By Tarun Kumar G. Singhal
Raman Jokhakar Chartered Accountants
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The Narendra Modi-led National Democratic Alliance came to power following a campaign during which several commentators, and many of the wider public, seized on to its catchy slogan of “minimum government, maximum governance”. Senior leaders of his administration continue to insist the phrase is one of the principles underlying current economic policy. However, if that is the case, then the administration’s decisions reflect misplaced priorities and a flawed understanding of the role and scope of government – and indeed its strengths and weaknesses. Unless those priorities are rectified, and soon, the thrust of current policy is likely to spend itself in futility and failure.
Economic history and economic theory both reveal that governments, including and especially in developing societies, do certain things well and do other things badly. What they do not do well is running enterprises. Being insulated from the discipline of the market means that state-run corporations fail especially in consumer-facing enterprises. They are also notable failures in sectors where lower-level decision-making is crucial, and any interference in such decisions – or even the absence of a focus on returns, a lack that characterises public enterprises – can lead to the build-up of costly errors. Yet the government continues to run a vast business empire, and Mr Modi seems to have no intention of letting this empire go. Air India, for example, seems to be a target for “revival” rather than sale even though it is bleeding passengers and pilots – 30 Dreamliner-trained pilots just quit and the once-dominant state-owned airline is now third in the sector, with a 16 per cent market share. The loss-making company has to borrow at the sort of premium that indicates what the financial sector thinks of its chances. Such examples are legion. The Union cabinet recently approved “financial incentives” for two state-owned telecom companies that are never likely to make money in a cut-throat sector. And the new revival plan for public-sector banks, announced with much fanfare, stopped short of the crucial measures that would allow for genuine independence from interference.
Meanwhile, there are indeed areas where more effective and expansive state participation is necessary. While private schools are often inexpensive and effective, without improving public education there is no hope of creating a better-educated society and a workforce with skills. Yet the government, including through the implementation of the Right to Education Act, seems to want to avoid the hard task of fixing the poor quality of state education. And then there is health. Nowhere in the world has private provision of health care with public financing worked – and in India it is a recipe for disaster. The new National Health Policy suggests that public spending will go up from one per cent of gross domestic product to 2.5 per cent soon. But how that is spent is crucial. Many within the government argue that private insurance and provision should be the bedrock of health policy. This also seems to underlie the recent push for expanding insurance. Here, at least, there seems to be sympathy for “minimum government”. But these are completely the wrong sectors for it; more effective government participation is needed. Instead, the government is focused on staying in business where there is no credible case for the public sector. “Minimum government, maximum governance” will only become real when the administration shows signs of understanding where and how it works.
(Source: Editorial in the Business Standard dated 04-09- 2015.)
