The cost of bad governance

In the 1980s, India and China were nearly at the same level of per capita GDP. Between then and now, China’s GDP has jumped to over five times that of India’s. Thanks to this and allied factors, China has gained greater clout than India on the global stage and a larger budget for military expenditure.

The main reason for this state of affairs is the abysmal governance of the then government (Congress, for the most part), which lived in the past instead of preparing for the future. Some examples.

India had a Monopolies & Restrictive Trade Practices Act (MRTP) which was abolished only in 1970 and which stunted the growth of Indian companies, which were, in comparison to global peers, pigmies. Other countries, meanwhile, were encouraging the growth of their own companies. Apple Inc was set up just six years later and is, today, the most valuable company in the world, with a market cap of $761 billion.

In 1990, VP Singh’s government introduced the Mandal Report, reserving 27 per cent of government jobs for backward classes. Demand for being termed backward, to gain a reservation quote, continues till today, and time which could be used to find ways to enlarge the job pie is spent trying to divide a shrinking pie. What were other countries doing? Amazon was set up four years later, in 1994, and is today a world leader with a value of $421 billion.

The growth of Indian companies was also stunted by restrictions placed on their ability to price their shares according to the market. India had a Controller of Capital Issues, which used an antiquated formula to determine the price of shares during an IPO which was ludicrously low. CCI was abolished only after SEBI was established, in 1992 due to the crisis caused by the foolish remark that the ‘coffers were empty’. Meanwhile, six years later, Google was born and is the leading search engine, with a valuation of $431 billion.

Add up the value of these three companies and you get $1.6 trillion, just short of India’s GDP of $1.8 trillion. Whilst India was messing up its economic life, the world went ahead, creating world-class companies, products and jobs.

This government thus has the unenviable task of cleaning 70 years of dust accumulated under the carpet. It has taken several good decisions and needs to do lots more. We also need to keep a proper perspective and not become complacent.

For example, the government has announced an ambitious and commendable target of 60 per cent of our energy needs coming from renewable sources. The news of an addition of 5.5 GW of solar capacity last year, the highest ever, was celebratory, as it ought to be. But, when juxtaposed with the 34.5 GW added by China, we have a long way to go and can’t become complacent. We would not have been so far behind had we embarked earlier on economic reforms, rather than living in the past and devoting time on those issues.

Even when we have planned resources for a good cause and allocated resources for it, things don’t get done. The ambitious $3-billion project to clean up the Ganga is stuck, and most of the money unspent, because of poor follow up.

(The writer is India Head, Euromoney Conferences. The views are personal.)

COMMENT NOW