The Tribune, Chandigarh, India

Air-India privatisation

AFTER a seemingly never-ending wrangle between the Civil Aviation, Finance and Disinvestment Ministries, the Cabinet Committee on Disinvestment (CCD) has finally decided to shed the government's holding in the loss-making Air-India to 40 per cent from 100 per cent. But as the old adage goes, there's many a slip 'twixt the cup and the lip. What needs to be noted is that no timeframe has been fixed for this partial privatisation. Whether the move will be allowed to gain momentum within a reasonable period of time is anybody's guess. If the earlier hurdles put up by the Civil Aviation Ministry are any indication, one cannot be too hopeful on that count. In fact, it is being said that Mr Sharad Yadav could "see reason" only in the backdrop of stringent criticism over the alleged "hijacking" of an Indian Airlines flight by certain politicians to Patna the other day. He was earlier determined to put the cap on foreign investment at 25 per cent. That would have meant that the foreign partner would have no effective say in the running of the flag carrier which is deeply in the red. The increase to 26 per cent conceded grudgingly would at least provide veto power to strategic investor on the airline's board, according to company law. That in turn should help in attracting some serious investors. According to current indications, several reputed airlines like Lufthansa, Singapore Airlines, Swiss Air, KLM and Malaysian Airlines are interested in a joint venture but are holding back their flight plans. They have genuine fears that the privatisation drive may yet be derailed by throwing in the spanner of pseudo-nationalism, despite the fact that Indian holding at any given point of time will be a minimum of 74 per cent. Adequate reassurances may draw them forward.

Whatever the critics of privatisation may say, the fact remains that Air-India at present is not a very attractive business proposition despite the massive investment made in it. Decades of lethargy, inaction and interference have reduced it into a pale shadow of what it once was. It has been making losses for the past five years, with long-term debts standing at a staggering Rs 3,500 crore. It has a fleet of just 26 aircraft, of which only 22 are commercially viable. And above all, it is saddled with more than 17,000 strike-happy employees enjoying high wages, perks and facilities (like making the paying passengers get out of aircraft so that the pilots' relatives can be accommodated). It will be quite an effort to revive the erstwhile Maharaja, who is currently on a dole. A revival package can make it more attractive. Now that it has been decided to privatise it, the endeavour has to be to get the best price. To put it in simple terms, Air-India today is like an old jalopy on sale. In the present sorry state, it may not fetch a very good price. But things will look brighter if a fresh coat of paint is applied before auctioning it.

Unjustified attack

FINANCE Minister Yashwant Sinha is an angry man and God knows, he has reasons to be angry. He feels that he is the target of a vicious personal campaign and his enemies want him out of the Finance Ministry. First, the income tax department’s clarification on Double Taxation Avoidance Agreement with Mauritius was pilloried as his nervous over-reaction. Now in a hurtful twist, he is accused of doctoring rules to help the company in which his daughter-in-law is a top executive. Mediamen with the help of extensive off-the-record briefing have been writing regularly on this family angle. The latest is the rumour that the young woman received a gift of $5.3 million or approximately Rs 24 crore (it was actually the annual bonus for the Indian branch from the Canadian parent company). Just before the symbolic Cabinet expansion and after the Prime Minister talked of reshuffling economic Ministers, a powerful rumour exploded uncomfortably close to Mr Sinha. It was about his imminent transfer from the Finance Ministry. All this in the wake of subdued hostility or indifference to his budget proposals. He sees in all this a sustained campaign against him and naturally traces it to powerful men who are opposed to his liberalisation drive. This former bureaucrat is a gritty character and as he has said in a statement circulated at a press conference on Sunday, will fight even if it means going down fighting. The bringing in of his daughter-in-law is both poisonous and insensitive. It is mixing personalities with politics and it is irritating. Obviously the Minister’s detractors are less interested in a policy change and more eager to smear his name. The policy on double taxation has been challenged on a valid ground. India has a similar agreement with the USA and most of the companies with a nominal office in Mauritius are America based. Should not that bilateral treaty apply to them instead of the one with a third country?

