Of smart cards and smarter operators

Recently some political parties in India raised concerns about the Electronic Voting Machines used in elections as being susceptible to manipulation and have demanded a return to ballot paper based voting in the forthcoming elections in the states of Maharashtra and Haryana. Incidentally this development has come on the heels of the decision of the Government to issue smart cards to every citizens with the aim of ensuring that the benefits of social programs reach the deserving people by weeding out corruption. The bill - a tidy sum of Rs 15 bn +, with its usual overruns.

So what’s the problem . None, except that it is doubtful whether the meant objectives will be achieved. For, its predecessors in a variety of avtars have failed. This calls for a bit of explanation. The first such approach was with issuing Voters Identity Cards around the beginning of this decade. The entire process was digitized capturing relevant data in digital form including a photograph. A person was required to identify oneself with such an identity card before being allowed to vote. This was intended to prevent bogus votes to ensure a fair election. But even after about a decade , the intended objective of preventing bogus voting is still not met. Anomalies exist in various forms . Disturbances on polling days in most parts of the country bear ample testimony to this as also the demands for repolling in some booths which are not uncommon in any election.

Then there is the Permanent Account Number card or the PAN card. This is a card for having an account number with Income Tax department. This number is supposed to be permanent and hence the name, though tax liability may not be permanent as incomes might vary. Quoting the PAN was made mandatory for most financial transactions. This included all transactions in stock markets. Property dealings, credit card purchases and cash transactions beyond a specified limit requires quoting of PAN . This it was expected would leave an audit trail of various transactions and thereby prevent tax avoidance and trace money laundering. Such was the stature of the PAN card that it soon began to be treated as adequate proof of identity. But sadly the much fancied PAN card has been meted perhaps the worst of humiliations. Rampant issue of multiple cards to a single individual or are they ghost cards really, have come to light making a mockery of catching tax evasion. Instances have surfaced where a single individual could pocket refunds several times using multiple accounts. That government decided to go for another identification number, to be issued by sources who deduct tax before making payment, to combat multiple refund claims of tax deducted at source TDS that is, indicates that this is indeed a menace.

Another smart card which has assumed equal importance as an identifier is the driving license. This too has been subjected to equally rampant dilution. The ease with which a driving license can be obtained anywhere in the country is shocking to note. Yet lives of millions people continue to depend on novices who masquerade as professional drivers.

Other Governmental efforts in the past included issuing Ration cards. The idea was that people with cards issued on the basis of economic criteria could get access to discounted foodgrain from Government controlled fair price shops. It turned out that there were not enough foodgrain with Government for distribution through these shops. So the criteria had to be made stiffer so that only the needy could get the benefit and Ration cards were made of two categories. One is Below Poverty Level, BPL category that is. The other of course is the Above Poverty Level category. The truth is that there has been no improvement in the availability of cheaper food grain to the poor.

Therefore if the past record is anything to go by, there is a likelihood of the present project meeting the same fate. We will end up with another card stuffed in our cardholder and a sum of Rs 15 bn + gone .

Coming to the broader point, what identity, whose identity are we seeking. What data are we contemplating to sift through computers. Its there for anyone who cares to see. The telltale signs of malnutrition , deprivation and neglect. What does identity mean to someone who's roof is the open sky and who is likely to die without any medical treatment. What does fingerprints and iris scans mean to those who's preoccupation is to worry about where the next meal would come from. Not that they do not have an identity. They have one and it can't be faked. It might read something like this
species : homosapiens
build : undernourished
hairs : disheveled
eyes : tearful
body : unclean
education : illiterate
occupation : seeking alms
age : still in growth phase

All of Government's plans for the country's socio economic upliftment though well meaning have failed to produce desired results due to the absolute inaction at the implementation level. Here there is a strong need for establishing accountability criteria, stringent monitoring system and strict adherence to targets. India has world class project implementation capability in the private sector. No reason why Government projects should fail to deliver desired results. If money is committed for a project then Government must also ensure that the end benefits are realised .

