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individual freedoms and the Economy....

[Topics under debate]: GOOD GOVERNANCE
___Help make this manifesto better, or accept it, and propagate it!___
    Our economic policies are as distorted as the policies on individual
freedoms.  Why shouldn't they be - after all the same Government with
the same congnitive skillset is responsible for both.  Once again, if we
start paying attention to the fundamental problems and "minor"
distortions which add in a big way, we may have a chance in the next

enjoy the article,
Vamsi M.
Power flows from the barrel of sensible economic policies

By J Mulraj

Mao Tse Tung opined that power flowed out of the barrel of a
gun. As the ability of USA to be virtually a global supercop
indicates, this may be true; but behind America's military success
is its economic one. And that latter success comes only from
following sensible economic policies which our political leadership
has failed to achieve. This has resulted in a situation where
Pakistan is emboldened to attempt military misadventures in

In the previous week the stockmarket reacted on the last day,
after the government released intercepted taped conversations
between two heads of the Pakistan army. These indicate that the
army is behind the intrusion into Indian soil and that it had no
desire to allow its own government to negotiate a peaceful
settlement. These are, indeed, dangerous pointers and the market
correctly took note of them by sliding down, ending the week
with a net loss of 1.8 per cent.

Our political leaders must show a fuller commitment to
liberalisation. The basic lesson of economic liberalisation is to
allow market forces to operate freely. These forces take care of
people or organisations making wrong decisions, by punishing
them severely, whilst rewarding those that do the right thing
handsomely. The Indian model puts as many bureaucratic hurdles
as possible. As a result, market forces work ineffectively, and the
needed improvement is slower to occur. Examples abound.

Start with, UTI. It has failed miserably in performance. The net
asset value of its largest fund is lower than an artificially set
repurchase price. In effect this means that neither the investors
who put their money in a poorly performing fund, nor the fund
management company itself, is punished for bad performance.
Instead, a committee appointed to look into the situation
recommends that it be saved with an accounting jugglery the cost
of which is borne by the taxpayer.

It is the same story with the public sector companies (PSUs).
Their returns on the capital pumped into them by the government
(i.e. by taxpayers) is abysmal, at under 2 per cent. If we were to
exclude the profits generated by oligopolistic oil companies the
figure would be even worse. And the government, instead of
listening to the advice of the Disinvestment Commission to get rid
of the PSUs, goes on funding them. It does so by borrowing at
12.4 per cent, as it did last week. Would any reader of this
column borrow money at 12.4 per cent to invest in an asset
which yields 2 per cent?

The proposed divestment of ONGC, for example has been
postponed until investor perception of it improves enough to fetch
it a better price. But how on earth will investor perception
improve? Here, too, there is scant respect for market forces
shown by the bureaucracy. Or consider the asinine dictat by
SEBI which bars rating agencies from rating their parent. In other
words, SEBI is questioning the integrity of the rating agencies.
What this means, for example, is that the more trusted rating
agencies would lose out the business of rating their parental
offerings which would be compelled to go to agencies with lower
standards simply because they are not their own offsprings.

The private sector is learning the lessons of liberalisation pretty
fast. It is seeing how the market rewards companies like Infosys
and Wipro with high valuations, for being focused, transparent
and concerned about minority shareholder interest. It is seeing
how non-performers are punished by the market which pushes
down the price to a point where hostile takeover becomes a

In interesting corporate developments, Ranbaxy chief Parvinder
Singh needs to be complimented for setting an example. He is to
step down as CEO in favour, not of a family member, but a
professional manager. Ranbaxy is also close to signing a $ 100
million deal for a drug delivery system it is developing. This again
indicates how the private sector is responding well to
liberalisation but the public sector is not being allowed to, despite
having equally competent management.

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