The Hindu Business Line : The PM’s mantra

A Prime Minister must necessarily have the larger picture in mind when he suggests self-restraint on the part of segments of society to overcome a national crisis. The basic principle involved here is that someone must make a sacrifice for the greater good of the “people”, a principle with which no sensible person can have any serious quarrel.

There is, however, one small problem here, namely, that the sacrifice to be made must be evenly spread across as many sectors of society as possible so that, first, too much of a burden is not placed on any one group and, second, there is a sense of participation by everyone concerned in tackling the crisis in hand.

It is from this perspective that Dr Manmohan Singh’s exhortation to industrialists not to have recourse at this juncture to widespread lay-offs should be seen.

As the Prime Minister told a group of senior industrialists on Monday, while “every effort needs to be made to cut costs and raise productivity, I hope there will be no knee-jerk reaction such as large scale lay-offs which may lead to a negative spiral. Industry must bear in mind its societal obligations in coping with the effects of this global crisis. Government and industry must act in a true spirit of partnership to meet the challenges that lie ahead”.

Efforts to counter the crisis

This appeal is extremely sensible at this point of time because what it purports to achieve essentially is to maintain the scale of consumption demand and economic activity generally. From the Government’s point of view, this is the right statement to make now. But there is another side to the coin, which cannot be ignored if the appeal is to be appreciated in a proper light.

In the first place, what led the Prime Minister to make such an exhortation? The answer will lead to the heart of the economic problem currently afflicting the Indian economy, as it has been affecting the world at large, a close analysis of which will also yield a proper idea of the problems besetting Indian industry specifially and whether the official steps taken by the authorities (the Government and the RBI) till now have been the right thing to do to counter the crisis.

Two pressing problems faced by industry today is the scarcity of reasonably-priced funds to fuel working capital requirements and a sharp drop in demand for products across the board, both of which are driving economic managers to a reduction in the scale of activity.

Lay-offs are an integral part of this imperative, and it is more than obvious that the Prime Minister, an economist himself, is well aware of the strength of the pressures in this direction, which have in fact led him to make the appeal. Clearly, Dr Singh’s ultimate objective is to minimise the “disturbances” to the production and employment systems as far as is possible till the time when the international financial system is restored to an even keel once again and demand revives and liquidity improves.

Taking on the burden

In other words, companies must be prepared to take a bigger hit to their bottom-lines than would have been the case in “normal” circumstances where activity would have been adjusted to fit market behaviour. Companies, of course, mean share-holders, implying that the investing public of the country (and not merely disembodied “companies”) will have to bear the burden of any decision to increase losses, even if temporarily, by preventing lay-offs.

The socialistic element in the Prime Minister’s stand is clear and unexceptionable. The rich must stand by the poor in moments of economic crisis. There is, however, one niggling point. Since the inflation rate is on its way down, to what extent have the poor been affected by the current financial crisis? Or is that impact still some months away when declining production could have an adverse effect on prices?

RANABIR RAY CHOUDHURY