The nationalist fervour that dominates Prime Minister Modi and the BJP is such that the nuances of policy have no value for them
It may be just a coincidence that China’s Internet giant Alibaba had said that it will split into six separate entities on March 28, and the Reserve Bank’s former deputy governor Viral Acharya suggested that India’s top five conglomerates should be split to increase competition and benefit the economy and the people. The politics behind the voluntary decision of Alibaba is interesting in itself. The Chinese authorities had been using the proverbial stick to scare and discipline big private sector players in the Communist Party-run Asian giant. But Alibaba’s announcement boosted the company’s share price. It is seen as a positive development, and there is room to believe that perhaps business calculations were as much a part of Alibaba’s decision as that of arm-twisting by the Chinese government.
Coming back to Mr Acharya’s acute observations, and he has laid out his reasons quite well saying that the big five companies -- Reliance, Aditya Birla, Tatas, Adani and Bharati Airtel -- are controlling metals, coke, retail, and they did not allow the prices to come down because there was no competition and therefore no compulsion to do so. He has said this has kept inflation at the high level it is. The logic seems sound, though it does not mean that it is fool-proof or that it cannot be contested or argued about. But there has been a total silence since then. The Alibaba development did not evoke much interest in Indian business circles or in the media. And apart from carrying the news of Mr Acharya’s views, there has been no further talk about his argument.
Prime Minister Narendra Modi’s economists -- and there is no other kind in the government – seem to have thought that the best way to refute an argument is not to argue about it. Silence might well smother differences of opinion much more effectively than any kind of debate and argument. The government’s economists -- both the neo-converts and the original faithful -- and there are too few in the second category except a maverick Pune group of economists who claimed credit for the November 2016 demonetisation, have only reflected the official line that the Indian economy is doing well and it will soon be the third largest after the United States and China. Nothing else seems to matter except the ranking. It does not matter if there are other serious problems plaguing the economy.
Mr Acharya is neither a socialist nor a Communist. He is not your regular Leftist. But he sees a problem in a few players dominating the Indian economy and how they come in the way of keeping the prices of commodities and services at competitive levels, and how this in turn keeps inflation high. He is speaking in terms of prices, one of the key elements in market dynamics. And he has also attacked one of the undeclared assumptions of the Narendra Modi government – that the Indian economy can grow by growing a few major players to make it big in the global economy. Mr Acharya was quoted by Bloomberg as saying: “Creating national champions, which is considered by many as the industrial policy of ‘new India’, appears to be feeding directly into keeping prices at a high level.”
It is highly unlikely that Prime Minister Narendra Modi, finance minister Nirmala Sitharaman and commerce minister Piyush Goyal will ever admit that they want a few entities to become big players on the world stage so that the Indian economy makes big strides. They will repeat the Modi mantra of development of all, and not just a few. So, in terms of the government programme, monopolies are ruled out. In practice, however, there is the tendency to create monopolies. While the Tatas and Birlas had expanded their range of manufacturing and business activities in the decades after Independence in the era of ostentatious socialism, Reliance had diversifying in this century, especially in telecommunications and now into retail. The Adani group is the new entrant into this league of big boys, and it is being encouraged indirectly when it gets contracts for all ports and airports, while expanding into power and defence production sectors. The government, of course, is willy-nilly facilitating it.
The thinking in the government is that for Indian economy to grow, it needs the big players, and the Modi establishment’s praise for micro, small, medium enterprises (MSMEs) is just lip service because the commanding heights of the economy are in the hands of a few. It can be argued plausibly that there is no way to curb the growth of monopolies and that it is the natural tendency in an expanding economy. It is only the big players who have the resources to scale up and invest in new areas, and thereby increase their own footprint. There is no evil capitalist conspiracy behind this. But the effects can be negative. If Reliance were to dominate mobile telephony as it has money and manpower to expand, it leaves the consumer with no choice. An intelligent government would want to protect the freedoms of consumers, and check the domination of a particular player.
The nationalist fervour that dominates Prime Minister Modi and the BJP is such that the nuances of policy have no value for them. They think that as long as the big companies are Indian, it does not matter if they are harming the growth of the Indian economy. There is the basic economic truth in Mr Acharya’s views that if a few of the companies are controlling the supply of commodities such as in metals and coke, or in retail, it is but natural that prices will remain at a higher level. No company would want to keep its profit margins in the lower band. And it is the duty of the Competition Commission to oversee whether big players are using their muscle power to keep out small players and new entrants. This is simply not happening.
What is more worrying is that there has been no meaningful debate on the economy in the past nine years. The assumption is that the Indian economy is doing well and the economists can take a nap.
That the economy is doing well is the political spin given by Prime Minister Narendra Modi and his party. However, the economy is not doing so well. Mr Acharya provides a good enough peg to discuss the problems of the Indian economy.