Saturday, June 28, 2008

Policy Innovations

Vasu Reddy from Chicago

Effective politics have always used innovative schemes to attract voter blocks. Many such policies are short lived while effective in pleasing the appetite of the electorate. The subsidized rice scheme which provides a kilo of rice at two Rupees is a great one and has been used several times in the last 25 years. The great fan fare this attracts at election rallies is phenomenal, and perhaps brings votes to the party that subsidizes Rice at such low price. This is not a clever policy but a populist political scheme, which really doesn’t do justice to the budgets of any state.

Indians, especially Indians in the opposition parties decry of political opportunism whenever we hear of such schemes, but never really protest against it. The ruling party can pretty much establish policies that are popular and cost a lot of money to the treasury, most times money that is not budgeted. The Indian democracy is happy with fighting market forces. The latest issue with the uptick in oil prices is a great political rabble-rouser for opposition parties. No one is bothered that the price is following the demand and supply theory. Not a single indicator shows the consumption is lower because of the gas prices, but opposition parties make it an elections issue and blame the government for a market driven issue. Capitalism should never forget the demand and supply principals, but the opposition parties conveniently forget that the democracies with capital market will never be able to control the true forces of global economies.

Collecting maximum amount of money for making public any resources owned by the Indian people should be a normal practice, as it would be in any democracy and be of benefit all people of the country in general. India has been a free country for decades and should start practicing the true logic of being a democracy and a capitalistic society. Every democratic country on earth should do this, and India should start to lead the way to all others. India and its politicians should not be against globalization of Indian markets, rather embrace them. We should not forget the foray of Tata into many markets, along with many other Indian corporations foraying into to purchase of companies and assets outside of India. If a Vodaphone is willing to fork out a few billion for purchasing a piece mobile markets we should welcome it, rather then prohibit it. Be it in communications or in medicine or any other industry India should be aggressive in allowing and going after industrial globalization. Only when you sell is when you realize the true value of what market believes your true value is, and as the rest of the capitalistic world does, the Indians should also try and realize the potential of their true value. Most often then entrepreneurs who sell their businesses go back and invest in their next enterprise, and create more value for themselves and people around them.
The classic Indian business heroes are worshipped initially and when they start achieving valuations in markets that crowns them as leaders in their respective industries, they start becoming national figures with their businesses becoming big enough to employ tens of thousands of people, and their clout in Delhi big enough to favor their market position. Unlike any other capitalistic democracies, Indian success stories are fabled as India’s pre-British leaders, who forever are looked upon as legends. They certainly deserve the stature for path-breaking in their contributions to masses of Indians, who show reverence to leaders.

The past two decades have given added reverence with the late Mr. Dhirubhai Ambani creating an empire that is the most valuable enterprise in India today, and he had no roots like a Tata or a Birla. Looking up to Mr. Ambani even after his death is a natural inclination where a country full of dreams can dream of achieving what he did. It is a perfect example of a simple man achieving the capitalistic dream with hard work and attitude to achieve aspirations that are beyond a common man’s abilities. The well made movie “Guru” in 2007 although dramatizing his story, well reflects the journey of a determined man to achieve great successes. Many such stories outside of Reliance have become common place in India, and the evolution of Information Technology, Telecommunications, Medicine, Construction, Real Estate, Automotive and all ancillary and support services have made it possible. Much has changed since the advent of economic reforms started with Late Mr. Rajiv Gandhi’s tenure as Prime Minister, and especially when Mr. Narasimha Rao was the president with the current Prime Minister Mr. Man Mohan Singh was the Finance Minister and Mr. Chidambaram was the Commerce Minister. In fairness many of the senior bureaucrats today were young and upcoming bureaucrats at that time, and have continued to do good work on helping the country become an economic engine that has been growing rapidly through the past fifteen years or so.

Despite the growth and development, India suffers from protectionist mind frame especially from political opposition. Each of India’s big business successes come with global participation, technology, funding and expertise. When we are able to integrate the organizational and economic fundamentals of others into our culture and develop great value from the outsider’s influence, there is nothing wrong in trying to allow them to become a part of our enterprise. When an Indian company acquires a company outside of our own shores, what is wrong with us allowing them to integrate into our enterprise?

Global participation allows for maximizing the value for the enterprise and the individuals who own the enterprise. Shareholders benefit when they are allowed to sell their stakes to whosoever pays the maximum value. People invest to make money from their investment and would like to maximize their profits, and India and every other democratic nation should allow their people to obtain maximum value for their investment.
When enterprises seek measures to benefit only their interests the government should reject them, but when markets seek reforms to grow the government should support them. Taxation and tariffs should be minimal to allow enterprises to reinvest and grow more rapidly, and government should accept that it is demand and supply that makes markets what they are. There is not a single democratically elected government that has been successful in managing low inflation, high economic growth, with completely satisfied public opinion and manages to stay in power for as long as they would like to. There is no Utopia on earth and our country is far from being one.

Telecommunications is one area where there is ample room for government to become proactive. The upcoming 3 G auctions can yield great benefits for the treasury to cover much of the inflationary pressures on the government. Continued growth in subscriber base will deliver sustained and growing revenue for the government. Perhaps a partial public offering of BSNL will net a handsome reward for the government, while making the lethargic enterprise more competitive. Creative and proactive policy making is possible and is not against the interest of the public and markets, and it can deliver value, growth and employment. The government doesn’t even have to think of being creative if they simply use commonsense approach to policy making. Good policies sustain for long term and deliver sustained growth.

To have protectionist polices is good when protecting national treasures, or resources, and its people. Our innovation should be in value creation and not with restrictions to economic growth. Policies that favor wealth creation should be encouraged. Policies that foster true globalization should be encouraged. Definitely policies that sustain economic growth should be sustained.

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