The business of governance

Written by Dilip Bobb | Updated: Aug 31 2014, 06:10am hrs
A recent assessment of 100 days of the Narendra Modi government by a business daily had columns by a range of businessmen, all singing praises of the Prime Minister and his policies. Many of them will be accompanying him to Japan as part of the business delegation during his bilateral visit.

Modi has always been seen as pro-business while chief minister of Gujarat, but the chorus of hosannas suggests that the relationship between India Inc and the Indian government is enjoying a blissful honeymoon. It is certainly in stark contrast to the bitter and hostile relationship that had developed between corporate India and UPA II under Manmohan Singh, ironic considering it were his reforms in the early 90s that boosted their corporate earnings immeasurably. There is also a question of timing. The one inescapable conclusion from the ongoing global economic downturn is that governments and the private sector have come closer than ever before out of a sense of survival rather than any other collaborative impetus. Governments and business, the world over, have been mutually suspicious adversaries and its only in times of crisis that the twain tend to meet.

Manmohan Singh was shy and reclusive by nature so the relationship was sporadic and mutually unbeneficial. Modi clearly enjoys being in the company of corporates, as has been evident during his Vibrant Gujarat investment summits. As PM, he has other priorities but his decision to take a sizeable business delegation to Japan underscores his basic instincts: that businessmen need governments and vice-versa, and that public-private partnerships are the way to go. That is reflected in a recent global survey by McKinsey, which concludes that most CEOs expect government involvement in their industries to continue increasing. The survey shows that government actionsinfrastructure and access to capitalhave a significant effect on companies economic value. A majority of executives say business must proactively and regularly engage with government, even though many find that dealing with government is often frustrating. This relationship varies from country to country. The reason Washington has so many high-priced lobbyists is their ability to influence policies and cement the nexus between big business and government. The US became intertwined in the fabric of American business when, at the height of the downturn, it bailed out Wall Street and Detroit. The American system is geared to crony capitalism, on a more sophisticated scale than in India, so some firms benefit, others do not. Japanese attitudes towards government have historically been shaped by the belief that leadership stems from the government and business looked to government for guidance. Hence, the relationship between government and business was as collaborators rather than as adversaries. That is changing but elsewhere, the relationship is a challenging one.

No government wants to be seen as being close to the moneyed fat cats, especially in developing countries where corruption is a major factor in elections. In Modis case, the faith that businessmen have in him may be a reflection of the 2014 general election votea deepening disgust with the ruling regime. The Congress-led government became so inept, its management so faulty, that the state became a major drag on economic development. In his book The Miracle: The Epic Story of Asias Quest for Wealth, journalist Michael Schuman argued that the real secret to Asias success lay in the reduction of government controls, as in China and India, through economic liberalisation. His counter-argument is that governments of the high-powered economies of east Asia provided the education systems, infrastructure and stable macroeconomic and policy environments crucial for supporting corporate success. The bottomline: in a time of economic crisis, business and government must come together. In the Indian context, there is even greater urgency. The policy paralysis under UPA II meant that most initiatives and programmes to do with boosting economic growth had passed their sell-by date. Now, to play catch up, the Modi model is being put in place and it involves the private sector for obvious reasons.

Modis backing for the Gujarat model, or the PPP model, makes sense, considering neither the Centre nor state governments have the money to extend services and infrastructure or subsidise inefficient state enterprises. Its now obvious that goods and services for which people can paytransportation, telecommunications, electricity, water or housingcan be delivered more efficiently by involving the private sector. Co-opting the private sector often brings stronger managerial capacity, access to new technology and specialised skills that governments cannot develop on their own. The PPP model also allows governments to extend services without increasing the number of public employees and without making large capital investments in facilities and equipment. What Modi seems to be pushing for is a variation on Keynesian economics with a dash of pragmatism. Keynes believed that it was the role of the government to push the private sector into socially desired outcomes, but to leave it alone in terms of how those outcomes should be accomplished. We have already seen Modis emphasis on toilets, clean water, the Ganga project, smart cities, education and now bank accounts. A modi-fied John Maynard Keynes is alive and well, and living at 7 Race Course Road.

The writer is Group Editor,

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