It is not as though Mr Sinha cannot take criticism. Last week he sat through a conference of income tax commissioners in New Delhi and read several highly critical notes circulated there. The tax men accused the Finance Ministry of being unduly soft to multinational corporations (MNCs) in the matter of tax collection. They made two valid points. One, revenue is lost and the government’s financial health does not warrant this generocity. Two, India is getting to be seen as a weak country with weak or timid tax administration. This will damage the potential for growth as big companies shun loosely regulated markets. Liberalisation demands fewer regulations but tough enforcement of those regulations, and income tax is one such. Their grouse was justified. Top PSUs, which have their head office in New Delhi, had refused to pay corporate tax saying that it would make their balance sheets look emanciated. And the Finance Ministry tended to agree with the PSUs. Dozens of notices to MNCs demanding full deduction of taxes and prompt filing of returns irritated the Ministry officials who feared that such “harassment” would drive away present and potential investors. This was wholly uncalled for as the Japanese and South Korean experience showed earlier. The companies from these two countries deducted tax from their employees only on part of the salary; the remaining was paid in their country and India was denied full revenue. The tax authorities acted tough and recovered the due amounting to more than Rs 500 crore! The tax man has a point: he should evoke respect and not provoke a sneer.

Gavaskar is right

SUNIL Gavaskar's demand for a time-bound investigation into match-fixing allegations is not likely to make any impact on the Board of Control for Cricket in India. The cussedness of the board officials in dealing with the smoke before it became a raging fire is largely responsible for the current crisis. Gavaskar has come magnificently to the defence of the players by saying that "there may be the odd rotten apple, but most cricketers are clean". The Indian batting legend is understandably worried about the effect of the controversy on the morale of the current players. He was respected as a player for his straight bat and is now held in high esteem, as a commentator, for his "straight talk". It is evident that the unsavoury developments of the past few weeks have caused him pain. And why not? Manoj Prabhakar has turned the controversy, he started, into a slugfest. His single point programme has nothing to do with the avowed objective of removing the hidden filth from the corridors of Indian cricket. It looks more like an attempt to bring down the entire structure. In his book reputations are meant to be torn apart. The impact of the allegations on the avid cricket buff has been in direct proportion to the stature of the current or past player. The bigger the name, the greater has been the sense of shock among those watching the sad spectacle of the game being turned into a poor imitation of WWF bouts. Of course, Prabhakar himself played cricket with the passion of a street-fighter. He was known for getting into brawls with even his Ranji Trophy team members. His popularity in the dressing-room can be gauged from the response of his team-mates when he ended up with a bloody face during an India-West Indies Test match at Mohali. He was surely a talented cricketer, but his popularity among other players was always suspect. It can now be said on the strength of available evidence that hell hath no fury like a cricketer scorned.

The most unfortunate part of the entire controversy is the willing role of a section of the media, both print and electronic, in helping Prabhakar implement the agenda of throwing mud at just about every past and present cricketer with whom he has played for India. There is hardly an institution on the planet where back-biting among fellow-professionals is not as common an affliction as the common cold. All that a nasty colleague has to do to cause turmoil in the office is to secretly record instances of back-biting and make them public. This is what a helpful newly-launched website has made Prabhakar achieve. The time-tested self-imposed restriction of not giving credence to one-sided accounts of alleged acts of wrong-doing by individuals or groups was conveniently ignored for projecting Prabhakar as the saviour of Indian cricket. It is in this context that Gavaskar's suggestion for a time-bound probe needs to be backed to the hilt by players and followers of the game. Indian cricket should not be allowed to be treated as putty in the hands of uncaring members of the media, self-proclaimed cricket administrators and frustrated former players. Their interest in the current controversy seems to be limited to "creating" evidence for fixing individuals rather than exposing players actually involved in match-fixing. Ian Botham too has demanded a thorough probe for cleaning international cricket. But he wants the investigations to be conducted by an agency of a country where cricket is not popular. It would help investigators to not be influenced by the names and reputations of current or past cricketers. The response of the International Cricket Council to the suggestion has been predictable silence. There is substance in the charge that cricket administrators are comfortable with the current situation in which reputations of only the players are being destroyed. They know that an independent enquiry would expose their sinister role in handing over the control of international cricket and cricketers to bookies and fixers. The unmasking of cricket administrators would not come as a shock because newspapers across the globe are now full of accounts of parents forcing their children into prostituting their talent.

