Degenerated Reform
Dr Ashwani Mahajan
Government of India adopted New Economic Policy (NEP) in 1991. They termed this policy as a policy of Liberalisation, Privatisation and Globalisation (LPG). Though new economic policy claimed to be the policy of LPG, but in essence this policy was mainly the policy of globalisation.
Globalisation, as generally perceived, is the process of integrating various economies of the world without creating any hindrances in the free flow of goods and services, technology, capital and even labour or human capital. However, free movement of human capital, though more important for developing world, is not finding favour from the developed world.
Capitalism is the natural outcome
Though globalisation was expected to end barriers to trade and make the whole world a global village; to make goods cheaper by allowing competition between different nations and in the process would allow developing countries like India to export their cheap products to developed countries; increase the flow of capital to the developing countries, so that these countries can develop at a faster rate; improve the standard of living of the poor and so on. But after 20 years of globalisation, we find that globalisation has merely led to dominance and monopolisation by multinational corporations in different sectors including pharmaceutical, automobiles and cement; neglect of agriculture and resulting pauperisation of the peasantry and large scale suicides by the farmers in India: large scale corruption initiated and encouraged by the capitalist class; large scale inequalities in the distribution of income and wealth leading to deepening of hunger, poverty and malnutrition. Governments are becoming instruments for promoting private corporate interests at the cost of the common man.
Story of rampant corruption
Recently CAG has unearthed yet another fraud, namely Coal Block Scam where coal blocks were allocated free to chosen few, involving an estimated loss of rupees 1.8 lakh crore to the exchequer. For more than 3 years, issue of scandalous allocation of spectrum, again to selected companies, has been under discussion. Recently the issue was again hot up in view of startling revelation by Comptroller and Auditor General (CAG) of India, that the exchequer has lost revenue to the tune of 1.76 lakh crore.
Scams after scams
These are not the only scams in the country. Memories of one such big scam, infamously known as Telagi Scam, when a person close to the ruling class defrauded by selling fake stamp papers, is still afresh in the minds of the people, where the extent of loss could not be measured till date. Tax evasion by big business houses has also being a major cause of loss to public exchequer. Scams ranging from Harhsad Mehta to Ramalinga Raju of Satyam, where though criminal proceedings were also initiated, no serious outcome have been there. Outcry about so many major scandals in the Parliament and Legislative Assemblies has met the deaf ears of our executive and bureaucracy at various levels. Perhaps transparency and elimination of corruption is not on the agenda of the government at present. It was thought that right to information may bring some reprieve from corruption, but it seems our politicians and bureaucracy has found ways of escape from that too. Report by Transparency International states that transparency index of India has come down from 3.5 to 3.3 (that is, corruption has increased proportionately) and ranking of India in terms of transparency has come down to 87 in list of 178 country, after revelation of corruption in organising Common Wealth Games. After revelation of Coal Scam and 2G Scam, transparency index is expected to further go down.
No relief from corruption despite growth in GDP
Ironically, the world’s most corrupt countries are poor ones. Generally in rich countries we find more transparency due to compliance with law & order. This implies that with development transparency (integrity) index goes up, as institutional framework would be put in place with regard to compliance with law and order. But contrary to international experience, in India, despite growing national and per capita income, corruption index is also growing.
Inflation and rising
debt burden
These scams have a direct connection with the common man’s life. Lack of revenue compels the governments to go for deficit budgets. In 2011-12 fiscal deficit reached at Rs. 5.22 lakh crore (5.9 per cent of GDP). Such a big deficit could be filled by government borrowing, which would increase the burden of debt on our future generations or by borrowing from RBI. If the government is unable to raise sufficient loans from the public (including financial institution), it has to borrow from RBI. RBI in turn would print more currency notes to finance this lending to the government. This would result in growth of money supply, which is the main cause of inflation today. Therefore it is simple one to one relationship between corruption and inflation. Had the government been able to take this amount of Rs. 1.76 lakh crore plus 1.8 lakh crore plus one lakh crore and other losses due to different other scams, to its kitty, scenario of price rise would have been different. Neither the government had to make RBI print additional currency nor would debt burden on future generations have increased so much.
Education and health for all still a distant dream
Some time back a law was enacted by the Parliament in the name of Right to Education (RTE). It’s a known fact that as per Directive Principles of the State Policy, as enumerated in the Constitution of India, the government was expected to provide for universal primary education. Even after 60 years of the promulgation of the Constitution, the nation is struggling for Right to Education. The amount required to really implement RTE, is only one sixth of the loss to the exchequer, due to 2G scam.
