governance, political economy, institutional development and economic regulation

India’s “policracy” (politicans and bureaucracy) have a love hate relationship with the private sector. Ideally they like the private sector to work as contractors not as competitors. Government actors resist privatization (coal India) but are quite happy to contract private players to do the work for them as franchisees.  This unfortunate tendency is reinforced by the false comfort, the Indian consumer derives, from the fig leaf of “reasonably priced publicly managed” service delivery (power and petroleum). Hence the continuance of MTNL and BSNL in an era of liberalised telecom. Similar is the general support for the “Public” Distribution System even though it is riddled with leakages and poor quality. The underlying assumption seems to be that the consumer is unable to deal on an equal basis with suppliers. True to some extent but increasingly doubtful with the constitution of consumer redress tribunals and more importantly competition, induced by liberalization of the “license permit Raj”. Illiteracy remains a major stumbling block to a more equitable relationship. The problem here is that government has no incentive to create a “demand” for good governance….an acknowledged problem across the World. The largest winner from literacy and growth is the private sector. It is they who have an incentive for educating citizen/consumers (an essential link for growth). To take a current example Vedanta (bauxite mining firm in Orissa) would have been well advised to bringing the 8000 potentially displaced tribals into the modern world well before the tribals  refused to walk through that door. Now the political lines are sharply drawn and difficult (and more expensive) to resolve. There are 8 million Indian kids (age 5 to 14) who are out of school today. The cost of schooling them is just Rs 1200 crores per year. This is less than 1% of the net profits of the top 50 private firms in India today and is tax deductible. Too much to pay for getting more paying customers tomorrow who trust the private sector? I am not a fan of the legislated CSR route. Industry associations are better placed to lead CSR than the government but the corporate vision needs to be composite and to a scale which matches the might of corporate India today. We are watching.

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