PRIVATISATION OF MEDICAL SERVICES
Are govt hospitals responsible for it?
by Satya Prakash Singh

A FEW years ago, an eminent surgeon working at the Post-Graduate Institute of Medical Education and Research, Chandigarh (PGI), took early retirement and started private practice, I asked him why he had done so. His brief reply was, “Its money”. He was confident of earning much more money as a private practitioner. He is indeed earning more now. There are quite a few such examples. Many medical experts do not join government institutions at all. It is not only money that is responsible for such a phenomenon. There are many other well-known dysfunctions of hospitals in the government/public sector that “push” efficient doctors out. News of highly competent, upright and committed doctors being superseded by less competent ones in government institutions is common.

Every individual faces alternatives. If he chooses one alternative, he foregoes others and, thereby, their associated benefits. These forgone benefits are called “opportunity cost” of his choice. A doctor is also an individual. He tends to calculate this opportunity cost when he chooses to work in a government hospital rather than join the private sector. More competent a doctor, more is his opportunity cost. No doubt, government jobs provide greater security, but an efficient person does not really need to bother about job security. His competence and skill give him the best security. The opportunities thrown open both within India and abroad by the process of globalisation, liberalisation and competition in the last two decades have caused increasing brain drain from the government to the private sector.

It must be recognised that a good number of doctors working in government hospitals are committed to serving humanity. They do so against all odds within their work place and temptations from outside. Once I saw a professor of the PGI walking towards his residence with a kilogram of pumpkin in his hand. I enquired, “you went yourself to buy only this much of vegetable”. He replied seriously, “we don’t have a servant and on the last day of the month I can afford to buy only this much of the vegetable.” On another occasion, he narrated another story. His college-going daughter wanted him to purchase a scooter for her. He showed his inability to do so because of paucity of money. Then she informed him expressing her anger that only two girls of her class came to the college on bicycles. One was she herself and the other a daughter of a peon! This doctor is second to none in his area of specialisation. He could have earned a lot to live lavishly as a private practitioner or as a retainer in a private nursing home. Yet, he continues to serve the PGI on a fixed salary. There are others like him. But, unfortunately, the breed of such doctors is declining fast. Perhaps, they are more obstinate than rational in today’s society! The point is very clear: Government hospitals in the country are losing good doctors to the private sector.

Let us look at the feelings and responses of the users of medical services. A friend of mine took his 10-year-old son, who had fainted without any apparent cause, to a government hospital. After a long wait a doctor saw him and advised certain neurological tests. The laboratory gave a date for the test that was after a month, even though it was a case of emergency. So, he took the boy to a private hospital where the tests were promptly done. The attitude of the doctors and the supporting staff at this private hospital was so good and caring that my friend decided to get his son treated in the same hospital. There are umpteen examples of painful experiences of the user public, of inadequacy and poor quality of service in government hospitals, long waits and harassment at the hands of the personnel. Thus, people are forced to search for alternatives. And such alternatives are becoming increasingly available in the private sector.

The rich are willing to pay a higher price for quick and quality service. Even people belonging to weaker sections are seen in a significant number getting treated by private practitioners. The reasons are harassment of all kinds, negligence, etc, in government hospital. These add to the real costs of medical service at the government hospitals. It is a pity that the poor have to suffer these costs more than the rich. Thus, the total real cost of a medical service at a government hospital becomes more than that at a private nursing home, particularly in the case of the poor. Consequently, there arises demand for the medical service in the private sector. The private entrepreneur seizes this opportunity. Attracted by the large demand, the corporate sector is also diversifying into this area. There is shift from other professions, even from farming, to starting a nursing home.

