By Yoginder K Alagh
We have once more observed the government at the highest level upbraid cement and steel cartels, and announce the setting up of regulatory authorities. Officials and lawyers like this. Retired officers get sinecures in such regulatory authorities, and lawyers get profitable jobs. Official committees like the Pai Panandikar Committee set up by Morarji Desai on decontrol may perhaps have recommended that such ‘regulation’ leads to possibility of corruption, but the files are brought out and dusted: these go back to the draconian controls of WW II and a 21st century version is recommended. Déjà vu, as an economist buddy recommended.
If the industry price tag is the very same, the regulator says it is a ‘cartel’. But then the agricultural sector, the only genuine case of best competitors taught in textbooks, have to be a cartel. The price tag is the ‘same’. Léon Walras had stated that takes place with ‘tâtonnements’. These are repeated transactions to obtain equilibrium. As a young man, I would get down at Sealdah station in Kolkata and stroll down to my favourite ‘mishti’ shop. Hawkers had been peddling fountain pens. As I walked down, I heard them saying ‘do rupiah char anna’ (a single price tag), when coming back I heard ‘do rupiah dus paisa’ (a single hawker lowered the price tag by minimizing his commission, and then the other folks joined). The outcome is a single industry price tag. Please notice that this a single price tag comes out of cartels, but practically perfects competitors in the brief run.
This is not to say that cartels are not there. But proving them requires tough work. Economic evaluation primarily based on information is necessary, which is not straightforward and a retired civil servant’s domain. What had been the communication channels? Hotel rooms exactly where meetings took spot and so on? Even then, as the American antitrust economists have shown by diligent study, the situations go to courts, and so it goes on.
Delhi has to appreciate that steel and cement are priority industries. It is this government that has provided up extended-term preparing of industries and the dominant function of the public sector in these priority industries. This has consequences for policy. These industries are necessary for defence as these are expected for roads and armaments. These are sectors with significant-scale linkages necessary for development. When I used to chair the Bureau of Industrial Costs & Prices (BICP), I decontrolled each. We created the idea of the preferred price tag as LRMC (extended-run marginal price). The bureaucracy asked: How will you implement it? I replied we will repair the handle price tag and the industry price tag will be there. The controlled quantity can go for social requires or the netas’ relatives. I do not care. How will you get the suitable share? I will not. The industry will. If the joint return is much less than LRMC, we will cut down the controlled share. The idea of LRMC was the price tag necessary to modernise and expand current capacity and set up greenfield plants. It was an advance in regulation and the World Bank stated so. We utilized dual pricing and tax and tariff policies to implement industry-friendly laws.
It broke the nexus amongst the babu and the seth, which is the basis of corruption (with a percentage for the neta?). My successor Vijay Kelkar perfected it. The BICP published reports hiding person firm information, but creating the guidelines and calculations public. It is now a aspect of textbook industrial economics.
A lot has occurred in the final quarter of century. Out there are educated economists and policymakers, like in the government to design and style new systems. These would, of course, take care of newer, more sustainable technologies and small business practices.
Let’s do a contemporary 21st century version of distinguishing cartels (which, as the policymakers say, have to be punished) from competitors once more.
Declaration of Interest: The author, an independent director of Shree Cement, strongly believes in ethical practices in small business.
The author is a former Union minister