Business Today: Editorial

Core Issues, Did You Say?

Come to think of it, is there anything wrong with what the general from across the border is saying? That Kashmir is the core issue in Indo-Pakistan relations. That there's no point talking about confidence-building measures on the nuclear issue, trade, or the free movement of artistes, so long as this issue is unresolved. Hasn't Kashmir been the single biggest irritant in Indo-Pakistan ties for the past 12 years? Mention that to our politicians (across the ideological spectrum) and our diplomats, and your very patriotism will be questioned. Why?

Because while the peacock may be our national bird, it's the ostrich that is the icon of our netas and babus. It isn't just Kashmir. This stubborn refusal to face facts is on ample display even in economic policy.

Take Enron. US Assistant Secretary of State Christina B. Rocca couldn't have put it better when she said that India's problems relating to foreign investment can be summed up in one five-letter word: Enron. It is the topic on which every business delegation going abroad is grilled. Today, Enron is the core issue-not just for the power sector, but also for India as an investment destination. But sundry ministers and bureaucrats will never admit that. It's only one project, they say airily. And there's little urgency in efforts to solve the vexed issue.

While on the subject of foreign direct investment (FDI), let's look at another core issue. The attitude of the bureaucracy. India has a fairly liberal FDI policy-investment in most sectors is through the automatic route, foreign investment has been allowed in several new areas like defence and real estate, and sectoral caps have also been raised. Yet, FDI inflows hover around just the $2 billion mark. An at Kearney survey shows that investors view the bureaucracy as the biggest obstacle to FDI. But when a hapless foreign investor dared to say this to finance minister Yashwant Sinha (himself a former bureaucrat), at the World Economic Forum in November 2000, he was roundly ticked off. So was at Kearney, (this time by a serving bureaucrat) when it unveiled its survey last fortnight.

Look also at the mess in the financial sector today, with banks and financial institutions (FIS) reeling under Rs 60,000 crore of non-performing assets (NPAS). A majority of these NPAS belongs to the public sector banks and term lending institutions. The government is grappling with all kinds of solutions-amendment of the Sick Industries Companies Act, setting up debt recovery tribunals, evolving a system of corporate debt restructuring, speeding up liquidation, and winding up procedures. But what is the core issue? Government ownership and control of banks. Few decisions are taken on commercial lines, most lending is directed, and action cannot be taken against influential defaulters. Yes, this government has tabled a Bill to reduce government ownership in banks to 33 per cent. But it also says that the public sector character of the banks will not change. The core issue is left unresolved once again.

We've been talking about stockmarket reforms since the days of Harshad Mehta. Sure, a lot has been done. There's a market watchdog (not very powerful, but somewhat effective), demat has been allowed, futures and options are in place, rolling settlement has been introduced. But the core issue-of whether stock exchanges should be run by brokers-has not been tackled. It's only now that there's even talk about corporatising the stock exchanges.

Finally, look at the disinvestment drama. The government has now revived the Disinvestment Commission. The new commission will advise the government on disinvestment-related issues, and will take into account things like employee interest when making its recommendations. But how will it tackle the core issue that is holding up disinvestment-the refusal of politicians and bureaucrats to give up control over public sector undertakings? That's not on the agenda at all.

Somebody should tell the general. Don't push for the recognition of core issues. It doesn't happen in India.

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