What is the reason for the poor quality of service in the government/public sector? The agency cost (the inability of an organisation in effectively achieving its objectives such as profit, shareholders’ value, or social welfare, etc, due to the pursuit of self-interest by the employees, particularly, by the top management of the organisation) is too high. There must be other factors, such as lack of funds and political interference, causing deterioration in the quality of service in the government hospitals. However, the agency cost is the most important cause.

The real threat to the government/public sector does not come from the policy-makers who have a bias for the private sector, private entrepreneurs, or capitalists. It originates in the private motive of the persons who man the government/public sector and make decisions on their behalf. The real privatisation of a public sector or government organisation begins when its management starts thinking in terms of its own self-interest at the cost of the organisational goals. The worst happens when the management uses the organisation for its own sake. This is the extreme form of agency cost responsible for the deterioration of an organisation.

Given the same environment and budget, a hospital in private sector provides better service, and more efficiently, than a government hospital. One can see the mushrooming of private nursing homes in a city like Chandigarh, which has the prestigious PGI and a modern government hospital. It would be tantamount to complacency if one thought that the growth of private nursing homes in the city was only due to the increased demand for medical service that government hospitals were not able to cope up with. There is a definite shift from government hospitals to the private sector. It appears that the privatisation of hospitals too is imminent. If a well-established government hospital is not running properly in the same city where private hospitals are thriving, it is natural to think of privatising the hospital as a feasible solution.

The change of ownership per se does not increase organisational efficiency or effectiveness. The implicit assumption behind the privatisation of a public sector unit is that the change in ownership will ensure improvement in the managerial performance and worker productivity. What is the logic of an increase in efficiency and effectiveness due to the change in the ownership, from government to private?

Governments finance capital either from taxing the public, or through deficit financing or borrowings whose burden is borne ultimately by the public. The risk taker in the case of public investment is, therefore, the public at large. However, since the risk is spread over a large number of individuals, it can be proved mathematically that the cost of risk bearing, as perceived by society, approaches zero. In the case of the private sector, the risk is borne by the limited number of shareholders. The cost of risk bearing is significant for each one of the shareholders. Often people make laughing reference of failures of a public sector unit. But the same people lose their night’s sleep if the share value of a company in which they are stakeholders declines.

The risk of inability to achieve the objectives of an organisation in the private sector keeps the shareholders, at least the major ones, alert and, thereby, there is constant pressure on the management to perform. Just like the burden of the loss, the joy is also shared by a few in the private sector. So, the shareholders are willing to reward good performance as much as they are to punish the bad performance. The accountability of the management does the trick.

We are in the age of competition. The service providers in the private sector compete among themselves and also with the government/public sector. Huge investment is being made in purchasing state-of-the-art machines and equipment. Highly skilled doctors and the supporting staff are being employed. Ultramodern facilities are being created. Customer satisfaction is considered as the ultimate route to profitability. As a result, the quality of service in the private sector has been improving. Let me hasten to add that there is a lot to be desired as regards the quality of service in the private hospitals too. The hygiene and infrastructure facilities in the best of the private hospitals in the country are poor as compared to the international standards. The point to be made is that the quality of service is improving in the private sector through time vis-a-vis the government sector.

Privatisation is not a matter of ideology, as many people, particularly politicians of leftist orientation, seem to believe. It is not a matter of legal definition. It is not a matter of procedure either. It is a consequence of market mechanism and the underlying real forces that determine the supply and demand.

Any ideological debate should favour a system that is organised around the principle of supremacy of the societal interest rather than on the principle of maximisation of individual self-interest. Economists have known since long that the conditions for self-interest-motivated market mechanism to maximise social welfare are too stringent to be applicable in the real world of market distortions. Such systems ignore the interest of the poor and the weak, and, most important, of future generations. Future generations belong to society but do not exist in the present to reveal their preferences in the market. An extreme case of inter-generation inequity takes place when an unborn is killed through abortion on the basis of the revealed preference of the present generation. Thus, theoretically, there is a strong case for public sector hospitals as against private sector hospitals. Yet, the reality is that there is a reverse trend. And it must be emphasised that any trend towards the privatisation of hospitals becomes a matter of concern in view of the increased probability of neglect of the poor and the weak who cannot afford to pay.

