CA Saket Ghiria

Saket Kumar GhiriaThe proper running of any country needs a cleaver regulatory framework that should not be very lengthy and complex in itself but should be capable enough to keep a proper regulatory checks on everything so that things and situations don’t go out of control. The regulatory mechanism should be such that it promotes the private businesses to start and expand their operations because ultimately it is the private sector who brings any genuine long lasting change in the economy. If regulatory mechanism becomes too complicated and lengthy within itself, the result would be a complete demise of the private sector, huge corruption and ultimately crony form of capitalism will emerge where few politically powerful people would become rich on the cost of entire nation. This would definitely be the worst period for any nation. If we look at the post independent history of India, sadly India adopted a regulatory framework that was so complicated and lengthy within itself that it kicked India on the verge of bankruptcy. Then under extreme foreign pressure, Dr. Manmohan Singh (Finance Minister of that time) initiated a process called economic liberalization, privatization and globalization. The core idea behind all these was to curtail the huge regulatory mechanism so to let the private sector work. The steps taken by Dr. Manmohan Singh worked great and since 1991, India gradually became a major Asian Power.

Meaning of Minimum Government, Maximum Governance

Minimum Government, Maximum Governance means that the government with all its ministries and regulators should create an environment where the regulatory framework is minimum and relatively easy for the business organizations to comply. Government should create the space for the private sector and should not itself occupy that space. Government should work like an experienced referee of a football match but should not enter into the ground to play. Minimum Government, Maximum Governance does not mean that there would be no government i.e. regulatory mechanism but the size of government would be small, effective and business friendly which would support and promote the private sector thus channelizing more investment into the economy.

Modi & Minimum Government, Maximum Governance

If any single modern day politician who can be considered as the biggest advocate of the idea of Minimum Government, Maximum Governance in the country then he is definitely the current Prime Minister of India Shri Narendra Damodar Das Modi Ji. Mr. Modi regularly stressed on various forums on the need of a system where the role of the government is minimum but at the same time truly effective. According to him “I believe government has no business to do business. The focus should be on Minimum Government but Maximum Governance”. For decades, we have had extraordinarily large governments while ironically the quality of governance has been quite poor. There has been more attention paid to the size of the government and not so much to its quality. Thus, our model of a small yet efficient government stands out. We strongly believe that the role of a Government in businesses should be limited to that of a facilitator”.

So these are quite bold statements from an Indian politician. However the real economic change needs the concept of Minimum Government, Maximum Governance in any case. The vision of Mr. Modi is truly forward looking as according to him, government should preclude itself from competing with the private sectors and only act as a facilitator. Government should let the private sector to work.

Daal Ki Baat (Pulses from Africa)

PM Modi with President of MozambiqueThough the discussion on the issue that whether we are moving on the path of Minimum Government, Maximum Governance or not is quite elaborative and debatable and probable a never ending one. In this article we would keep our-self focused on a very recent step of the central government where the government has planned to import pulses from Mozambique (African Nation). As we know that India is a consumer country with over 1.2 Billion population and a very lower per capita income, any steep rise in the prices of food articles causes serious panic all over the country. So the prime expectation of the people of India from their chosen governments is that they will in any cost keep the inflation particularly the food inflation under control. As the general income level is rising so the demand of food stuff, but since there is no corresponding rise in the productivity of food stuffs in the country, it triggers very high inflation. Till the recent period, Wholesale Price Index (WPI) remained in the range of 5 to 6% and Consumer Price Index (CPI) at 7 to 8%. Daal or pulses in English is one of the primary food article in India which is consumed by almost every Indian household. However the price of pulses is rising very rapidly which is causing a panic among the households. Since the production of pulses is limited in the country, Government of India now decided to import pulses from other countries. In the recent visit of African Nations, Mr. Modi signed an agreement among others under which India will make investment and provide technological support to Mozambique to grow pulses over there and then India will buy pulses from there so to meet the demand in India. India has entered into an agreement with Mozambique for importing 100,000 tonnes of pulses in 2016-17 with an option to scale it up to 200,000 tonnes by 2020-2021. Mr. Modi during his official visit to Mozambique said “India’s commitment to buy pulses from Mozambique would help meet India’s requirement. It will also facilitate long-term investments in commercial farming, generation of farm employment and raise farmers’ incomes in Mozambique.”

So this seems a great forward looking step by the government to keep the prices of pulses in India under control. So where is the issue?

Again Government is involved in everything

According to Mr. Modi government has no business to do business. But it seems that the country is not fully prepared to go into the path suggested by the Prime Minister. Because sooner or later government comes into the business. The same happened in this situation also. Here government will make investment, raise pulses then import pulses into India either self or through PSUs or private players and then sell pluses in India. Understand this with the help of Scenario 1 diagram.

Scenario 1

In this situation, there is everything under the control of the government. This situation is not very ideal from a longer term perspective.

So What Would Be The Ideal Situation?

As we already discussed that an ideal situation is that situation where government just act as a facilitator and let the private players work. Government should create space for the private sector but should not occupy that space. Scenario 2 diagram will help you understand the ideal situation.

 Scenario 2 diagramIn this case as we can see that the role of the government is limited to just making ways for the private sector and it should not replace the private sector.

Some International Scenario

There are countless international examples where the governments has kept themselves upto the role of facilitator only i.e. Scenario 2. We will discuss few examples here.

Starbucks

Starbucks is one of the largest food and beverages chain particularly coffee in the world that operates in more than 70 countries with over 24,000 stores employing around 1,90,000 employees and having a revenue of over $17 Billion annually. Starbucks is the largest consumer of raw (ground) coffee which it mainly purchases from Latin American Nations like Brazil and some African Nations. The largest consumer of Starbucks coffee is North Americans. Coffee is the integral part of the life of North Americans. So what we can learn from here is that it is Starbucks who grows coffee in Brazil, processes it, imports it and then sells it all over the world. American Government is not involved in this entire process. Yeah American Government works diplomatically to make ways for Starbucks which any government must do.

ExxonMobil

ExxonMobil is world’s largest Oil and Gas Company that explores, extracts, processes and sells oil, gas and other petroleum products. ExxonMobil holds the extraction rights in many countries and has assets worth Billions of dollars. ExxonMobil extracts oil from say Iraq processes it in Latin America and sells it in North America and other parts of the world. Again American Government is not involved in this entire process. However as any government is expected to do, American Government works diplomatically to make ways for ExxonMobil.

Conclusion:

As we can see that the best practice all around the world is to let the private sector work and government should act as a promotor, facilitator as well as the protector of its private sector and not just as a regulator. Reasons are quite obvious. If government will keep everything in its hand, things will go worse definitely. Indian Government has also learned this lesson and is deregulating lot of things which it used to completely dominate at some time in recent past. Few examples could be deregulation of the prices of oil and gas products, working towards deregulating the prices of sugar, fertilizers etc. divesting its stakes from Public Sector Undertakings etc.

Disclaimer

This article including its contents, graphics and diagrams has been prepared by me with my team. If you have any feedback or want to discuss this in more length, feel free to write us at casaketghiria@gmail.com.

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