Transition has almost become a challenge for India?from an agrarian economy, it moved on to industrial economy and now it?s shifting towards knowledge economy. ?Knowledge economy has to be embedded in the agrarian and industrial economies if we are to reap its benefits in terms of productivity and economic growth. This is a process that demands continuous development of skills, which has to be supported by imaginative education, innovative research and technology upgradation,? says DN Ghosh. After traversing the world of government as secretary to the Government of India, the public sector as chairman of State Bank of India and academia as professor of development finance at the Indian Institute of Management, Kolkata, Ghosh is now serving as the chairman of ICRA, the managing trustee of Sameeksha Trust that runs the Economic and Political Weekly. In his latest work Business and Polity, Ghosh explores the behaviour of two power networks: those who control the levers of political power and those who engage themselves in wealth-generating activities. Sarika Malhotra speaks to Ghosh to get a better understanding of the dynamics of a changing relationship of business and politics. Excerpts:
You have traced the changing dynamics of business and politics from the Greco-Roman empires, to the medieval world and the present. What parallels can India draw from these economies and what lessons can India learn from them?
Business and politics represent two basic power networks in society: wealth generating forces and wealth redistributing forces. That is, business propelled by the motives of generating ?surplus? and polity concerned with distributing this surplus. I have looked at some important civilisation complexes: the Greco-Roman world, the Indian and Chinese civilisations, the Arab world, Japan, and Europe. This is quite a wide canvas, covering over 2,500 years. Different civilisation complexes exhibit different kinds of relationships, but there is a basic commonality. The two power networks come to negotiate a kind of relationship that seeks to serve their mutual interests. We are witnessing this phenomenon in India as well. What is clear from our study is that unless this relationship is managed and a proper balance is maintained, sustainable growth becomes a casualty.
How do you gauge the relationship between business and politics in India?
Today, both nations and businesses are being affected by the forces released by globalisation. These have opened up opportunities for higher growth. There is an acceptance, worldwide, of the thesis that closer the relationship between business and polity, the faster the economic growth. I would like to make two observations here. First, business and political elite have consolidated a power structure between themselves that gives primacy to the fulfillment of their mutual interests. Within the rules of the established system, these powerful networks negotiate their relative positioning and further their vital interests. It is by ?acting in concert?, as Hannah Arendt puts it, that this structure of power gets built up. Secondly, we must recognise that the extant constitutional arrangements in a polity are only a formal structure, an umbrella; the key issue is who exercises power and how it is exercised under this umbrella.
The enormous lobbying power of business and finance is all too evident and acknowledged. What has come to be pervasive is the influence of the powerful shadow elite in the decision making process within the polity. They operate through personalised relations within and across official structures, privatising information and operating at the interstices of official and private institutions. In any democratic society these two relationships would need to be properly balanced.
How is the relationship between business and polity in India different from what prevails in other countries?
A close nexus between business and polity is now an universal phenomenon. Take a look at the US polity. The US is witnessing an interweaving of the agenda of large corporations and the ostensible public agenda of the government. The boundary line between economic sphere and the political sphere has shifted back and forth over time . In China, on the other hand, business may not be as independent and powerful a force as in the US; but it is the political elite that bend over backwards to create condition for business to flourish. This stems from their belief that a continuing high growth rate is a foolproof guarantee for the security of their power base. Such obsessive concern about growth ignores or edges out the interests of other groups of society who may be affected by pursuit of policies that are ostensibly in the interests of business and the ruling political elite. In India, there is a silver lining. We are fortunate that in our democratic functioning there is always some countervailing force, but what kind of effective countervailing do we see emerging on the horizon?
What steps can help grapple with the ever growing inflationary scenario?
Inflation is a global phenomenon and admittedly this has an impact on our economy. Though there has been a sharp decline in food inflation and although a good rabi crop may ease the pressure, a structural imbalance in the demand-supply scenario for protein products is unlikely to diminish in the near future. In the non-food manufactured products, demand pressures continue to be reflected in higher commodity prices. In the short run, a further tightening of monetary policy is necessary to manage inflationary expectations. Also, at the fiscal level, an overall check on the expenditure side is needed for demand side inflation management.
In the aftermath of the global financial crises, Indian banks have almost surfaced as the heroes. As the former chairman of the largest bank in India, how do you envisage the role of the Indian banks evolving as they go forward?
True, Indian banks came out virtually unscathed, but we should ask ourselves who is the real hero? The credit should primarily go to the Reserve Bank as the regulator. Even when the market was exuberant, the regulator did not get carried away, was openly sceptical about indiscriminate use of the exotic financial derivative products that had destabilised the financial markets in major Western countries. If the RBI had displayed complacency, we would certainly have been swept away in the financial crises.
In terms of size and efficiency, our commercial banks are in general far behind in competitiveness. A few of these banks have to be global players, if they are to support the drive of many of our corporate entities to emerge as global players. This asymmetry has to be removed. There are several structural issues involved here, which the existing Indian banks themselves would have to solve; in this task, government would, of course, have to play a very positive and constructive role, and certainly, not necessarily, an interfering role.
I am not one of those who advocate that what the commercial banks need now is rapid privatisation, allowing foreign banks and corporate houses to come in a big way in the commercial banking sector.