This time around at least the Government is willing to bet. It has drawn up talent from the private sector - Mr Nandan Nilekani of Infosys repute - and gave him ministerial status. We can only hope he and his team will be able to make his smart card outsmart the adversity. And of course we wish him all the luck.

Jai Ho it is, for the Indian voter

The results of the recent elections to India's parliament left in it's wake a massive euphoria reminiscent of the times in the past when the mandate given resulted in absolute majority to the incumbent party. But the possibility of the congress party, which does not have even a simple majority of its own, forming a Government cobbling together an alliance with other parties is rejoiced by not only the entire nation but also the whole world.

Perhaps there are reasons to cheer. The previous 5 years and also periods in the past has shown how not to progress under a coalition arrangement. The pulls and pressures of the constituents were just too much for any right thinking ruling party. This was glaring during the previous govt's term where we saw such things as 'support from outside', issue based support etc. It is strange that such concepts gained currency and stayed in place for full five years. We saw how the left parties were able to have a stranglehold over the Govt and dictated terms. People were fed up of such coalition politics. They therefore took their decision at the hustings and when the incumbent party did shed all that baggage and the crutch they became very happy naturally.

Perhaps people were convinced that the previous Govt has performed well enough with all the handicaps that it had. Farm loan waiver, free electricity and other rural programs has gone very well with the people and that there are very strong hopes that such programs will get even greater fillip with the new Govt.

People are hoping that the incumbent dispensation will provide a stable governance
which is very necessary for economic upliftment. The Congress party with its allies is far more preferable, beyond doubt, than the rag tag coalition of third front. The leaders trying to stitch a third front alliance seem to be having infinite faith in their belief that such an alternative would ultimately get ahead of the national parties. They would have gained more had they concentrated more on winning the faith of people.

To the world a congress led Govt will be welcome. Particularly after its achievement in negotiating the nuclear deal. This govt is known to be pro reform notwithstanding its socialist leanings. This will foster a climate for greater inflow of foreign funds which in turn will contribute to higher growth.

The major opposition the BJP and its allies are in disarray having suffered a big setback. It itself is to be blamed for its poor performance. Its campaign lacked clarity and voters were not impressed with the issues . Internal conflicts took its toll as also its poor track record in terms of an effective and worthwhile opposition in the parliament. In a functioning democracy the role of opposition cannot be overemphasized. It must therefore strive to become a worthy opposition in the parliament .

The Prime Minister in the meantime has made a good beginning with the selection of ministers, in that, non performers have been shown the door. Let us hope the good work continues.

guest post

I received a mail from one of my friends which I reproduce in full

"quote"

Sometimes we underestimate ourselves. It takes a foreigner to put into perspective what a great people we really are and our tremendous achievement in the face of what appear to be insurmountable odds. Let us hope we can continue to remain the peaceful and tolerant people we have been through history. When fanaticism and fundamentalism rear their ugly heads in our country we must realise that they are the exception and not the rule. If we stop to compare ourseleves with our neighbours and the rising intolerance and xenophobia in even developed nations we should be truly grateful to be living in India .....

Bala

New York Times reader comment on India going to polls, "The world's biggest exercise in democracy"

April 15 2009 it is truly the gereatest show on Earth, an ode to a diverse and democratic ethoes , where 700 million + of humanity vote, providing providing their small part in directing their ancient civilisation into the future. It is no less impressive when done in a neighbourhood which includes de-stabilising and violent Pakistan, China and Burma.

Its challenges are immense, more so probably than anywhere else particularly in development and fending off terrirism - but considering these challenges and its neighbours, it is even more astounding that the most diverse nation on Earth , with hundreds of languages, all religions and cultures, is not only surviving but thriving.

