall back upon. One may recall with profit what happened to Indira Gandhi in her first year in office—the World Bank dictated devaluation of the rupee combined with monsoon failure brought political disaster for the Congress in the 1967 general elections.

In the present state of Manmohan euphoria this may sound Cassandra, but the road ahead is grim by all accounts.

(Mainstream, January 15, 1994)

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