Bluff & bluster

Every time politicians raise people's hopes with promises of a new beginning, and of jam tomorrow, one recalls the old warning that the big divide in Indian politics is not between Right and Left, but between those who mean what they say and those who don't.

Viewed from that angle, it is hard not to question the leaders from the Left who took to the airwaves last week, and to check whether they really mean what they say -- or are they merely posturing because that is the way to keep their support base intact?

Does it make sense, for instance, to not raise the prices of kerosene and diesel when international oil prices have increased by 30 per cent?

Is it their argument that the government has resources to spare which can be handed out in the form of higher petro-product concessions and/or outright subsidies, or could it be that they think India's fiscal deficit (probably the third highest in the world, when seen in relation to GDP) is not too high and can be increased without the risk of inflation destabilising the economy?

Do they really believe that today's labour laws promote employment growth on the scale that is needed, and that their attitudes improve the prospects for job creation?

When more than half of all rural households do not have electricity connections in their homes, do they really believe that subsidised power helps the poor?

And though strategic privatisation is as good as dead, given the final words on the subject by Manmohan Singh, the Left should be called upon to explain whether the government should continue to run a profitable company like the Container Corporation of India or even a steel plant, merely because it is profitable.

For instance, shouldn't profits be related to the cost of capital? Outside of a handful of units (most of them in the energy sector), the public sector companies simply do not give a return that is equal to the government's cost of borrowing -- so they are destroying value by running those companies. Shouldn't the question therefore be, not about profit, but the relative rate of return?

In any case, if there is an efficient and competitive market in steel, why shouldn't that market be left to private players since there is no danger of harm to the public interest?

And shouldn't the government be focusing its resources on more urgent tasks that only the government can undertake in an economy like India's, where 40 per cent of the people are still not literate and three-quarters of the people do not have access to sanitation?

On all these issues, it is difficult to accept that the leaders of the Communist parties, who are obviously intelligent and well versed in economic matters, can possibly believe what they have been saying this past week.

In contrast, it seems fairly obvious that the reformers have the credibility of conviction on their side. Reduced to extreme simplicity, their argument is that India is being held back by inefficient allocation of resources and by sub-optimal government intervention in pricing and investment decisions, and that both can be substantially corrected if markets are allowed to function.

Second, government intervention in the name of the poor is usually directed at saving the interests of more organised interest groups who have more of a political voice than the really poor -- and this leads to even greater misallocation of resources.

The government therefore should intervene only where markets don't work very well, and focus instead on investing in public goods like education and health care; and where private investment is inadequate, provide the physical infrastructure that a rapidly growing economy needs.

But the same people who decry "IMF-World Bank" style reforms, are not filling the airwaves with demands that government schools and hospitals be run better, that they deliver the services for which society has created and staffed them, and that education and health ministers be made accountable for the vast sums of money given to them.

It seems fair to ask: are they really addressing the real issues, or is the grandstanding on television designed to provide an opiate for the masses?