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Freedom, at a 'Price' - Views on News from Equitymaster
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  • Mar 26, 2007

    Freedom, at a 'Price'

    And we thought Dr. Singh with the help of Mr. Rao, had effectively negated much of the dreaded 'License Raj' in his earlier tryst with governance in the early nineties. Last week Friday, quite a few newspapers carried a picture of three very tense-looking Cement Manufacturers Association (CMA) office-bearers discussing strategy outside the hallowed portals of North Block, the seat of India's Ministry of Finance.

    With all this hoop-la about cement prices, one is pardoned if he believed cement prices to be the major culprit behind the current upsurge in the inflation rate as measured by the Wholesale Price Index (WPI). The truth is cement has a weight of 1.7% and has contributed just 4.5% of the total 4.9% increase in the WPI. Fruits and wheat have almost the same weight and similar shares in the total inflation, but we have yet to hear any pro-active measures undertaken by this government on their supply and pricing.

    Dr. Singh's government is also going back on the earlier Congress government's initiative on the Drug Price Control Order (DPCO). Introduced in 1970, this draconian law brought pricing of 97% of drugs sold in India under price control of the central government. In 1995, the Rao government pared it down to 75 drugs accounting to 40% of the market. In FY02, they were to prune this list to 25 essential drugs. Instead we find Dr. Singh, alongwith his crew of ministers, is planning to extend the DPCO again to affect almost 80% of the medicines.

    Will affordability increase the usage? The problem in India is less of affordability and more of accessibility. The government health care agencies are barely stocked with essential medicines, sometimes are non-existent. If this government is intent on going back on its earlier resolve, it raises serious doubts about the credibility of the reform process itself, driving out future investments.

    Also the moral thread running through the price-fixing attitude of the government provides some food for thought. With more than 41% of the population now below the age of 25 years, a majority of Indians today have not been through the most repressive decade of India's economic history, the fruits of whose labour we still find fettering us. Apart from bank nationalisation, some of the most ghastly economic laws - the MRTP Act, Small Scale Reservation Act, FERA, Amended Industrial Disputes Act to finally apply it to many more units, Urban Land Ceiling Act, DPCO, quantitative and tariff curbs on imports - all happened during this period.

    Besides preferential policies many times more comprehensive and detailed than similar US affirmative action programs, social policies have included labour market and employment policies, government control over the broadcast media, and socialistic educational and housing programs. These have gone hand-in-hand with the unrestrained growth of a bureaucratic, re-distributive state.

    A point to ponder about is that after the partial steps taken in the early 1990s towards a pre-1969 India, by dismantling most of Ms. Gandhi's economic legacy, the levels of competition have dramatically improved. By paring the role of its government, India is steps closer to a meritocratic society. Today, a person from India's remote corners can trade on the stock exchanges, access the Internet, talk over his cell phone if not the landline! We can see the burgeoning of growth from the staid 'Hindu' rate of 3.5% (enough for sustaining the increased population) to a new trend of 7% plus. As a result, the secessionist demands of various fragmented groups have reduced. India is looking much stronger than it ever did since 1967.

    We cannot afford to go up the 'socialist' path again. All these 'pricing' theories are best left to the markets.



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