08 Mar 2016 17:52 IST

Indian socialism continues to trump capitalism

It's time government disinvested from sectors that are loss-making. To continue to function in them is neither socialism, nor capitalism. It is stupidity.

There are many industries where government is competing with the private sector, and losing

India is a country of contrasts, a fact that appeals to every foreign tourist. Some contrasts — such as language, culture and religion — have been ingrained in us for thousands of years, and continue to be celebrated. Others, such as the economic policy that governs us, have been in place for just a few decades.

Like every country which gained independence in the post World War II era, India experimented with what kind of a country it wanted to be — a Soviet-style centralised planning socialistic state or the more freewheeling American style rooted in economic freedom.


India was then in tatters, ruled by over 600 princely states. The British exit had just created a vacuum of central organisation and power, and the easiest route, therefore, was to adopt socialism — a system which concentrated production, distribution and exchange of economic goods all in a central government.

Minerals, steel, coal, natural gas, oil and other heavy industries were quickly monopolised into various government-owned enterprises. The government was a monopoly owner in airlines, railways, posts, telegraphs, radio and TV production. Banks were initially largely privately owned, until in the mid-1970s, most of them were instantly placed under the government fold. With the declaration of a national emergency in 1975 and curbs on speech and expression, India looked more like an extension of a Soviet province.

But India finally tasted what capitalism was in the early 1990s. This didn’t happen because a few good people got together and decided to change for the better. Just a few years prior, India had been on the brink of a major currency crisis — a la Greece — and an IMF bailout was imminent. Egged on by the IMF and as a condition of financial support, India began to change with major reforms to the economy.


Twenty-five years later, India’s private economy is the world’s darling for economic growth. But in Delhi, most things remain the same, just as they did in the mid-1970s. Last month’s budget is an example of how a few mandarins decide how best to dictate our behaviour. Every micro-aspect of our lives is controlled by the Finance Ministry through the only coercive tool a modern democracy has — taxation. And the governing principle for nearly all action is to redistribute wealth to those who are in need.

The government’s policy on air conditioned restaurants is the best example of this Robin Hood mentality. Our civil servants have decided that the poor don’t ever set foot in an a/c restaurant, unless they work there. Levying an outrageous service tax on food served in a/c restaurants meets the government’s purpose of taxing the so-called rich and passing the proceeds on to India’s poor.

Cars, branded garments and air travel are other examples of products and services that are not associated with the poor. So these were taxed more in last month’s budget. The government has been pushing Digital India for sometime now. So, WiFi routers are taxed less.

In general, if the FM thinks that something is bad for us, it is taxed more. If the FM thinks that something will help the country more, it is taxed less. So sin taxes (cigarettes, alcohol) are up today. Energy derived from fossil fuels (coal and lignite) costs more because this is “bad” energy. Solar lamps, derived from renewable energy, will cost less. If these are not examples of Soviet-style centralised planning and distribution, what is?

The absurdity

In the Soviet system, at least, all means of production and distribution rested with the state. In modern India, with the country’s private economy firing on all four cylinders despite these absurd intrusions from government, the Soviet system is alive and well, but with a crude twist.

Our Public Sector Enterprises (PSE) compete with able and profit-making companies in the private sector. And when they don’t do well, they simply turn to the government for help, much like an adult turning to an aged parent for financial assistance. Jaitley announced that public sector banks will now get an injection of ₹25,000 crore to recapitalise. Why, pray, should banks be owned by the government and why channel tax revenues to them?

Take the telecom sector where, as I argued recently , capitalism has truly changed the way we communicate.

There are a dozen private telecommunications providers, fighting each other for the customer’s mindshare, so why not disinvest from BSNL and use the proceeds for something more meaningful? Chemicals, earth moving, heavy electricals, cement, coal, fertilisers, insurance, paper, steel, machine tools, watches, jute and even hotels are all industries where the government is competing with the private sector — and in most cases, losing. This is neither capitalism nor socialism — it is plain old stupidity.

To placate critics, Jaitley, to his credit, did announce a major change in disinvestment policy. The Department of Disinvestment will be now renamed the Department of Investment and Public Asset Management.

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