The commerce ministry was never happy with the liberalization, which destroyed its lucrative licensing business.
WorldIndiaConfirmed18,985Deaths603Confirmed2,472,259Deaths169,986By Ashok V Desai
Licence raj was heaven for meddlesome bureaucrats. They did not even have to go to heaven; they could be prosperous and powerful in this world — as long as they lasted in the ministry of commerce. For it operated import licensing, and each of the thousands of licences they issued every year required businessmen to queue up for days and finally hand over the bribe.
Well aware of the bureaucrat’s love for bribes, Commerce Minister P Chidambaram abolished the licence regime overnight in 1991 without letting them know. The corrupt clerks were so incensed that they went to his room to avenge his assault on their gold mine. Luckily, he was not in his room. So all they could do was damage the door of his office.
Chidambaram was a passionate reformer. Left to himself, he would have cleaned up GoI much faster and more fully than our well-known reformers — and made many more enemies. One of those he upset was Prime Minister P V Narasimha Rao. When Harshad Mehta got into trouble with the government for the stock market boom he engineered with money government banks asked him to manage, Chidambaram wrote to Narasimha Rao that his wife and he had invested in a company connected with Mehta, and that if Rao thought it was improper, Chidambaram was prepared to resign.
Rao treated the letter as a letter of resignation, and sent it to President Shankar Dayal Sharma recommending its acceptance. Chidambaram was upset, and left Congress for a while.
The commerce ministry was never happy with the liberalization, which destroyed its lucrative licensing business. Once the reformers left GoI, the ministry has been finding new ways of introducing controls. It has issued 170 press notes. The first one was issued by Joint Secretary Lalit Mansingh in August 1991. It promised all kinds of incentives to small and tiny firms in the new policy environment in which large firms could grow without government permission. The latest is press note No 3 (PN3) of 2020, issued on April 17 by Joint Secretary Manmeet K Nanda.
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Some time after India was partitioned, it banned foreign investment from Pakistan. India separated East Pakistan from West Pakistan in 1971 and created Bangladesh, which was no longer an enemy State. But it absentmindedly continued to apply the ban on foreign investment to Bangladesh as well. In 2006, minister of state for commerce Jairam Ramesh realised how idiotic this was. So, he announced that the policy would become less inimical to Bangladesh soon.
But that moment never came. Bangladesh continued to share the privilege of untouchability with Pakistan. Investors from both countries had to travel the ‘government route’ — that is, they had to get government permission before they could invest in India. The only concession made to Bangladeshis was that while Pakistanis could not invest in defence, space and atomic energy under any circumstances, Bangladeshis could — if they could ever get government permission.
Now commerce minister Piyush Goyal has suddenly noticed the loneliness of Bangladesh. PN3 extends the list of similarly privileged countries to all that share a land border with India. They come to precisely two: Myanmar and China. No Myanmarese has ever thought of investing in India. So, what the commerce ministry has said, without using the word, is that if any Chinese entity wants to make a direct investment in India, it must get government permission first.
Why? GoI has copiously briefed the media about its terror at the fact that the ‘Chinese Covid-19’ has infected Indians and stopped people from going to work. It has even ensured that with lockdown, sales and profits of Indian companies will plummet, and their market capitalisation will collapse. In this scenario enters the Chinese dragon, which buys into these cheap enterprises, and acquires a huge stake in Indian industry for peanuts. For a few billion dollars, it makes India China’s economic colony. We fought and expelled imperialists. Now shall we succumb to neo-imperialists?
Which is exactly when the Department for Promotion of Industry and Internal Trade (DPIIT) steps in. From now on, those Chinese ‘predators’ will have to take its leave before investing in Indian firms.
Has DPIIT got its analysis right? It is right, insofar as Sensex went down almost 40% in a month after mid-February. But it had as much to do with lockdown as with Covid-19. And Sensex has recovered ground since. Anyway, assuming a cure for Covid-19 can be found, industry will recover eventually — and the Chinese could make a packet.
And has DPIIT got the solution right? If Indian shares are cheap, they are so for everyone — Americans, Fijians, Indians, you and me. Why is not everyone jumping in and buying? All right, Indians are worried and depressed and pessimistic. But what about others? Well, they too are frightened of Covid-19. Only the Chinese are prepared to take a contrarian view.
But GoI shares their view. Why does it not start buying? Why does it not study the crisis Indian industry faces and look for a solid solution? That is too difficult. It is much easier to ‘expel’ the Chinese.
(The writer is former chief economist, ministry of finance, GoI)
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