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State capitalism in times of crisis

Despite massive state interventions in economies around the world, many corporate leaders and investors act as though globalization remains the dominant paradigm. That is a mistake, argued Ian Bremmer, a political risk analyst. Unfortunately, the mainstream Indian media, too, wink at what the likes of Bremmer say. Look at the top 10 companies in terms of market capitalization in India. Six of these are public sector undertakings. Take the top companies which have recorded more than Rs 100,000 crore marketcap — there are six in the league, of which four are PSUs.

The important point to note, one accepts it or not, is that the owners of the private sector companies are known for insider trading activities in their own shares. There is no such insider in the PSUs to boost the share prices. Despite that the investors, which include mostly institutions manned by professionals, repose their faith in the public sector. By the sheer numbers in the market, mainstream media and ‘opinion-speakers’ should reconsider their opinions. More so, in view of the reality seen after the collapse of the ‘greed economy’ of the USA in particular.

Nowhere is this reality more pronounced than in Washington DC, where debates over bailouts for the auto industry, new financial rules, and individual elements of a $787 billion stimulus package have become a regular fodder for discussion. The government-run deficit in USA works out to 11 per cent. When India’s Finance Minister announced a fiscal deficit of little over 6 per cent, curiously, all hell broke loose. Some went on to argue that if one adds the deficits in various state budgets the figure will be much higher. What such smart brains ignore is the fact that even in USA there is a federal structure with the states running their own budgets.

The stated deficit in USA, thus, would be much higher than revealed by the federal budget deficit alone. Also ignored in the process is the need for inclusive growth to avoid social upheaval, be it in USA or in China or Lalgarh in India. Indian brain trusts, like it or not, there has been a determination of political officials around the world to avoid the social upheaval that the global financial crisis might generate. This has injected politics and political motivations into the performance of global markets on a scale we haven’t seen in decades. Unfortunately, we in India, are shying away from this change in paradigm. This urgency forces Obama to browbeat Manmohan Singh at L’Aquila and make him accept the message on global warming against India’s stated stand on the issue. The same need has turned China hostile towards the Rio Tinto officials working in the country. The goal is clear.

Use all your might to tilt the scale in your favour. In this no-holds-barred fight for survival in the times of global recession only the strong-willed will survive. There is no time for the chicken-hearted, least so for the chicken-brained. Fortunately, the state-owned enterprises in India have persons with commitment at the helm. India’s state-owned banking sector is thus on a firm wicket unlike its global counter parts or even the private sector banks like ICICI, which blindly aped the West.

Minor aberrations notwithstanding the political bosses of the nation have stood up to the need of the people. That is the benefit which arose out of a firmly entrenched democratic system. Now is the time to consolidate further the gains made so far.
New Delhi has rightfully embarked on a growth with the people and shunned the rhetoric of the rich—that is of handing over the economic assets to the profit-mongers in the guise of privatization.

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