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Business Commentary / Ashok Mitra

Delicately poised: open market in one pan, political and social costs in the other

Newspapers cater to society's superstructure. They miss out what happens at the nation's base, because they are not interested in knowing what happens there. The all-India general strike the media by and large chose to ignore, just as they failed to assess the significance of the current goings-on in connection with the passage of the Insurance Regulatory Authority of India and the Patents (Amendment) bills.

If reports are to be believed, both the Bharatiya Janata Party and the Congress had to issue whips to ensure that party members of Parliament voted for the bills in the two Houses of Parliament. Wide misgivings obviously reign in both parties on the contents of the two bills and their implications for the nation's poor.

There are also certain other developments. If you use the criterion of mass support for or against the general strike -- and for or against the bills -- you can draw a rough diagonal line from across the heartland of the country stretching from the south of Goa to the border of Nepal.

The regions above the line are more or less indifferent to the cause or causes which provoked the strike or to the consequences of the enactment of the aforementioned bills.

At the other end, in the parts of the country covered by the area below the line, deep distrust prevails with respect the drift in official economic policy.

Two mindsets are simultaneously operating in the country, or so it would seem. Those subsisting above the diagonal line would not much mind the uninterrupted intrusion of external capital in the insurance business or the overwhelming dominance of multinational companies in the manufacture and distribution of pharmaceutical and agro-chemical products even if that means a considerable erosion of the nation's economic sovereignty.

This debate over how much to concede to foreigners in the hope that they would steer the country fast forward can be of interminable proportions.

The first four decades following Independence, one section will argue, enabled the nation to reach a per capita annual income growth of only around one and a half per cent, nothing much to write home about.

Most of the industrial and service units set up under public auspices during this period, they will further allege, are not in a position to cope effectively with external competition.

In agriculture, too, our per acre productivity, it will be said, is way below what it is for most crops in countries such as the United States and Japan, or, for that matter, China.

Attitude towards the US is a major element in influencing the domestic debate. The collapse of the Soviet Union has led to the emergence of the US as the sole superpower.

The American leadership believes in the free market doctrine and claims to practise economic policies which reflect this doctrine.

Some are likely to point out that the US, in fact, follows a much more opportunistic line: it is for the free market if that helps its economic expansion; it is against free trade if unfettered external competition constricts its exports.

But such backbiting does not bother the American administration. The winner takes all, and in global politics, the US is the winner. Its inconsistencies are therefore overlooked. Its officiousness, such as its scandalous behaviour in Iraq or its assertion that it would not conform to the World Trade Organisation rules and regulations if these happen to be in conflict with US trade legislation, almost borders on insolence.

Those in our country who are anxious to protect their living standards -- and this goes for almost the entire upper middle class whose number will be in the range of 150 million to 200 million -- would not, however, at all mind to humour along the Americans.

Economic liberalisation since the middle of 1991 has not actually benefited the country much, if at all. The overall rate of growth in the present decade is comprehensively lower than what it was in the eighties. So is the case with the rate of industrial growth, of late even more hard hit by global recession.

Our exports in particular are doing miserably. The government meanwhile has mostly withdrawn from the arena of investment. This is on account of advice rendered by foreign financial institutions who agree one hundred per cent with the economic philosophy adumbrated by the US administration.

What is disconcerting is the failure of private, including foreign, investment to make up for the drying up of the flow of capital funds from government sources. As against New Delhi's high expectation of the ingress of long-term foreign capital at the rate of around $ 25 billion per annum, the actual inflow in recent years has been only about two billion dollars.

A large proportion of these funds has, besides, gone for the services and luxury consumption industries. The basic economic infrastructure has continued to be awfully neglected.

In this somewhat confused picture, two schools of thought keep contending with each other.

Those who are sold on the magical quality of foreign investment would prefer to wait for some while more in case a sudden increase takes place in external capital inflow.