It must be appreciated that not all the hospitals in the private sector run on profit motive. Nor all the private practitioners have only money as motive. There are private practitioners fully dedicated to serving the poor and the weak. There are hospitals that aim at serving humanity free of cost. They generate funds through donations. The hospitals run by voluntary agencies and welfare organisations are among the top institutions. Indeed, providing medical service to the needy is on top of the agenda of a large number of non-profit organisations not in the government sector. These have well-defined objectives and the management and functionaries are accountable. There is no place for those in these organisations who even slightly deviate from the organisational goals.But the general model of the private sector is that of profit motive and competition as presented in the above paragraphs.

The obvious lesson for the government hospitals is then to develop a system of accountability,and reward and punishment. Today the good are being weeded out from the government system. The need is to weed out the bad.

The lesson is obvious. Yet, I do not think, it will be learnt. The future, therefore, is that of private sector hospitals. Due to competition the quality of medical service is expected to improve to a satisfactory level for those who can afford to pay. The future of medical service for the teeming millions below the poverty line (and one should not believe that those above the poverty line are not poor) is indeed bleak. Even if the blissful world of perfect competition prevailed, in distant future, where the services would be produced and sold at a level of “prices equal to the marginal revenue equal to the minimum marginal cost”, the poor would still not adequately be served. That level of minimum cost too would be too high for them to afford.

(The writer is Professor, University Business School, Panjab University, Chandigarh).

Why tinker with history?
by Sushil Kumar

HISTORIANS don’t make history. Most of them are mere tools to tinker with the past events. This precisely has been the irony of the historical discipline. It is high time responsible intellectuals stemmed the ongoing efforts of painting the past so that we didn’t lose the spirit of our history.

Any historical analysis ought to be based upon objective interpretations and not wishfully induced ideologies. There is no doubt that we have complaints with our past record. But shall fabrication yield anything? It is a fact that during the times when foreigners ruled here history was written by our ancestors and also by those who ruled over them. Some might have been hired to write history.

However, must be bitterly complain that our achievements were excellent but were shown shoddy by those who doctored history? That they passed on to us lopsided historical analyses and wrong interpretations so as to suit their ends and to keep us down. Is the current hue and cry about tinkering with history without any basis? But what is intriguing is that in independent India with constitutionally guaranteed freedoms and our much touted intellectual liberties, the modus operandi of the colonial rulers should be in vogue. Must the works of objective minds be confined or controlled?

Objective and scientific recording of history demands that we lay bare all that is there. If we pick and choose and delineate what suits us, we shall be branded suitably. What is the rationale of the psyche that if one paints one’s past bright one’s present and future shall automatically become so? Historical writing, though it can encompass all psyches, cannot change the course of bygone events.

Why do some of us dig the sands of time to search for the golden dust? Can any country claim that its past was all golden? Let us not falsify the fact that some invaders defeated India and ruled here. We cannot change our history in our fantasies as many would wish. A fanatical play with the historical past is akin to playing with fire. The current efforts of a particular sect of historians to exclusively own Indian history shall be counter-productive. All Indians can take pride in being part of the common heritage. Certain committed writers shall still continue to rake controversies. And the unique thing about historical controversies is that no matter how much the contemporary historians fight to the gallery, these shall reveal the motive. Most of the historical works have been thus lopsided, subjective and at times contrived. No history is true history.

All governments make efforts to defend their instruments. But must the particular day’s government fend for the wrong-doings of the party persons. Most of the blatant espousers of the fundamental ideology, in the forefront now, are mere weathercocks. It would be worth the effort to shuffle through their feathers. Many of the yes men of yesterday’s regime are today’s cronies. Their motivation is profit and opportunity. Many of these swans can crow again. Ina country as ours, this has been the bane of our history. The country is not the foremost for many. If that had been the case many of our ills would not have been there. The irony of our times is that our elders who were 20 years plus at the time of India’s independence are still in the saddle of power and are running the country as the colonial rulers.

