The price recently paid by Vodafone to buy Hutch Essar once again reminded me of the sacrifice we are forcing the rural poor to make because the Left Front insists on vetoing disinvestments and privatisation of public sector units, in pursuit of its Marxist/socialist ideology, which requires public ownership of the means of production.
To my mind, the "sacrifice ratio" of this ideological stance is extremely high, and much of it is being borne by the rural economy and, particularly, women and children. The connection is quite close. Everybody acknowledges that there is a great need for investment in rural infrastructure including roads, piped, drinkable water, power and primary education and health care facilities.
As things stand, these would necessarily have to be provided by the state. And the state is facing a resources constraint. (The extent of this could well be even more severe next year if, as I expect, economic growth slows down, at least partly because of the recent monetary measures.) And, because of the Left's veto, it cannot cash in on the goldmine it is sitting on -- "family silver" is altogether inadequate to describe the potential value of the assets. This is where the Vodafone-Hutch deal comes in.
If $19 billion is the enterprise value of Hutch, can you imagine the enterprise value of, say, BSNL, MTNL, and SBI, to name only three, in the international market? How many hundreds (thousands?) of kilometres of roads can be built and how many villages provided with power, clean water and at least basic education and health care services, with the money? Surely, such assets would give far higher societal returns than holding on to BSNL et al?
Non-availability of such minimum facilities is the sacrifice the rural poor are being forced to make in pursuit of the Left's ideology, which of course professes to help the poor.
The Indian Express recently reported on a series of cases of denial of visas by the Indian authorities to foreign students wanting to do research in India. Those cases are indicative of the level to which our bureaucracy can stretch security concerns. (In terms of the security establishment's hierarchy of patriotism, an Indian origin person living abroad is supposed to be more patriotic than a foreigner of a different race or community; resident Indian nationals are of course more patriotic than the NRI variety; and employees of the government, howsoever corrupt and inefficient, more reliable and patriotic than the country's private citizens.)
The National Security Adviser has recently said the stock markets are being manipulated by terrorists to raise funds. The
Left has called for a ban on participatory notes in FII investments. The general atmosphere can only further strengthen our paranoia and militate against the use of foreign or even private capital. Reports convey that the National Security Council is to draft a law on the subject of FDI, which will give the NSC and other bureaucracies even wider powers to interfere in FDI inflows. Flows even under the 'automatic' route (which, incidentally, require RBI approval), are also to be subject to security scrutiny. And, the security establishment would have overriding powers not only for fresh moneys coming in, but also over existing foreign investment. Vodafone beware! Another proposed legislation, which RBI is opposing, is for tightening scrutiny of all inward remittances.
As for FDI in retail, the Left now has powerful support from the Congress president. Obviously, local retail chains are supposed to be kinder to the corner baniya and his often under-age employees than multinationals like Tesco, Carrefour and WalMart, all of whom, incidentally, are expanding rapidly in China.
Monetary Tightening
In my last column, I had argued just as the poor are hurt by inflation, they also suffer, if not so directly, by the monetary measures taken to curb inflation: perversely, such measures also help to increase the incomes of the better off through higher returns on their savings. As our Editor pointed out in his Weekend Ruminations on February 17, much of the cost impact of higher interest rates falls on the smaller borrower.
Perhaps the most severe impact of high interest rates in recent monetary history was manifested when Paul Volcker, who was in India a couple of weeks back, was chairman of the US Federal Reserve. Thanks partly to high oil prices, inflation in the US had touched 14/15 per cent in the late 1970s. To bring it down, Volcker turned the monetary screw so tight, that at one time LIBOR had crossed 20 per cent, leading also to a relentless appreciation of the dollar.
The result was not only economic slowdown and increasing unemployment in the US: the high exchange and interest rates for the dollar triggered third world debt defaults and a series of crises in the 1980s. They took a decade to sort out -- and inflicted misery on millions of the poor who lost jobs and, unlike their US counterparts, did not have access even to unemployment benefits.
Tight money is clearly not egalitarian!
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