Provision of health is the primary responsibility of the government. The government has even declared its objective to achieve health for all in Millennium Development Goals (MDGs). But due to paucity of funds government has been taking its hands off from public health services and common man has been left to the mercy of private institutions. According to Union Budget 2012-13, a provision of only 31,880 crore has been kept for Public Health and Family Welfare. According to a rough estimate if the government spends an additional amount of Rs.30, 000, reasonable health facilities maybe provided for the common man. Today, 212 out of one lakh mothers die while giving birth to their child, 73 out one thousand children do not see their 5th birthday.
Globalisation means monopolisation: Case of pharmaceutical industry
India has been proud of being the world’s most competitive producer of allopathic drugs, and savior of billions of poor residing over the globe. India is fourth largest producer of allopathic drugs by value and third largest in terms of volume. Today, India exports drugs to more than 200 countries and its speciality is cheaper generic drugs. But today country’s pharmaceutical industry is going through a severe crisis. The genesis of the crisis is that the world’s giant pharmaceutical companies are acquiring the ownership of premier Indian pharmaceutical companies in the name of foreign investment. A few years ago, the country’s largest drug company Ranbaxy was purchased by the Japanese company Daiichi Sankyo. Then the American company Mylan acquired Matrix Laboratory, Fresenius Kabi of Singapore purchased Dabur Pharma, Shanta Biotec was purchased by a French company Sanofi Aventis and Orchid Chemicals were acquired by USA’s Hospira and Piramal Health Care has been taken over by the Abbott Laboratory of USA. In addition, many Indian companies have entered into joint ventures and other agreements with foreign companies like – Dr. Reddys with GSK; Pfizer, with three foreign companies; Abbot has tied up with Cadila Healthcare, Astra Janeca signed Joint Venture with the Torrent. Under these circumstances it is clear that country’s huge pharmaceutical sector is fast slipping into the hands of foreign companies.
In the last one decade pharmaceutical industry received a total foreign investment of nearly 9 billion US$, out of which 4.73 billion US$ was for acquisition of established Indian pharmaceutical companies by multinational corporations. This kind of foreign investment is called ‘brown field investment’. According to existing rules, there is no restriction on 100 per cent foreign investment in new entities or acquisition of established Indian companies in pharmaceutical companies. Taking advantage of these provisions, lured by the ability of Indian pharmaceutical companies to produce cheap generic medicines, large multinational pharmaceutical companies are trying to acquire established Indian pharmaceutical companies.
Today total production of Indian pharmaceutical companies is 21 billion US$ and domestic drug market size is 12.3 billion US$. Since generic drug industry of India is giving tough competition to multinational corporations, due to its lower cost, it is feared that these companies may accelerate their efforts to takeover Indian pharmaceutical companies. In 1998-99, out of top 10 pharmaceutical companies, only one (Glaxo Smith Clien) was a foreign company. Today 3 companies (Ranbaxy, Glaxo and Piramal) out of top 10 are multinationals.
In many other industries, MNCs have increased their dominance including cement, seeds, telecom, software, infrastructure etc.
Squeezing labour to benefit capitalists
In the last 20 years (of globalization), due to favourable treatment given to the capitalist class, workers have been grossly exploited and squeezed. Their share in net value added (production), which was 78.42 per cent in 1989-90, came down to merely 41 per cent in 2009-10. Likewise share of profit has gone up to 56.23 per cent from merely 19 per cent during this period.
Constitutional agencies being sidelined to kill transparency
In the era of liberalisation Public Private Partnership has been growing at a very fast speed. Government’s contribution in the projects run on PPP basis is substantial. But there is no constitutional mechanism to inspect or audit the accounts of these projects. We know that according to the Constitution all government departments and social welfare projects fall within the purview of the Comptroller and Auditor General of India. In this way government departments and programmes are accountable to the people of the country through the Parliament.
For the purpose of a particular project with government and private parties as partners Special Purpose Vehicle (SPV) company is created. All activities starting from construction to administration after the completion of the project are carried out by this SPV. Passenger tariff and other types of income in Delhi Metro go to this company’s account, collections from Airport passengers fee, go to the airport company’s account and toll imposed on roads and bridges go the concerned SPV company. After that this revenue is divided between private partners and government. We must accept that the government has also invested heavily in these projects and without the support of the government these projects wouldn’t have completed and become economically viable.
But it is unfortunate that despite the revenue sharing and heavy public investment, there is no provision of compulsory audit of these SPV companies by Comptroller and Auditor General of India (CAG).
The office of Comptroller and Auditor General of India (CAG) has been demanding that it should be allowed to institute audit in all such ongoing projects in Public Private Partnership companies (SPVs).
(The writer is Associate Professor, Department of Economics, PGDAV College (University of Delhi) can be contacted at ashwanimahajan@rediffmail.com)
Year Compensation of Employees Profits
(% of Net Value Added) (% of Net Value added)
1989-90 78.42 19.07
1994-95 59.16 34.29
2000-01 62.34 24.86
2004-05 43.07 55.64
2009-10 41.01 56.23
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