Excerpt: Will farmers be screwed by privatization?

Indians have a paternalistic and socialistic approach to privatization. Nehru nationalized Indian Airlines hoping to provide top notch service and to make it accessible to everyone. Indira Gandhi did the same with Indian banks to make it accessible to the poor. The end result was extraordinary corruption, shutting the doors to the poor, rampant inefficiency and a bloated bureaucracy. Air India is an example of a guzzler which needs tens of thousands of crores a year to keep a bankrupt enterprise afloat.

It is rather inane to say that Mandis would shut down because of privatization as the Indian Government is duty bound to provide foodgrains to the very poor through the PDS in the foreseeable future. Hence, Governments will need to keep procuring. The question here is not of Government procurement, but of the extraordinary glut produced by farmers of produce, the market doesn’t need. Should it rot in the granaries or should the private sector get it?

Rather than blame the previous leaders, it is perplexing to comprehend why present-day Indians mistrust industry and hope that Government intervention alone will solve all their problems. In India, whether making jam through Kisan or cars through Maruti, the government is expected to step in to provide every service. What people don’t realize is that Governments worldwide have historically done an extremely poor job in replacing the private sector. The examples of Russia and Venezuela with food shortages and long lines waiting for food, are examples of how disastrous government control can be.

To be fair, some Indian private sector companies have been very corrupt and inefficient in the past. They have cunningly used Governmental socialistic restrictions on competition through licenses, to maintain their own monopolies. The reason why Indians got a bad deal is actually because of stunted competition and monopoly cartels. The solution will have to be more privatization and open market competition rather than less competition.  Unless we learn to trust the average Indian to innovate and make profits, government control will never find a solution. We have already seen the havoc which government control has inflicted over 60 years, hence there is no hope in going back to status quo.

Take the example of South Korea. At one time, they were among the poorest countries in the world. President Park in the 1960’s unleashed reforms to industrialize Korea and create a buzzing private sector. Because Korea was so behind the rest of the world, he divided the economy across conglomerates (chaebols) and gave them time, resources and space to grow. Within a couple of decades, companies like LG, Samsung, Hyundai and Kia Motors compare with the best of companies worldwide. Samsung alone contributes to 17% of South Korea’s GDP.

Hence inordinate distrust of the private sector only keeps the people poor and foolish. An average South Korean makes around 31362 USD a year compared to 2009 USD a year for an average Indian. Infact the GDP per capita number for India of today is comparable to South Korea of 1980. We are 40 years behind the income trajectory of South Korea.

Published by Vinod Aravindakshan

Engineer, Economist and Manager

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