Are we heading into license Raj ?

The UPA government is bent upon taking back the country back to dark ages where every commodity under the sun was controlled; no work could happen without the usual greasing the levers of power. Everything was under the control of the bureaucracy. Inefficiencies were rampant, people with the right connections could only prosper. Ironically the very person who broke the shackles then in 1991 is at the helm. A lot has been said about how the inflation is rising due to supply side constraints and inefficiencies – there lies the conundrum. To increase the supply you need money to fund the capital expenditure to produce more, by constraining or implementing any sort of price controls the money supply will be choked and will go back to the sub 5% growth rates - those dark ages of 1970s and 80s

The government first killed the Sugar sector by the export ban and then by raising the MSP for cane with an eye on UP elections (the sugar sector has been underperforming since last year). Now with the pseudo controls both on cement and steel – there are chances that there will be limited new investments. I am sure the Holcim, Lafarge, Italicementi would not have bought into Indian companies had they any inkling of what was coming – they have made significant investment in ramping up the existing capacities. The biggest problem with cement is that it cannot be exported in large quantity unlike steel. So we have situation – the sector seems to be heading for a significant correction (anyways the valuations were not very compelling)

In the past every central minister worth his salt has flexed his muscles to prove who the boss is. Ram Vilas Paswan one of the specimens I can remember – introducing curbs on drug prices. There are definitely better ways to stop the corporate sector from profiteering if that what this quasi socialist government thinks. Ms Sonia Gandhi by raising the bogey of aam admi time and again is queering the pitch further. More and more ministers are assuming powers which should be left to the market forces (enough checks and balances can be brought) . The oil sector is in dire straits, ultimately the subsidy is borne by the taxpayers – cannot come from the sky.

If these short term actions are justified –the government should show thought leadership and remove the supply bottlenecks. The telecom and aviation sectors are prime examples. Today Bharti has a market cap of 25 USD Billion +. The prices are today nearly one tenth of what was in 1994. The current Indian growth story may not last long with the structural imbalances in the global economy. Its time to take stock and address the real issues at hand rather than the knee jerk reaction.

PS: The inflation numbers anyways don’t make sense as the weight age of different commodities is absurd. Ex – Sugar has 2.5% weight