Millennium Post

Why no one talks about the reform’s billionaires?

The latest round of economic reforms, allowing 49 per cent foreign stake in domestic civil aviation and 51 per cent overseas control in multi-brand retail trade, may or may not immediately benefit a large section of Indian consumers. But, they will certainly provide a great moneymaking opportunity to a few Indian individuals just as the earlier economic reforms by the government did in the fields of telecommunications, civil aviation, petroleum and natural gas, electronic media, mining and metals, banking and insurance, cement, pharmaceuticals, soft drinks, commodities and infrastructure, among several others.

Every time the government fiddled with the foreign direct investment [FDI] regulations, its hidden intention appeared to be to help create a new generation of Indian dollar and rupee billionaires. On the one hand, forcing foreign investors select individual Indian partners to comply entry-level equity sharing restrictions helped several Indian co-promoters – many of them were not even widely known before such business ventures got off the ground – to soon become dollar billionaires, thanks to hidden clauses in the partnership agreements. On the other, existing Indian entrepreneurs made their billions by selling their promoters’ stakes to foreign investors, who were allowed to take management control of erstwhile ‘restricted sector’ Indian businesses. In both cases, the transactions at the entry and exit levels lacked transparency.

For reasons best known to the reformist government, the state did not offer to be joint venture partners of those foreign investors who were supposed to bring millions or billions to the exchequer, or to the people of India, by selling the state holdings later to foreign co-promoters or the public with the easing of sectoral FDI restrictions, as the government did in the case of Maruti Udyog with Suzuki Motors of Japan. Instead, economic reforms and changes in FDI regulations helped transfer of substantial portions of national wealth in favour of a small section of clever Indian entrepreneurs with strong political and bureaucratic links.

Points out Colin Todhunter in his latest global research [Asia region] paper that as late as in 2000, no Indian figured on the list of the world’s top 100 billionaires; but by 2011, there were already seven of them in the elite club. Only the United States, Russia and Germany had more of their billionaires in the list than India. A recent Capgemini and Merrill Lynch Wealth management report said the number of ‘high net-worth individuals’ [HNWI] in India has more than doubled in recent years. In 2008-2009, India had 84,000 HNWIs. Their number rose by over 50 per cent in the next two years to 1,26,700 – the biggest increase recorded among all countries in the world.

The Capgemini study further revealed that in the world-wide list of dollar billionaires in 2010, India ranked third with 69 of them, after the US [with 403] and China [128]. However, the wealthiest 100 Indians were collectively worth $276 billion, while the top 100 Chinese counterparts were only $170 billion. The three richest Indians together had more wealth than the top 24 Chinese billionaires combined. ‘You don’t have to look very far for evidence of their wealth, with more than 30 luxury skyscrapers springing up in Mumbai. For the rich occupants, the taller, the better: to escape from the reality of India below – the railway tracks, low-rise tenements, choking traffic and the 55 per cent of the city’s population who live in slums. People are paying nearly two million dollars for a designer apartment, built in complexes with private cinemas, swimming pools, floodlit tennis courts and high-level security. Developers believe each year Mumbai can absorb between 30,000 and 40,000 more homes in the one million dollar-plus category,’ Todhunter said.

There is no reason to believe that the end result of the new economic policy reforms, including FDI regulations, by the government of India is going to be any different than the past ones encouraging concentration of wealth among a few individuals with top level political and bureaucratic connections unless the state or state development and financial institutions are assigned the role of sole co-promoters of projects such as domestic foreign airlines ventures, multi-brand retail stores and 4G spectrum auctions. The government or its institutions may sell their stakes later to the public through IPOs after these ventures become profitable under the management of overseas investors.

The benefits of foreign investment will accrue to the people of India only through public participation and not through the partnership of a few private individuals as it had been the case in the past. The public participation could initially come through the partnership of the government or state-owned or controlled institutions. The government could later dilute a portion of its stakes directly in favour of the willing public subscribers. Hopefully, the public company status will substantially improve their operational transparency. The existence of government nominees on the board of these companies will help protect at least the national interest in their operations.

It is true that in the process, the membership and net-worth growth of India’s newly established dollar billionaire club may slow down, but the government and the country as a whole will benefit and the incidences of corporate corruption will come down. By having the controlling block in domestic airlines, the government will be better placed to exercise its supervisory authority to ensure national security, healthy competition, more efficient utilisation of funds, business transparency, improved work environment and passenger safety. Similarly, the government presence on the board of multinational multi-brand retail companies in India is expected to ensure that they follow the rules of the trade, which benefit local producer-suppliers of both manufactured items and agri-products, and maintain transparency in purchase and procurement deals. Let the latest spate of reforms not breed corruption and drain out national wealth to bolster foreign corporate profit only.

The government has forecast that the permission to multi-brand retail business will bring FDI to the tune of $16 billion. The figure is hardly impressive for a country that spent $60 billion alone in private import of gold, last year. Finally, as in China, the FDI policy will be beneficial to the country only if it helps the export of Indian products and services, and earns more foreign exchange than what those enterprises spend. [IPA]
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