The nation where Hinduism, Budhism, Jainism and Sikhism were born, which is the second largest Muslim nation on Earth; where Christianity has existed for 2000 years ; where the oldest Jewish synagogues and Jewish communities have resided since the Romans burnt their 2nd temple; where Dalai Lama and the Tibetan government in exile reside; where the Zorastrians from Persia have thrived since being thrown out of their ancient home land ; where Armenians and Syrians and many otheres have come to live;where the paris based OECD said was the largest economy on Earth 1500 of the last 2000 years, including the 2nd largest only 200 years ago; where 3 Muslim Presidents have been elected, where a Sikh is Prime Minister and the head of the ruling party a Catholic Italian woman, where the president is also a woman, succeeding a Muslim President who as rocket scientist was a hero in the nation; where a booming economy is lifting 40 million out of poverty each year and is expected to have the majority of it's population in the middle class, already equal to the entire US population, by 2025; where its optimism and vibrancy is manifested in its movies, arts, economic growth and voting, despite all the incredible challenges and hardships; where all the great powers are vying for influence as it itself finds its place in the world.
Where all of this is happening, is India and as greater than 1/10 of humanity gets ready to vote, it is an inspiration to all the world.

"unquote"

Amazing. No other nation can boast of such diversity. Perhaps it is our spiritual enlightment that has given us our exemplary tolerance . No wonder then the world looks to us for spiritual leadership. The readers comment as given above puts us on a high pedestal indeed. Comment on China however is debatable. China now is neither destabilising nor violent. It is now continuing to record the highest economic growth and is also a donor to IMF

Curtains to Satyam episode

With the announcement of the successful bidder for scam hit Satyam Computers the collective sigh of relief must have been felt all over the globe. Here was a major international outsourcer almost on the throes of being vaporized into thin air lock stock and barrel. And yet Monday the announcement came that indeed there was a taker for Satyam. This is flabbergasting for it really required nerves to take a call on Satyam. It was like taking a shot blindfolded. The extent of class action suits abroad, the absence of a dependable balance sheet on which to base decisions particularly in terms of unknown liabilities, the mood of the clients notably the large ones and the merit of the need for the buyer to get to the bottom are sufficient reasons to deter any prospective investor from putting money. And in the beginning it looked as if the company was destined to go down under. That this did not happen speaks volumes of our ability to deal with a crisis. Prompt, decisive and purposeful actions by all concerned viz the Govt , the company law board and regulatory institutions not only helped bring about a quick solution but also did not leave any scope for criticism.

Not to be left behind is our entrepreneurship . It is said fortune favours the brave. Tech Mahindra , the successful bidder has been brave in putting its sight on Satyam. And who knows Satyam may turn out to be a fortune for Tech Mahindra. The benefits are immense. In one go Tech Mahindra has positioned itself into the major league along with the Infosyses and TCSs of the world. Instead of remaining confined to only telecom (BT which accounts for bulk of its buisiness) it now has other verticals such as financial services, manufacturing , healthcare and others. Tech Mahindra's client base has now taken a quantum leap and it can boast of such names as GE, Cisco, GM and Citi . And of course it now has nearly 48000 additional talent to tap into.

Will Tech Mahindra be able to put Satyam back on track or even increase its revenue and most importantly expand the margins. It should be possible. Mahindras are a successful business group with proven track record. Tech Mahindra's top management has talent required to build businesses . Besides the much talked about 3% margin might turn out to be not so big a dampener. Most software export companies have an operating profit margin of anything around 25-30 %. Therefore when Satyam gets back on cruise mode again after everything has been set in order it should be able to generate the prevalent margins. And this will be the bonanza that Tech Mahendra can strive for.

There is no doubt that the present valuation of Satyam is the result of the sad state of affairs that it had to go through in the past. And now that there is a new beginning and as someone said "A new star is born " fortune may indeed favour Tech Mahindra since the price it has paid at Rs 58 a share might turn out to be a fantastic bargain.

Price of Tata Motor's nano

By the time bookings for the nano car were announced by Tata Motor its price had already exceeded the sensational 1 lakh tag by as much as 27-28% , though the first 1 lakh cars will be be available to the public at Rs 1 lakh only. Thereafter it will be sold at the prevailing price.

