Apr 24, 2010

Industry thrives on masive subsidies.


In 2009, when the world was bogged down by economic recession, and some ripples were also felt in the country, India too provided a bailout package, in three installments, totaling approximately Rs 3.5 lakh crore.

While we blame farmers and the people living ‘below the poverty line’ for living on government doles, the fact remains that business and industry receive several times more subsidies and tax holidays. In many ways, the profits that business and industry post every year is directly related to the subsidies they get. And you thought it was economic growth! 

In February 2010, when Finance Minister Pranab Mukherjee was to present the annual Budget, the media had launched an orchestrated campaign saying that the economic bailout package should not be withdrawn. You could see almost every TV channel (and the pink newspapers) bombarding day and night how damaging it would be for the national economy if the bailout package was withdrawn.

In my interventions, I did make it loud and clear (to the discomfort of the economists on the TV panels) that the bailout package was not required in the first instance, and should be withdrawn immediately. Subsequently, I heard the Prime Minister say that only 1.5 lakh jobs were created in 2009 against the projected 1.2 crore. I guess this statement was used by the industry and business to defend the need for the continuation of the bailout package.

In my understanding, the bailout package was actually a dole to the industry and business to strengthen its bottom line. If you think that the layoffs in the industry were because of the economic recession, you are highly mistaken. Recession was very conveniently used by the industry to go in for labour-shedding, nothing more than that. Ask those journalists who have lost their job recently, and they will tell you they were laid-off not for reasons of economic meltdown. 


I fail to understand how business and industry, at times of an economic crisis, be on an acquisition spree buying companies in Africa, Latin America and Europe. There have been 11 major acquisitions by Indian companies in the recent past. In fact, India has emerged as a major player in global mergers and acquisitions, and surprisingly at times of economic crisis.  

Godrej Consumer Products Ltd (GCPL) for instance is now planning to make its 6th global acquisition, this time in Argentina. Since 2000, Tata group has acquired as many as 27 companies abroad at a total cost of over Rs 16,000 crore.  The proposed merger between Bharti Telecom of India and MTN of South Africa is billed as the biggest merger in recent times. And so on.

In reality, the economic meltdown provided an excellent opportunity for the rich to amass more wealth. Otherwise there is no way that the world's wealthiest club can grow wealthier at times of an economic meltdown. The financial bailout packages came handy for the rich to accumulate more wealth, and that too in the name of rebuilding the national economy.

Otherwise, how can one explain that the number of billionaires from India has doubled in 2009-2010? Income of the rich doubling at a time of recession is something that is not easily palatable. Let us look at another indicator. Not only had the rich, even the middle class purchased 25 per cent more cars in 2009-2010, buying 1,526,787 cars. I don’t think people buy cars at a time when they have less money in their pocket. In fact, 2009-2010 also saw the highest number of car launches in India so far.
 

According to Forbes magazine, the richest-of-rich club has 49 billionaires from India, up from 24 last year. Isn't it strange that at a time when the sails were fluttering, the number of billionaires from India should actually double? I don’t understand how can an industry, which could not create more than 1.5 lakh jobs in a year, ensure that its own wealth swells? How can that be possible at a time when the chips were down?

What made the wealth of the richest actually multiply were the bailout packages. It is as simple as that. In other words, the world follows an amazing economic prescription: “Socialising the costs, privatising the profits.” You and me pay for the bailout packages, and the rich pocket it neatly. What we don’t realise is that it is the people who actually subsidise industrial growth. There is no bigger fool than the average citizen, who refuses to understand the corporate manipulation of what is actually his due.

Take the case of Uttar Pradesh government, which has sanctioned a new international airport at Kushinagar, near Gorakhpur. After a lot of deliberations and consultations, the UP government has finally agreed to provide 550 acres of land (out of a total of 750 acres allocated for the airport, and real estate ventures like malls and hotels) at a nominal fee of Rs 100, for a 60 years lease. An acre of land being given for Rs 5.50 paise for a period of 60 years!  