Those hoping-against-hope patricians would have no strong views on the advisability of handing over major segments of economic decision-making to a few key investors from overseas. All plans that are taken on hand are based on the optimistic assumption regarding the benefits of capital infusion from overseas.

This category of social thinkers will not stand in the way if more and more concessions continue to be proposed for foreigners so as to persuade them to come in droves. If foreigners do not come in immediately, they will be quite prepared to offer even greater concessions.

A major percentage of the population concentrated below the diagonal line we have drawn holds an altogether different point of view.

Even those among them who are ideologically non-committal would not be averse to supporting arguments which oppose foreign sponsorship of economic growth.

The more articulate constituents of this group are anxious that their countrymen draw appropriate lessons from the general lowering of the rate of overall growth as well as that of growth in the farm and industrial sectors in the post-reforms years, thereby providing them with clinching evidence on the failure of the free market mechanism to yield satisfactory results for the Indian economy.

They would consider as outrageous any proposal to invite foreign capital into, for instance, the insurance sector or in small-scale operations, including handloom and handicraft industries.

They are perturbed by the government's programme of progressive abdication of economic policy initiatives to private units, including foreign agencies. In fact, many small-scale operators are under pressure because of the intrusion of foreign operators in their erstwhile spheres of activity.

Matters have now come to a head over the insurance and patents bills. On the basis of reports of large-scale consumer mulcting by private insurers in the American domestic market, a considerable body of opinion in India would like to stall the entry of foreign capital into the insurance sector: It is being argued that the kind of rosy picture being drawn by the lobbyists for private insurance, for example -- that once we agree to let American insurers in, they will bring billions and billions of dollars for investment in India -- is a wild exaggeration.

They also see no reason why concessions on patents to foreign multinational units should be accompanied by exclusive marketing rights for a period of five years at a stretch. Multinational pharmaceutical and agro-chemical manufacturers are itching to penetrate into the lush Indian market to reap monopoly profits courtesy articles 70.8 and 70.9 of the Marrakesh treaty.

These articles are yet to be ratified by India; the patents bill is therefore, as of this moment, the great cause for the comprador crowd.

Politicians operating from out of New Delhi are perhaps at a disadvantage in assessing the nuances of the situation. The impression is nonetheless gaining ground that the controversies over economic policies may soon come to an unpleasant climax.

The battle between the-opening-up-of-the-economy school and the believers in self-reliance is degenerating into an ugly squabble between so-called foreign lackeys and so-called frogs in the well.

The media have been captured by the free marketwallahs. The other kind of sentiment expressed in the nation's hinterland does not receive adequate space in newspapers, broadcasts and telecasts. Even so, there are many instances in contemporary history where the media have been proved to be horrendously wrong.

Herein lurks a major danger: If the politicians choose to reach their judgment by assessing what the media profess and propagate, they could hurry to open up the economy to an extent that might raise the hackles of the self-reliance school to an acute level.

Whether the dialectics concerning the country's politico-economic system might get reduced to an above-the-diagonal and below-the-diagonal dichotomy is a matter of speculation.

How much external capital would, for example, come in if we give in to pressure from the foreigners, such as mounted by American negotiators on the issue of lifting the post-Pokhran sanctions, cannot be predicted in advance.

There is a distant probability that the disbelieving half of the nation might choose to protest, and rebel, if the present government caves in and grants excessively generous charters to foreigners and their native acolytes.

Controversies of this nature have not yet occupied centre stage. But the time, symptoms suggest, is certainly approaching when the advantages stemming from open market reforms and according a vast number of concessions to foreigners would need to be weighed against the political and social cost that would be involved.

If decision-makers in New Delhi still think that life could continue to be a lark, never mind an occasional general strike and occasional parliamentary tiffs over this or that bill, they are conceivably living in a fool's paradise.

To ignore the request of half-a-dozen important chief ministers to have the patents (Amendment) bill reviewed by the National Development Council or Inter-State Council since it prima facie encroaches on states' rights is fraught with some long-term consequences. It does not appear that there are enough wise men in the nation's capital to read properly the early warning signals.

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