The Raj lives on in India as a near permanent rentier economy. Often called the license Raj, the sobriquet is fitting yet damaging. The ground harnessing this collectivist agenda is geography and history, the twin engines for international relations.
Indian consciousness isn’t like any other nation, it remains shaped mostly by geography and its communal domestic relations. By any measure, Indian consciousness is inward facing the northwest passage as it has been for centuries. Air power resolved this geographic determinant, but for India it remains. Indian socialism is no longer ascendant yet it thrives to the detriment of any reform agenda. Just witness Modi’s flailing as he seeks a second term. Gone is any resemblance of reform or globalization. India has its reasons for not seeking reform, the entire nation state is born from within the confines of nativist thought; sadly, this political economy is ripe for either sale or closure. Like England and most of western Europe, it will remain paralyzed for the foreseeable future. It doesn’t have to be this way, but self inflicted wounds are difficult to purge, especially in this neighborhood.
China rivals India in having its GDP tied to state owned firms. Public sector undertakings comprise one in every six rupee. Banks are government proxies that loan unsecured monies to state owned firms that often have political leaders running them. India’s upper chamber is littered with CEO’s that run state owned enterprises. Fiat grants to lucrative monopolies aren’t efficient, but India and China don’t really possess indigenous market based economies. They more likely identify with Keynesian based revenue sourced from monetary velocity than actually productive, ground breaking industry.
As of this writing, Indian monopolies are racking up impressive losses. In 2016 alone, nearly one third of India’s public sector industries filed losses. Nearly 25% of all of India’s monopolies have failed for over three straight years. Labor may be in abundance in India but not capital; currently the return on investment for India’s public sector remains a meager 5%; its actually negative if you look at inflation. With over $18 billion dollar annual market capitalization, India’s coal, petroleum and power generation remains a dinosaur. Indian companies fare worse when they must compete.
The ’90’s witnessed attempts to push state owned enterprises into privatization, making Indian Prime Minister Narasimha Rao a permanent pariah. By knocking several dominant players off the commanding heights of an indigenous Indian political economy, they remain wary of any policy reform. Even still, India cannot continue with fat, inefficient and grossly distorted domestic industries.
To address this problem, Modi needs a reversal. He needs a truly independent central bank that will pursue foreign direct investment to underwrite liberalization. Soft loans, subsidies and bail outs must end. India must embrace revitalization strategies that mimic surging military industrial base growth. Having New Delhi reach out and suture its defense needs to American requirements needs to be replicated domestically. This is a very tall order, given the fiscal state of these monolithic industries.
Nearly 24 state owned monopolies possess loans greater than their assets. Eighty-four generate little profit to cover interest on their borrowings; thousands need to be closed, sold off or even dismantled. If India is to grow, it must seek to openly confront this fiscal mess. It won’t, so it will remain weak, tepid and inward looking. A dangerous mix given the neighborhood.
India is “that ’70’s Show” because its top management is excessively cautious, risk averse; an ethos fitting perpetual failure.
If Modi and by extension all of India, is to grow, then it must openly confront the politics that dominates its upper chamber. My guess is, it will fail to do so because Indian leadership has run out of alternatives.
William Holland
William Holland 