There cannot be any sacrosanct history of the Indians by the Indians for the Indians providing Davidians the rationale of the past. Even the officially supported ideologies and their narration cannot provide us the sure signposts of the past. But the mending of history must not be allowed. The study of our history is of invaluable importance. But neither the Spencerian nor Marxist models of the study of history can do us any good. These are alien approaches. Even the imagined and concocted history, which may have the potency to provide stimuli, is no solution for a people who have got their track record as well as its history wrong.

(The writer is Director, Indian Council of Historical Research, New Delhi).

Over to the countryside
by P. Raman

‘OVER to the countryside’ has been an old Mao Ze Dong dictum to his communist cadre. His much acclaimed revolutionary guerrilla strategy was based on first capturing the countryside and then prepare for protracted assaults on the city areas. Half a century later, Indian Naxalites too are replicating the same old strategy — and with fairly good results. But now our modern capitalists — both the dying tribe of desi and the all-powerful MNCs — have it all reverse.

The business has begun invading the countryside in a big way. Big and small players planning their market strategy to penetrate into what they hope the booming rural market. While doing so, they also aim at ousting the tiny sector which now meet the limited rural needs. All sorts of fancy figures are being bandied about the potentials of what was once derisively dismissed as ‘upcountry’ market. Market surveys — like the election predictions by similar research agencies — are highly prone to exaggeration depending on who charters them. One such survey recently predicted that in the next six years, the low income households in the rural areas will be down to a merely 16.5 per cent of the population.

If one takes such rosy predictions at their face value, in two years, proportion of the high income rural households with earnings of over Rs 1.25 lakh per annum has gone up from 0.3 per cent to 2.3 per cent. Thus they predict that by 2006, the population of the rural consuming class will be 43.3 crores or over 75 per cent of all households. For the market, this is quite an inspiring figure considering the fact that India’s middle class consuming population itself was put at 30 per cent and on which the whole marketing strategy has been drawn up. And to cap it all, 42 per cent of the rural households own TV sets. What else you need for turning the entire rural India into a booming market?

Such rosy visions apart, the rural market has over the years acquired importance, both quantitatively and qualitatively. In fact, even in the first half of the last century, rural India had an important share in the sale of consumer durables of the era. In the absence of a wide network of outlets, rural sales were through short newspaper advertisements and sent through VPP. Rural landlords and well-to-do sections bought the prestigious West End watches, clocks, kerosene lanterns, petromax and gramophones and displayed them as status symbols. Thus rural India as a potential market for manufactured goods is not a discovery of the new market wiz kids.

Shorn of the myths and heady hypes, the rural market has come to play an important role in India’s consumer sales. The ‘urban’ market has its own definite characteristics and limitations. It cannot be defined as one single segment. It has layers after layers depending on the purchasing powers of the respective sections. It is highly region specific. Unlike the pre- World War II rural market, the present boom is confined to a few prosperous areas which have been benefited from the green revolution, cash crop and the limited percolation from the nearby cities. For the new marketers and strategy planners, rural market includes all areas beyond the existing marketing network centred on the major consuming conglomerates. This includes the mofussil towns — some of them as big as the cities — and the areas served by the distribution centres therein. The shop owners even in interior villages collect their merchandise from such centres. Incidentally, even during Mahatma Gandhi’s childhood, the concept of self-sufficient villages, which used no consumer items produced outside, had ceased to exist. The new consumer boom is a continuation of an old process but in a quicker pace with organised efforts driven by a budget of several million. Segmentwise, on the top is the highly affluent farming class with huge surplus funds and tremendous purchasing power. Products of green revolution, in most places they own large tracts of land alienated from the marginal farmers in the process.

Among them, a new generation with modern education and high consumer aspirations has emerged. Frequently exposed to high living and lifestyle of the urban centres, they bring along the best vehicles, clothes and gadgets to their rural estates. In their craze for showing off their acquisitions among their village clans, they even display cell phones which cannot in any case work in the interior regions. Recently, some automobile giants have claimed that many of their highest priced cars had their buyers among this rural nouveau riche. Freed from the control of the old miserly generation, some of them are reckless spenders. Vagaries of agricultural income make them less bothering about credit which they could clear after the next best crop. In some parts of Punjab and cash crop rich Guntur, it is claimed, the young farmers vied with each other to acquire the latest model of tractors and farm equipment.