But there is one more aspect to the price situation. Bharat Stage IV is slated to be made applicable from 1st April 2010 in 11 cities which are NCR, Mumbai, Chennai, Kolkata, Hyderabad, Bengaluru Ahmedabad , Pune, Surat, Kanpur and Agra . As per the dealer leaflet available at he company's website http://www.tatanano.com/ ,the car’s emission norms are in accordance with Bharat Stage III standards. Though however advertisements by the compay are mentioning CO2 levels of 101 g/km. While the fuel efficiency achieved by the car certainly is indicative of the car's improved CO2 emission , the figure claimed by the company is way better than the current European 2012 target of average emission of 120 gm/km.

But CO2 emission is not the only only parameter in emission standards. There are other non - CO2 emissions. These are Nitrogen Oxide (NOx) , Hydrocarbon (HC),
Carbon monoxide (CO) and in the case of diesel cars an additional parameter Particulate matter.
Now when BS IV for the 11 cities are made applicable from 1st April 2010 as has been slated, all manufacturers will have to incorporate the improved standards. This will naturally increase the cost of manufacture. Maruti has already announced that it will stop manufacture of its legendary Maruti 800 by 2016 when BS IV will be applicable for the entire country, as modifying it to conform to the improved standards will not be a cost effective solution. Of course Maruti 800 is of old design and upgrading it to conform to BS IV standards is a daunting task. In comparison Tata's Nano is definitely of latest and innovative design. Whether such cost will be marginal for Tata Motors is to be seen. Also completing the upgrade will require some time and incidentally the scheduled date is not far. So if there are no extensions to the deadline of implementing BS IV or if nano car is exempted considering its small engine size, people after booking the car, might end up waiting for the delivery. And who knows where the commodity prices will be then. At any rate, the myth called a Rs. 1 Lakh people's car stands vindicated.

New blog

After writing the previous post it occured to me that I could write some more on stock market investing and decided to start http://stock-skill.blogspot.com . This blog will deal with skills that are very essential for investing in stocks. The discussion will have a current bias as far as possible so that it becomes immediately relevant. It is to be kept in mind that following the skills is no guarantee to profits . These only help us to avoid pitfalls and making mistakes . The present blog will continue to deal with contemporary issues.

Are stocks worth investing in

For anyone who has looked at the stock market during the last 1 to 1 1/2 years has probably turned aghast at the extent to which stock prices have fallen. Between Jan 08 and Oct 08 the BSE index has fallen by about 64% i.e. fallen to about 1/3rd of its peak value. Many high profile so called popular stocks have been reduced to as much as 1/10th to 1/20th of their peak value. For anyone who had put in money around this time it probably has been a shattering experience and the wealth so lost might not be recoverable easily. This therefore raises a very fundamental question . Is it worthwhile to invest in stocks or are stocks suitable only for gamblers. An important question at this point could equally be how many people asked this same very question at the peak of the bull market and exited the market. If they did, then they would be, like the proverb, laughing all the way to bank.

Lets face the facts . Stock markets are not gambling dens. Stock exchanges, where stocks are traded, are public institutions where millions of people engage in buying and selling of stocks and are regulated by government. As regards other avenues of investment i.e. the traditional real estate and gold etc, well real estate also had its share of fall too. There is a property glut at present as evident from large number of unsold properties and discounts of whopping 30-40 % . Besides property has with it an attendant maintenance expenditure as also the stamp duty etc. which basically boils down to reduced return on investment. Then, not long ago, we were grumbling on measly returns on FDs . Gold did not appreciate for a considerable period . Whereas anyone who has been able to catch the bull market which started in 2003 and remained invested has succeeded in making handsome gains in spite of the downturn. It therefore appears that stocks cannot be ignored for getting above normal returns. The question can then be, if stocks cannot be ignored, do people have to loose money buying stocks.

Not if we understand how the stock market behaves. Following should explain very briefly.

