It's a pattern that has become too obvious to be missed: most of the slugfests that have occurred on issues connected with economic reforms, have little to do with political sensitivities as we normally understand them.
Instead, they have had to do with the relationships that politicians have with their businessmen paymasters. In other words, they have to do with crony capitalism.
Whether it is the current Mahabharat in the telecom industry, or the non-privatisation of the oil marketing companies, or the earlier fracas over the non-privatising of Air-India, or any of a long list of other episodes, the issue at heart is business rivalry as played out through ministerial and/or regulatory dispensation of questionable favours.
Equally, the build-up of massive sums by way of un-repayable bank loans to industry would not have happened if lending by the banks and term-lending financial institutions (all government-owned) did not have such a political flavour.
Indeed, India would be a far more open economy without counter-productive 'protection' through the highest tariff rates in the world, if tax policy were not so heavily influenced by business lobbying. One result is that two-wheelers get 60 per cent tariff protection against (what did you expect?) non-existent imports.
At a recent meeting of the Prime Minister's economic advisory council, one of the businessman-members made a transparent pitch for a policy that would have put down a rival -- and earned a sharp rap on the knuckles from one of the ministers present for bringing such business rivalries into the policy debate.
Another businessman-member argued strongly against the proposed law on recovery of bank loans, inviting silent titters because his group has been one of the biggest defaulters. That businessmen would find it in them to make such partisan and self-serving pitches in even the highest councils shows how unconcealed and unabashed the lobbying has become.
What gets said at more private occasions, therefore, is not difficult to imagine.
But nothing brings home all this more starkly than the current fights over telecom policy and the non-privatisation of the oil marketing companies. Ask any cellular phone company and it is likely to tell you (privately, of course) that the minister is biased, as is the regulator, and that everything is being done to bring in new mobile phone players through the back-door on blatantly partisan terms.
Look at the track record of their behaviour, and you would tend to believe what is said. If the implicit accusation here is that Reliance is the principal object of the favours, then the anti-Reliance faction has done a pretty effective job so far of making sure that Reliance does not get hold of one of the oil marketing companies. In both instances, the consequence is detrimental to the larger good.
The cellular phone companies have registered rapid growth on the back of large-scale investment (both domestic and foreign) and the regulator's quite incredible stance threatens an entire section of the country's fastest growing infrastructure sector.
Equally, Reliance has a 27-million tonne refinery and is therefore a natural contender for one of the oil marketing companies. But oil sector reform, privatisation and the bringing in of substantial sums by way of foreign investment (because there are foreign bidders too) are all held up because a bunch of well-connected businessmen are able, through their politician friends, to stall and endlessly delay the sale of BPCL and HPCL.
The longer-term consequence is that investors begin to lose faith in the fairness of the system -- and this will affect future values on other privatisation cases; it will affect the attitude of foreign investors who may decide to give India a wide berth because of the risk of regulatory bias; and it could even boomerang on the entire reform process -- as the Enron debacle did when it came to power privatisation, so that no private power project has been able to achieve financial closure in the last several years.
The point about reform is that the government must get out of business, which should be left to market-forces. But the government retains its discretionary role under the guise of policy-making and regulators can play favourites -- as is now obvious. If these two don't change, the path of Reliance will remain rocky and its future course very uncertain.
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