An economy-wide inflation of that magnitude would have caused a meltdown by now; yet, this is the quantum of price rise India Inc. has to cope with, at least in the case of some of its inputs. The inputs in question are people and if there is any silver lining to this touch of grey, it is in the fact that this number is applicable only for CEOs and very senior executives and in a few industries only. A more representative number would be 20 per cent, although there are some industries where the across-the-board average would be close to 40 per cent.

This isn't the only input-cost increase industry has to factor into its scheme of things; the prices of most raw materials and intermediates are up, thanks, in part, to the soaring price of oil, and in part, to general inflationary tendencies across the world. China, were it exposed to similar increases, would have been crippled: its economic power comes from its dominance of the global export market in manufactured goods, especially low-technology ones. India will not be hit as hard but it will not go entirely unscathed either.

Executives across sectors are beginning to question the viability of working in an environment where operating costs are on a northward spiral. For instance, the domestic retail banking and financial services boom is built on a low-cost business model, and sooner than later, higher wage costs will wreak havoc with it. And the dangers in the case of industries that compete in the export market are even more significant. India's dominance of the global it enabled services and it services market has very much to do with the lower cost of operations in the country; an increase in salaries could hurt the existing cost-advantage.

It isn't happening yet, but will do so soon; and there is no way of stopping it. In the absence of enough trained manpower, any company or industry that seeks to rationalise wage costs will lose people to other companies and industries. Expectations of employees too, are on the rise. Fuelled by reports of 'world-class' salaries being offered at the better B-school campuses in the country, and the growing global demand for trained-in-India people, everyone wants more. The base effect-India Inc. has grown from a low base, in relation to companies in other markets; ergo, the rate of growth has been high, even exponential in some cases-has thus far helped companies shrug off the effects of any increase in input costs. As companies grow bigger, however, they will find it difficult to maintain the same growth rates, and wage-cost inflation will likely start pinching them then. An easing of supply-side constraints may be the only way out.

Reason For Fiscal Rectitude

Finance minister Palaniappan Chidambaram's 'spend more only when you can earn' approach is noteworthy. Especially, when faced with a contrarian note from a notable economist like Planning Commission Deputy Chairman Montek Singh Ahluwalia. Ahluwalia's take (no pun intended) of focussing on economic growth catalysed by government spending, never mind breaching the fiscal prudence norms set out in the FRBM Act, is well founded. Our country has one of the highest levels of fiscal deficit (of around 8 per cent collectively between the states and the Centre). However, the ill-effects of such a high fiscal deficit are not visible-high interest, inflation rates and low growth. In fact, if anything, the collective deficit has improved over the last decade by around 2 -3 per cent.

The problem, as always, lies in the details. Delivery of government services remains perennially deficient; and utilisation of funds is palpably inefficient. So, for government to recklessly borrow from the market, in the process raise interest rates and inflation, only to deliver shoddy services is entirely unjustified and counter-productive. The matter is compounded by the prevailing coalition nature of governance. Government departments have become notoriously autonomous to the extent that unless inefficient decisions impinge on political fortunes, little effort is made to reverse them. The Railways is a case in point, where public-private partnership is being given up for public funding in certain cases where funds are available.

Hence, without demonstrating efficiency gains in delivery systems-be it infrastructure or government clearances-government ought not to take upon itself the role of catalysing growth beyond its present role. And, to set targets and implement them is well beyond the controls of Chidambaram. Evidently, the recent Chidambaram-Montek spat also brings to the fore the dangers of the recommendation of commissions in government fold, be it planning bodies or otherwise. Chidambaram did the right thing by abstaining from a higher deficit, when the economy is in a robust shape. However, this does not often happen. The populist part of the Fifth Pay Commission was implemented, without any reduction in head counts. The lesson is a simple one: The planning body needs to enforce stricter safeguards in its recommendations before dishing them to government.

Marxist Nightmare

Achutanandan's Utopia: A dream or...

The Kerala government is living out every unreformed Marxist's (yes, there are still some of those around) dream of a Communist utopia. First, Chief Minister V.S. Achutanandan confirmed his reputation as a doctrinaire party faithful by banning Coca-Cola and Pepsi Cola in his state-on the basis of CSE's controversial report alleging that they contained unacceptable levels of pesticides. His government followed this up by logging Microsoft out of its ambitious Keralait@School project, which proposes to make students at the state's 12,500 high schools computer-literate, as part of its programme to migrate to Linux, the free software platform, in three years. The goal, apparently, is to develop the state as a Free Open Software Systems (FOSS) destination. It has even roped in the services of free software guru Richard Stallman to help it achieve this goal.

There is, in both cases, an underlying ideological aversion to Big Business and, particularly, American Big Business-obviously rooted in Marxist dogma. The irony of consulting Stallman, a us citizen, on booting out Microsoft apart, the Kerala government, by showing the door to three of the us' most iconic companies, is actually achieving by diktat what most western democracies are trying to do by persuasion.

There is a huge debate in the West-particularly in the US, Spain and the Scandinavian countries-about proprietary versus open source software. Microsoft, the biggest beneficiary of the former, has been subject to massive anti-trust litigation both in the US and the European Union; and several educational institutions even in the us disallow the sale of the two colas on their premises.

So, does this point to a convergence between Marxist utopia and the market economy? Not quite. Free choice and consumer discretion lie at the root of the latter while heavy handed state intervention-as opposed to judicious regulation-distorts resource allocation and leads to inefficiencies, wastage and losses to the consumer. A coincidental convergence of the ends cannot justify the totally retrograde means used to achieve the same. The Indian consumer has been denied his rights for far too long. Whether he wants to drink colas, use Windows software, or for that matter, any other product of his choice, should be left to him to decide. Otherwise, Achutanandan's utopia will turn into everyone else's nightmare.