Stock prices continually change, in that it keeps going up and down. Our nature is such that we always want to wait for prices to go up still further before we sell and vice versa i.e. we go on postponing the buying decision expecting prices to fall further. But this never happens in reality however much we want. And at some point the trend reverses itself and in most situations leaving no time for people to grasp what happened. And before long, gains are wiped out and losses mount. This is the greed and fear factor. All of us are prone to it. He who has conquered it is already on way to profits. Whether profits will be made depends on a few other aspects.

One is, to get an indication of whether a top or bottom is close by , for it may never be possible to catch the exact top or bottom. It is best to keep an eye on previous year high. If the prices have reached a level where it has greatly exceeded previous years high, it is time to sell. And we shouldn’t bother if prices still go up further for it will invariably come down but profits will have been captured. Look out for the frenzy in buying where people start buying all sorts of junk stocks whose prices reach abnormal levels and IPOs start flooding the market . By all means sell at these times. Getting a clue on whether a bottom is at hand is more difficult and a little risky too. While in the case of a bull market one will have made lesser profit but in the case of a bear market one stands to loose if the buying decision goes wrong and prices correct further. However few generalistions appear to work . Look out for the absolute apathy where people just don’t like stocks. The market is dull and listless and doesn’t react to any kind of news. A large number of good quality stocks record new 52 week lows . In both the extremes markets gets detached from realities of economic fundamentals and represents an aberration . This signals an imminent trend reversal.

The above illustrates when major tops and bottoms are formed in long term bull and bear cycles. A long term investment strategy focused on these cycles is more likely to generate extraordinary returns when compared to short term strategy.

Happy investing

Oil Subsidy

Some interesting statistics appeared in a recent issue of International Herald Tribune. It reads
“ Asia accounts for only about 20% of global oil consumption, but accounts for about 2/3 rd of the annual increase in global oil demand. Most of the rest of the increase comes from oil exporters like Russia, and Midle east where prices are low and economy booming. Oil consumption in the developed world is declining slowly”.

Why is this so. The answer is not far to find. “ No other region subsidizes oil like Asia” continues the article . Hard facts again - Oil subsidy in Malaysia and Indonesia this year will be around $15 bn each while India’s budget deficit , including off the books oil subsidy could be around 9% of its GDP , quoting from the article. As per International Energy Agency the total subsidy in 2008 is around $100bn twice as much as last years.

What are the implications for India. First, India being heavily dependent on oil imports, the consequences are serious indeed . Higher import bill, arising out of higher demand in a subsidised oil economy, contributes to increasing trade deficit with attendant impact on the value of Rupee which has already weakened substantially in recent past. Inflation will then be bound to rise. By subsidizing we interfere with the price discovery and end up paying unrealistic price which is bound to have an impact on the economy . For countries that are heavily dependent on oil imports such impact can be debilitating. Secondly, money allocated towards oil subsidy is at the cost of allocation to more needed sectors such as health, education and poverty alleviation where a greater proportion of the population stand to benefit .

What is therefore needed urgently is a policy to disincentivise production and use of fossil fuel. We have to encourage thrift in oil consumption in order to prepare for the eventuality of a depleted oil, a resource on which our industrial society has completely depended so far . And when that happens by and by, it will be nothing short of a shock far greater in magnitude than the oil shock of the 70’s when the world first woke up to the oil crisis. Will we be able to cope with that. Will we be able to tell our people that they have been given fuel real cheap but now they have to do without fuel.

It is here that alternative sources of fuel assume great importance . The reason why other sources of fuel have not been able to supplant petroleum is that these are yet to become commercially viable. For that to happen greater thrust in research funding is needed. Also needed is setting targets for switching over to alternatives fuel. A case in point is that a simple step as ethanol blending can go a long way in our efforts to start bringing down the demand for petroleum. Another one is biodiesel. Yet it is seen that activity in this area has slackened with the continuous fall in crude price experienced recently. Again commercial considerations come into play. Pricing aspects of sugarcane which is the source of ethanol need to be looked into so that ethanol blending is commercially attractive to oil companies. The same is true for production of biodiesel where it needs to be made attractive for investments to flow in, for, without investments in the sector very little can be done.

