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
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Chidambaram: Deficit dilemma |
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
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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.
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