Strange that a time of economic crisis, more than 1046 proposals for setting up Special Economic Zones (SEZ) be granted approvals in various parts of the country. Maharashtra and Andhra Pradesh have the largest number of approved SEZs in the country. Large number of SEZs have been granted approval in Tamil Nadu, Goa, Gujarat, Orissa and West Bengal as well. Ten year tax holiday plus a whole lot of concessions make it easier for the companies to make more money.  

The Rs 40,000-crore IPL cricket honey pot has also seen freebies being given to billionaires and millionaires. Ironically, this is happening at a time when the government is desperate to bring down the food subsidy bill. The current projected cost, computed on the basis of the proposal to provide 25 kgs to every BPL family at Rs 3 works out to Rs 28,860 crore. It will touch Rs 40,400 crore if the government raises the entitlement to 35 kgs per family. Even in the case of the second scenario, the burden on the exchequer would be lower than the existing Rs 56,000 crore annual food subsidies.  

The cost of feeding the hungry must be reduced, and only then can we feed the rich.

This happens every time when the world faces an economic crisis. In 2007-08, when the world was faced with an unprecedented food crisis, the stocks of the food giants swelled to an unprecedented level. The poor went hungry (with the number of hungry going up by another 100 million) whereas the food companies profited. More recently, when India was faced with an unprecedented rise in sugar prices, the stocks of nearly 25 sugar companies went up. 

Mainline economic thinking has made it much easier and simple for the corporate and big business to make more money. You don't have to indulge in any financial swindle; the credit rating agencies and the economists do it for you. And that too without the world even questioning what in simple terms means thuggery. #

3 comments:

Pramod said...

As the gap between rich and poor widens and most of Indians continue to belive that India is shining, thousands of children continue to die of hunger and many more continue to be denied the basic human needs.
I recently met a guy who was travelling India, he tells me that India is really shining and it is evident by the fact that we have flyovers all over the cities and big shopping malls are poping up everywhere and middle class have pretty much every thing they desire. He acknowledge the fact that poor and hungry are dying and in fact proudly accepts that they will keep on dying and nothing can be done about it and further says that this is the price we have to pay for the development of our nation and unfortunately similar is the story of most of our younger generation.... the age in which Shaheed Bhagat Singh gave his life for this great nation.
There will be no bail outs for poor farmers until the election year and there will be none after that.
The situation is like this, our PM and CM's are openly saying we are doing such and such unethical and illegal activity, now what are you going to do about this !!!!!!!

Ramesh Dubey said...

आदरणीय देवेंद्र जी आपने करदाताओं के पसीने की कमाई से मोटे बनते उद्योगपतियों का कच्‍चा-चिटठा प्रस्‍तुत करके सराहनीय कार्य किया, लेकिन इन उद्यमियों के राजनेताओं से मधुर संबंधों का नाममात्र का विश्‍लेषण किया । जो बेलआउट पैकेज दिया गया उसका एक हिस्‍सा तो राजनेताओं के पास पहुंचा ही । ऐसे में बेलाआउट क्‍यों न दिए जाएं । भला अपनी जेब कौन कटवाना चाहेगा ? रही बात भुखमरी से पीड़ित लोगों को खाद्य सुरक्षा देने में आना-कानी करने का तो इसमें भी यह ध्‍यान रखा जाएगा कि यह किस तरह राजनेताओं का हित साधे । कुछेक अपवादों को छोड़ दिया जाए तो देश में शायद ही कोई ऐसा राजनेता होगा जो मन से गरीबों को भुखमरी से मुक्‍ति दिलाना चाहता हो ।

रमेश दुबे
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Sandy said...

You have only written one side of the story. For instance, the Avg Corporate Tax rate in the World is around 20% while in India it is 33%. Businessmen face massive corruption in India while starting a business.

You hardly have proper infrastructure whether it is roads or electricity. Labor Laws are highly restrictive. In such an environment, Indian Inc is supposed to compete with the rest of the world. Indian Industry does not needs subsidies, it only needs a level playing field. There is enough talent here.

The Tax Holidays are given only to export oriented units or in case the Units are located in remote areas such as the North-East. Industries don't get any subsidies when they plan to setup in Delhi in Mumbai. Its when they are trying to setup in remote locations across India, they ask for concessions.

Surely you are not trying to suggest that jobs should be restricted to the metros. As I said earlier, we need to create a level playing field.