After the trust vote of July, the United Progressive Alliance government envisioned the prospect of unleashing the stalled juggernaut of liberalisation, since the recalcitrant Left and its allies had been jettisoned. This trumpeted reform process that is gaining momentum in vital sectors demonstrates collusion between corporate interests and the current dispensation.
Topping the agenda is the opening up of the banking sector. The second phase of the process is to commence in April 2009. The move to reduce government equity holding in public sector banks to below 50 per cent is disturbing. Foreign banks will be allowed to own up to 74 per cent of private sector banks and 20 per cent of government owned banks — Credit Suisse, the Rabo group and ANZ are awaiting entry, and UBS, Dresdner Bank and United Overseas Bank have secured licences. The result will be the collapse of social banking, loss of jobs and the poor getting pushed out of the banking net.
The Finance Ministry on August 14, 2008 passed an order for the State Bank of India (SBI) to acquire State Bank of Saurashtra, as a prelude to the amalgamation of six associate banks. The SBI Subsidiary Bank Amendment Bill, 2008, is yet to be moved in Parliament. The inspiration for this merger paradigm stands discredited in its very homeland, as percipiently observed in an editorial in The Hindu on August 20: "Indian policy makers ought not to miss the point that the world’s largest banks in the United States have been guilty of regulatory transgressions and have piled up unprecedented losses."
Switzerland’s largest bank, UBS, a union of Swiss Bank and Union Bank of Switzerland, has decided to break up. Behemoths such as Citigroup, JP-Morgan Chase and HSBC Holdings have proved vulnerable, as the majors have taken a hit of more than a $300-billion (Rs.130,000 crore) in asset write-downs because of the sub-prime crisis. The International Monetary Fund estimates the final damages at $1 trillion (Rs. 43.5 lakh crore).
Additionally, Merrill Lynch, Wachovia, Bank of America, Royal Bank of Scotland, Washington Mutual and Morgan Stanley have, through losses and write-downs, joined the Hall of Shame, according to The Economist. If only the Finance Minister were to heed the advice of Arthur Burns, former Chairperson of the U.S. Federal Reserve, who admonished Walter Wriston, then Citibank chairperson, thus: "Walter, you are absolutely wrong to have an earnings target for a bank. It is not seemly." Banking then, as for us in the Indira Gandhi era, was conceived of as a quasi-public utility and not a "business" aimed at maximising dividend payouts.
The other low-hanging fruit is the Pension Fund Regulatory & Development Authority. Even without legislative consent that would have enabled the regulator to frame comprehensive procedures covering all aspects of running a fund, three private sector fund managers were inducted — Reliance Capital AMC, HSBC AMC and ICICI Prudential AMC — eroding SBI’s monopoly on the Rs.155,561-crore corpus. The government, which should be acting as a custodian of employees’ funds, has instead stooped to doling out largesse for favours received. Stoking this suspicion is the choice of Reliance, within a week of the confidence motion — although it had not figured in the list placed before the Central Board of Trustees by its Finance and Investment Committee.
Could this be the thin end of the wedge to ultimately invest funds in the volatile stock market? This volatility has forced even Reliance Infratel, which belongs to the same group as Reliance Capital, to defer its initial public offering. A Finance Ministry decision on Independence Day-eve fuels this suspicion. As of April 1, 2009, private provident funds can directly invest up to 15 per cent of their investible money in the shares of companies listed by the Bombay Stock Exchange or the National Stock Exchange.
This, despite the following reply given in the Rajya Sabha on April 30, 2008, by the Minister of State: "The proposal regarding investment in equities was discussed in the 178th meeting of the Central Board of Trustees, Employees Provident Fund, and it was decided not to invest in equities." Read along with a report in The Korea Times on July 31, 2008, which revealed that the National Pension Service in that country had lost the equivalent of Rs. 4,140 crore, in investing public funds in stocks during the first half of the year, should we not be forewarned?