In the meantime improving fuel efficiency of automobiles, increasing share of railways in goods transportation and improving public transportation to wean away people from using personal transportation can be a near term actionable area.

Who is polluting the earth

There is widespread evidence that our planet is in great peril arising out of environmental degradation . The air and the oceans are slipping into an irreversible ecological disbalance which threatens to wipe out life on earth. Everyone agrees something has to be done and done urgently. And the spotlight invariably turns on industries, automobiles etc as being among the top polluters. Governments across the geographies are looking for ways to control pollution but has not been able to bring about any significant impact. We continue on our chosen path of ravaging the environment.
But why is it that in spite of concerted efforts by both developed and emerging nations on arriving at a consensus on actions to be taken, precious little could be done so far. The answer partly lies in the fact that it is we ourselves who is to be blamed for the mess we are in. How. Lets see. We are a community of wasteful and careless individuals. We are a throw away society . Consider this situation. We want to buy newer and newer models of automobiles, without giving the slightest thought on whether we really need to change the model . The number of cars and two wheelers that are junked every year, long before end of its useful life, is mindbogling. Now think about the price . The sticker price is all we tend to think of. The actual cost however far exceeds the currency paid. It starts with the mining of iron ore from which steel is made and also mining of coal which is used in the furnace. Then there is the cost of stowing the excavations. All these requires expenditure of energy adding to the carbon emission. Just to put in place, the automobile’s cost to the environment only begins with the manufacture. Once on road its a drive to continue polluting. Consider another situation. Its the area of computers and other electronic gadgets. With the phenomenal rise in computing speed, made possible by newer and newer processors older computers have disappeared. Components of these computers have found their way into some melting pot somewhere for extraction of few ingredients using questionable processes which release extremely toxic wastes into the environment. Again this is an example where something useful has been relegated to waste and replaced without thinking whether all of us really need to give up what we have. Surely most of us could , for our routine and mundane requirements, do with older equipment. By needlessly replacing our possessions we are placing a tremendous amount of strain on the environment. Then there are those needless packaging , the double packaging i.e. Most of these packaging provides little extra protection but provides extra advertisement space for the manufacturer. Why is it done that way. Because we like it that way and we haven’t given a thought on its environmental cost. Like we must have our medicine pills to be technicoloured and don’t give a thought on whether the colour was required to be manufactured at all for adding to the pill. The illustrations could go on and on.
The bottom line in all this is that we must realize that everything we buy and every product that is manufactured costs the earth something in terms of environmental degradation. We undertake most intricate budgeting exercises to be able to make our purchases, but so far as the environment is concerned we don’t pause to check the balance. And the balance is running out and running out fast. The wake up call has been given. Lets not pretend to sleep.

The not-a-millionaire slumdog

The dust appears to have settled on oscar winning film slumdog millionaire. The euphoria of many Indians making it to the coveted prize has mellowed. For a brief moment inhabitants of slums across the country had turned ectatic believing their condition would improve. Memories will soon fade . And its buisiness as usual in the slums of India. In all the applaud of the winnings at the Kodak theatre in California, we lost sight of the fact that we are home to Asia's biggest slum Dharavi Mumbai. Recently Hindustan Times carried an article citing an UN report on the plight of slumdwellers in India and blamed the condition in slums on the absense of a political vision rather than insufficient resources. The report also states that by 2030, 50% of the population will live in cities (up from 28% now) and of that 30% ill live in slums. This is a very disturbing scenario. For, as it is, our cities are bursting at the seams , with the civic amenities just not being able to cope with the demands. And with continued migration to cities, which is accelerating at a fast pace, things can only get worse .
What is the way out . Slums are where cities are. And if the everincreasing population continue to migrate to cities, slums will get bigger and bigger. So we have to make the cities bigger and if that doesn't suffice, catalyse towns to grow into cities and smaller towns to grow into bigger towns. But most importantly address the problem of why people leave villages. Let our villages have comparable facilities and with improved facilities people will have increased means of livelihood. Its the search for a livelihood that not only drives people to cities but also force them to accept subhuman conditions of living. We have no doubt made progress in this direction but it has been slow and a lot more needs to be done.

