Licence to kill

Just when we thought we had bid our friend, Licence Raj, goodbye, he is back again, larger than ever.

In 1991, we had wished him well in his journey into the unknown, and assured him that we could manage well without him, thank you.

Yes, Licence Raj is back, in a new and improved avatar, determined to make up for lost time. Whether he is here to stay as a long-term guest is, surely, for us to decide.

How did this happen? Why has there been a recrudescence of the Licence Raj? The fact is, the UPA-II Government has shown its true colours as a resurrection of the Congress governments of the pre-1989 era.

Other than the short-lived Morarji Desai government of 1977 to 1979, the governments of India in that period did not believe in liberalisation.

Liberalisation was thrust upon the 1991 government only by the sheer desperate force of exogenous circumstances. The then head of government, the late Prime Minister Narasimha Rao, having grasped the nettle, was willing to foster the massive institutional discontinuity in India that liberalisation wrought.

For that, he, and no one else, should be called the father of India’s economic renaissance.

The UPA-I Government coasted, for its first 2004-2009 term, on the economic outcomes delivered by the policies of Atal Bihari Vajpayee’s government of 1998 to 2004.

In 2008, once the UPA-I Government figured out that the 2G spectrum allocation business was exactly like the 1960s and 1970s-style capacity licensing in manufacturing industry, and that it could allocate capacity at the prevailing rates of compensation to the highest bidders, it never looked back.

Licence Raj-II was back. You could have almost heard loud singing of the tune: “Happy days are here again.”

licence raj Pathology

At the heart of economic control processes in India has been a necessity to exercise unfettered power over human beings. Power is derived from control over key sectors of the economy.

A necessity for command turns into a deep visceral need, and the exercise of economic power is a habit that becomes hard to break.

Control over the economy, under the guise of a “ ma-baap sarkar ”, has permitted exercise of direct power by government over the material lives of people.

Nobel Laureate Friedrich von Hayek had raised the issue of not only inefficiency, but the question of the loss of personal and political freedom in a regulated and controlled system, such as India’s “ ma-baap sarkar ” operating a Licence Raj.

Eventually, such a process would become pathological. It could lead to concentration of state power as in Nazi Germany or the Soviet Union. That is exactly what the Licence Raj has gone on to do in India.

What does the Licence Raj do? First, it creates Frankensteins out of government agencies. In Licence Raj-I, these were the Secretariat for Industrial Approvals (SIA), the Directorate-General for Technical Development (DGTD), the Chief Controller of Imports and Exports (CCIE), the Controller of Capital Issues (CCI) and the Directorate of Enforcement (DOE).

Today, every economic ministry has its own Frankenstein division, with the CBI and the courts, as new actors, who want a say in everything. Any infrastructure project requires over 50 approvals. Every step in the approvals process is a revenue collection point. It is a hold-up, in more than one sense!

Getting a decision from government is like swimming in a sea of molten jaggery. By the time the cane sugar syrup has hardened into solid jaggery, a project is fossilised and fit for review by scholars studying the industrial archaeology of India.

What has been the outcome of all this? According to recent news reports, because of Licence Raj II, some years’ worth of infrastructure projects has been halted. Industry body Assocham pegs the amount at Rs 52 lakh crore. This is immense!

What are the implications of this? Translating the sums into dollars using an average exchange rate of Rupees 55 to $1, based on rates between September 2011 and September 2013, implies that over $200 billion worth of infrastructure projects are on hold.

India’s infrastructure spending is $150-250 billion annually. The logjam is going to worsen. Soon, there will be $500+ billion worth of opportunities lost.

Hitherto, India has projected to the world immense opportunities for business because she needs to be spending $1 trillion per Five-Year Plan cycle on infrastructure.

But today, India is not an infrastructure opportunity. It is an infrastructure liability. It needs to create not just $1 trillion but $4 trillion worth of infrastructure to take its rightful place in the league of prosperous nations.

But that is one part of the story. The abandonment of $200 billion worth of projects means lost employment opportunity.

Livelihoods Decimated

In a country like India, every $1 million of investment creates 100 jobs, and loss of $200 billion in investment means 20 million jobs not created, creating a loss of livelihood for around 2 per cent of India’s population.

There are at least five persons in India dependent on a breadwinner’s income. Thus, the 20 million jobs created would have supported 100 million other persons, or at least 8 per cent of India’s population.

Thanks to Licence Raj-II, the logjam of $200 billion infrastructure projects on hold means the living standards of, at a minimum, 8 per cent of India’s population have been undermined, if not totally compromised.

But, the worse is yet to come. Infrastructure projects have a large multiplier effect, of three times.

Thus, the infrastructure logjam alone has led to the loss of over $600 billion, or Rs 33 lakh crore of output, which, at average exchange rates, is half of India’s annual gross domestic output.

All this in one area, infrastructure; in infrastructure alone, Licence Raj-II has brought India’s projects to a grinding halt.

If calculations as to the impact on every area of India’s economy are conducted, the enormity of the sums involved, and the intense misery caused, will be staggering.

We will display extreme hilarity at the absurdity of the sums involved, because as the poet Lord Byron said: “And if I laugh at any mortal thing, ‘Tis that I may not weep.”

The Indian economy has been turned from a vibrant phenomenon into an abject basket case in a short period. It is perhaps time for all right thinking citizens of India to rise and shout in chorus, against a government that has caused hardship and untold misery for millions.

(The author is Professor of Technology Strategy, University of Texas, Dallas)

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