Farmers from far away UP and Bihar go to Punjab villages to buy the sparingly used second-hand tractors. Thus this section has emerged as the prized target of the high-priced consumer durables. Market promotion shows are held in such rural centres exclusively for this segment. Some market strategists have even come out with slightly modified versions of urban products (like cars and washing machines) to suit the rough rural setting. But in many cases, such exclusivist strategy boomeranged as the rural rich insisted on the same city versions. The neo kulak’s lack of vision and enterprise to divert their surpluses to new profitable ventures like rural industries turn them mad spenders. Luxury cars as dowries is quite common among certain prosperous regions.

This lucrative but extremely narrow section apart, there are clear signs of an emerging rural upper middle class market. Several factors have contributed to this process. Residuary effects of the green revolution — a sterling contribution of the much maligned Nehruvian planning — and the urbanisation process, rather than the ‘percolation’ of reform and globalisation, seem to be at work. Spread of TV-induced consumerism and urban saturation for many products have encouraged the market men to invade the rural upper middle class market in a big way. Change in price structure of many essential items has been another factor. Detergent is cheaper than washing soap.

In prosperous rural areas with a fairly developed bazaars, well stocked smart shops are slowly coming up side by side with the old bania’s dukan with teraazu as symbol. MNCs, and not our own corporates, were the first to sense the significance of this market. As early as 1994, this writer was witness to a large group of small industrialists being taken to Narasimha Rao by Murli Manohar Joshi to complain against the intrusion of the MNCs into the rural market. L.K. Advani too had met them at Parliament House. They had specially mentioned cases like the cheaper ‘Wheel’ brand detergent launched by an MNC as their rural version detergent just to oust the tiny producers. It is another matter if the wheel has now turned a full circle and the two Union ministers no longer bother about the SSIs.

At the lowest level is the vast backward rural tract, far away from the farm revolution and steeped in penury. The ‘market’ has little interest in this vast region with stagnated agriculture sans little capital formation, large marginal farmers and jobless agricultural workers. It is a rural version of the ‘north-south’ divide. The schism is not only between the tiny pockets of prosperity and the vast backward region but also within the former. Two different kinds of markets exist side by side in the prosperous pockets as the booming shopping centres and the humble dukans in the dingy lines of the mazdoor bastis behind the posh flats.

The most important implication of the increasing business interest in ‘upmarket’ or ‘urban’ sectors will be a sudden change in the government’s rural policies. Already, corporates are showing more interest in rural development programmes in selected areas. Some are planning to launch their own NGOs with ample funds. Apparently, all this is much more than mere philanthropy. Generation of more rural income among those sections with more purchasing power means deeper market penetration. Board rooms have begun keeping closer watch on such aspects as agricultural production, impact of farm prices and subsidies on the purchasing power of the rural market.

Business writers are already betraying signs of confusion. If subsidies can boost sales — of both desi and MNC — it can boost production and generate services. And so goes the debate well behind the pink pages. For the corporates, it is not just a notional issue. For well over a decade, the index of industrial production depended on the performance of agriculture. A direct correlation has been established between the fall in agricultural income and overall sales of the manufactured goods. Industrial growth depended not on factors linked with industry but behaviour of agriculture. Even if farm output was stagnant but farm prices went up substantially, it will boost industrial production.

This is extremely necessary for the industry to plan their production. Papers for the board rooms have established that there is usually a one-year time lag for the agricultural performance to reflect on the industrial production. In 1994-95, it is pointed out, farm output went up by 4.5 per cent and farm prices by 15.7 per cent. The next year, industrial production rose from 9.8 per cent to 13.8 per cent. A similar correlation was seen in 1997-98 and the subsequent year. The better industrial performance in 1999-2000 was attributed to the bumper harvest of 1998-99. Thus the severe drought raging the country this year is bound to adversely affect the demand for manufactured goods, especially consumer durables. The result will be a corresponding fall in industrial production next year.