Strategic investor for Satyam Computer Services

Much has been talked about conjecturing on what could possibly be an attractive stake for an investor to have strategic interest in the company. Whether 26% would do or nothing less than 51%. While the company’s board has stated before the honourable CLB , inter alia , that to enable the company to induct a strategic investor with equity capital, the authorized equity capital has to be increased from 160 cr to 280 cr and also to make preferential allotments. Ms. Pallavi Shroff submitted that no strategic investor would be interested unless a minimum of 26% of the enhanced equity capital is allotted on a preferential basis.

Since honourable CLB has permitted the company to increase the authorized capital from 160 cr to 280 cr, accepting the merit of the board’s case , there should not be any hindrance for the compay to go ahead and raise 120 cr of equity capital , make preferential allotment of shares at par or at a premium and induct a strategic investor. This 120 cr will be roughly 42% , which should be adequate for the investor to feel confident as regards it’s holding in the company. At any rate it is a paltry sum to be paid for what Satyam is potentially worth.

It is now widely accepted , particularly after the CLB order that a strategic investor is necessary who will chart out a revival plan for the company, regain confidence of clients, further the business of the company and in general put the house in order. The hapless shareholders will then find a reason to cheer after a traumatic erosion of shareholders wealth.
As it is, the current economic scenario is making life difficult for even the established players and a beleaguered one needs all the help. The company should therefore quickly get on with the job at hand.

Capitalism dying ??

In an article in the Times of India, Swaminathan A Iyer has made an interesting list of writers of obituary of Capitalism and has shown that despite all the forebodings, Capitalism has survived so far and it has survived because of its inherent ability to re-engineer itself and also due to its character being, in a broader sense, that of a govt-private JV .
Here are some arguments in support of capitalism.
First on the self correcting nature of capitalism. As long as land, labor & capital are owned, operated and traded by private individuals/corporations which is what happens in capitalism, there exists a profit motive . It is this urge to make profits that breeds entrepreneurs who use their knowledge, skills and resources for economic activity. Economic freedom draws in more participants which leads to competition which further leads to better and more affordable goods and services thereby benefiting larger proportion of population. Thus capitalism promotes economic growth which is higher GDP. Benefit to people is in terms of improved living standard through greater availability of food, housing, clothing and health care. Understandably, this is what welfare – the dictum of socialism - is all about . The ingenuity of human entrepreneurship in fostering widespread economic activity cannot be replicated by state machinery which can be handicapped by lack of motive, resources and ability.
In a free economy it’s the demand supply equilibrium which works. Freedom has with it the excesses i.e. the booms and busts and these have been known to exist in cycles. In times of one or the other , demand and supply adjust to a state of equilibrium from where human greed and fear start taking over and the cycle repeats itself. But importantly in the process, learnings are adopted, earlier shortcomings corrected and the system goes on to improve itself .
Now, no state can ensure welfare of its people without a prospering economy. In that sense the state can create a climate for free economic activity i.e. where market forces can play . It can also be a part of that market force, albeit ensuring level playing field is not disturbed. Ultimately the state also benefits through tax collection. Thus in a capitalist state the government does have a role, as it must, in ensuring welfare . A socialist state on the other hand can attempt welfare but will lack the entrepreneurship to propel a flourishing economy. India is a fitting example of this. India’s progress is there for all to see. From Gold control order of the 60s to bludgeoning forex reserves , the impressive rise in per capita income, and the cellphones and two wheelers in the hands of millions are truly eye opening.
According to Nobel laureate Milton Friedman (1912 – 2006) , economic freedom of competitive capitalism is a requisite of political freedom and that centralized control of economic activity is always accompanied by political repression.
India’s policy makers would do well to continue with the reforms more vigorously and not get tempted to swing back to the old ways.