Another pet theme is the Insurance Laws Amendment Bill. It seeks to implement the Narasimhan Committee recommendation of increasing foreign direct investment (FDI) in insurance companies to 49 per cent from the present 29 per cent. With India’s insurance penetration of just over 4 per cent, All State, Nationwide and Samsung are scouting for Indian partners.
Some caveats are in order here, amid the frenzy to attract foreign capital to feed the projected demand of Rs. 10,000 crore. The sub-prime crisis has bled foreign insurance coffers to the extent of $77 billion. Given their cut-throat philosophy they will want to ensure the biggest bang for their investment buck. The failure of Executive Life Insurance Company, California, which went insolvent in 1991, and the continuing turmoil in Conseco, the Indiana-based insurer that filed for bankruptcy in 2003, must caution us from trusting private insurance claims over our own reliable corporations. Especially, considering that foreign insurers operating here, like AIG, has written down as much as $39.6 billion, and that the Munich-based Allianz SE has written off €1.3 billion in 2007.
Next in the sights of the reform agenda are labour laws. The National Commission for Enterprises in the Unorganised Sector has completed its task. "Problems of labour rigidity, labour flexibility… these are still hurdles in India realising its chosen destiny," according to the Prime Minister. On the cards is an easier hire-and-fire policy.
The move to set up a National Biotechnology Regulatory Authority with a proposed legislation, under the Department of Biotechnology, is scary and calls for a debate. The preamble of the draft Bill, instead of according priority to safeguarding the health and safety of the people and the environment from the dangers of biotechnology, is eloquent about the "opportunities offered by modern biotechnology with a profound impact on society and economy." This approach will only aid agri-businesses such as Monsanto, Syngenta, BayerCrop Science and Dow AgroSciences, which are ready to seize the moment. If even an inter-ministerial body like the Genetic Engineering Approval Committee did not look at genetic engineering in all its implications including medium and long-term impacts, it is too much to expect the proposed four-member Products Ruling Committee to do this. Though agriculture is a State subject, the provisions deny the States any role. This represents a refutation of federalism. The State governments should raise this matter with the Centre.
This government is assiduously pursuing this reform agenda in a scenario of an inequality predicament — the wealth of the billionaires is equivalent to some 22 per cent of India’s GDP this year, compared to less than 0.2 per cent in 1996. It is in this very same society that the open market price of onions in Delhi has spiked by Rs 5 a kg during the past month to reach Rs.15 — a more reliable indicator of inflation than the fashionable media sport of tracking the indices once a week.
It is a shame that "half of our rural population or over 350 million people are below the average food energy intake of sub-Saharan Africa countries," to quote Utsa Patnaik, while we celebrate an entry into the 12-member "trillion dollar economy" league. This is only to be expected when public expenditure on farm research and extension services as a share of agricultural output is around 0.5 per cent or less compared to 2.9 per cent for developed countries, as per the study on "Agricultural growth in India since 1991" commissioned by the Reserve Bank of India.
It is a pointer to the lopsided priorities that against this backdrop, the government is considering bringing an ordinance to amend the Forward Contracts Regulation Act to regulate the commodities markets.
Meanwhile, even as cereal growth declines, horticulture is set to increase by15-20 per cent in the next 10 to15 years. Little wonder, then, that the Secretary of the Bihar Welfare Department was moved recently to advocate eating rats as snacks, so that "it will save half our grain, and will also reduce villagers’ dependence on food stock."
It should not surprise us if, in order to push through these legislative measures that will facilitate the neo-liberal agenda, the UPA were to forge a clandestine deal with the Bharatiya Janata Party, even as Parliament, which is not being convened to discuss such burning issues, is allowed to slide into terminal delinquency.
(M.P. Veerendra Kumar, Member of the Lok Sabha, is the Leader of the Janata Dal (S) Parliamentary Party.) and Chairman & Managing Director of the leading Malayalam newspaper ‘Mathrubumi’)