Friday, March 30, 2007

Santa Claus visits the Tatas - Freebies from a debt-ridden government

Cutting Corners - Ashok Mitra
The uproar over Nandigram — and Singur — in West Bengal will not die away soon. Competitive democracy has its own laws; those opposed to the party ruling in the state will try to squeeze the maximum advantage from the discomfiture it has brought upon itself.
Speculation continues on the riddle as to why, despite repeated assurances to the contrary, the state administration fell back on a colonial-type police offensive to re-assert its authority in Nandigram. The underlying reason, informed sources suggest, was a strong message from the Salim group, who were promised vast stretches of land in the area for their chemical hub project; they might move away elsewhere, the message said, if the land was not handed over to them within the next few weeks. That set the panic bell ringing; the sequel has been horrifying.
Nothing illustrates more glaringly the spell globalization has cast on the country, even on those whose ideology and praxis should have prepared them to cope with it in a better manner. Industrialization, the rationale of which few will dispute, is being taken to be synonymous with industrialization under private auspices. To talk of industrial growth in the state sector is assumed to be heresy. Questions such as whether a particular private project will actually lead to a net increase in employment or output are discouraged too. Fables are having a field day: the private sector means efficiency to the nth degree, public enterprise is the other name for sloth, incompetence and wastage. The stunning achievements of the National Thermal Corporation, Bharat Heavy Electricals, Nalco, the Oil and Natural Gas Commission, the Gas Authority of India or the Indian Oil Corporation in recent years are conveniently ignored. Also brushed aside is any reference to the huge resources at the command of public sector fiscal agencies such as the Life Insurance Corporation of India and the Unit Trust of India.
As in the other poorer countries, here too fiscal devices are introduced at the behest of US-led international financial institutions to compel ruling politicians to desist from taking new initiatives in the public sector. The Fiscal Responsibility and Budgetary Management Act is being applied to admonish both the Centre and state governments not to ‘fritter’ resources on public sector extravaganzas. There is, in consequence, a gradual maturing of the belief that industrial activities are a natural monopoly of private entities, foreign as well as domestic.
The Left Front in West Bengal is the product of a historical movement which had as its credo the expansion of public goods and industrial growth through the deus ex machina of the public sector. Those currently in charge of the Front government in the state have apparently convinced themselves that, in the era of globalization, ideological shibboleths are poison, development ipso facto is development sponsored by the private sector, the government has only the residuary obligations to acquire land, on behalf of private tycoons, on which industry is supposed to be set up, and, in addition, provide costly infrastructural facilities the private sector will not build on its own because of their low profitability.
Once development is defined in such constricted terms, maximizing the rate of return for private operators becomes the only criterion by which to judge success. The logic is simple: if private profit expands, capitalists feel good; if capitalists feel good, they will expand their activities and the economy will have growth. The state government does not dare to enquire whether activities undertaken by capitalists will be on the basis of any careful analysis of costs and benefits, or whether in deciding the technology for the investments undertaken, alternative choices will be considered. Fifty years ago, when official faith in economic planning was still extant in the country, any investment proposal would be examined, taking into account the expected rate of income growth, the expected rate of employment growth and the expected rate of surplus or profit. With the eclipse of the planning era, such elementary practices have gone the way of all flesh; the only desideratum regarded as relevant is the expected rate of generation of private profit.
This transformation is illustrated most luridly by the details the state administration in West Bengal has finally been forced to disclose concerning the agreement it has reached with the Tata group apropos the small car project at Singur. The Tatas are, of course, rolling in money. Only a couple of months ago, they invested a sum roughly the equivalent of Rs 50,000 crore to take command of a giant international steel complex. To persuade this fabulously rich group to start a modest-sized car factory here, the state government has already spent something around Rs 150 crore to acquire close to 1,000 acres of land. The least that was expected was that it would recoup this amount from the Tatas. Nothing of the sort. Instead, the Tatas have been handed over this entire tract of land on a ninety-year lease without any down payment at all. For the first five years of the lease, they will pay only one crore rupees; for the next twenty-five years, the payment will increase by 25 per cent at five-year intervals; for the next thirty years payment will be raised at five-year intervals by 33 per cent; for the final twenty years, the rent will be only Rs 20 crore per year.
The discounted present value of what the Tatas have agreed to pay, any respectable accountant will vouchsafe, will hardly exceed Rs 50 crore. Equally necessary to take into account here are the historical trends in the rate of inflation and the likely explosion of real estate values through the decades of the 21st century. The conclusion is incontrovertible: the government is, really and truly, making a free gift to the Tatas of the land in Singur.
That is, however, only a minor part of the story. The state government is, in addition, offering the Tata group a gift coupon in the way of a loan worth Rs 200 crore carrying a nominal interest of only 1 per cent (as against the rate currently charged by the banks of at least 10 per cent); the principal, one suspects, is never intended to be returned. Finally, in terms of the lease agreement, the entire proceeds for the first ten years of the value-added tax on the sale of this precious car in West Bengal are proposed to be handed back to the Tatas, again at a nominal interest of only 1 per cent. If 40,000 cars are sold every year in West Bengal — not an unreconcilable assumption — with a value- added tax at 12.5 cent, this particular act of magnanimity on the part of the state would ensure an extra bonanza of more than Rs 500 core for the Tatas.
All told, therefore, the group is being offered the allure of around Rs 850 crore by the state government, apart from their being spared the bother of acquiring the land through their own efforts. The deal does not though mention what the Tatas are, in exchange, offering West Bengal. There is not even a stray reference to the likely employment, direct or indirect, consequent to the setting up of the plant. Were the employment generated not to exceed 10,000, that would just about equal the number of share-croppers and landless farm workers displaced at Singur following the acquisition of land. The state’s outlay of Rs 850 crore would be for nothing.
Suspend the debate over the ideology of development. Also steer clear of the pastime of apportioning moral responsibility for the deaths and other incidents in Singur and Nandigram. Forget for the moment the dubious economics too. What about one’s sense of aesthetics though? Does it not appear obscene that a state government, carrying a burden of debt of more than Rs 150,000 crore and with a countless number of problems, would offer a freebie of Rs 850 crore to an industrial group which has made an outlay of over Rs 50,000 crore only the other day to satisfy their expansionary ego overseas?