Corona crisis unlikely to trigger reforms

<p style="font-weight: 400;">In 1991, India faced an unprecedented crisis, but it responded very well. The government of the day opened up the economy and dumped some of the worst features of socialism that had dogged the country for decades. This led some votaries of liberalization to believe that India reforms only in crisis—a sentiment that former Reserve Bank of India governor Raghuram Rajan expressed in a recent article. At present, however, the crises-trigger-reforms line seems to be wishful thinking.</p>
<p style="font-weight: 400;">For what has been happening in the last few days is the antithesis of liberalization. In the name of ameliorating the pain of employees and contract workers, some government organs have started tightening control over private enterprise. Others are trying to increase the scope of price controls.</p>
<p style="font-weight: 400;">“The office of the Chief Labor Commissioner, under the Union Labor and Employment Ministry, has written to SpiceJet chairman and managing director Ajay Singh to comply with the ‘instructions’ of the government and not deduct the salaries of workers in the lockdown period,” <em>Business Standard</em> reported on April 6.</p>
<p style="font-weight: 400;">Why should bureaucrats instruct businessmen how to run their companies? It is preposterous that the guys who have made a mess of governance are telling tycoons how they should run their businesses.</p>
<p style="font-weight: 400;">At the most, the government should urge industry to show solicitude towards the conditions of the workforce. The Union Ministry of Home Affairs did precisely that. It wrote to the private security agency associations on March 25 to adopt “a humane approach.” It <em>urged</em> them to protect the employees from lay-offs during the nationwide lockdown and “treat their workers on duty and paid accordingly during lockdown period.” Emphasis was on “empathy,” the word used in the notification, not on coercion.</p>
<p style="font-weight: 400;">The Union Labor and Employment Ministry, however, wants to use the authority of the state to force the airline avoid retrenchment and salary cuts. On the face of it, this sounds very humane. After all, we don’t like to see people losing jobs or having their remunerations slashed. Apparently, the Ministry fiat is good.</p>
<p style="font-weight: 400;">But the apparent need not be real; such humaneness is actually a recipe for disaster—something the country can barely bear in the time of the coronavirus. Companies across sectors are suffering because of the shutdown, the ones in the travel and tourism sector more so. Worse, their pains began much before the lockdown, and would continue long after it. A company like SpiceJet, with strained top- and bottom-lines, may not be able to continue without lay-offs, may fold up. This will result in the loss of <em>all</em> and not just some jobs.</p>
<p style="font-weight: 400;">Further, when a company, especially a big one, goes down, a lot many people get hurt, including its vendors (they lose business) and creditors and bankers (they may not get their money back). As it is, banking is suffering from high non-performing assets (NPAs). If more companies shut down, the problem of NPAs will worsen.</p>
<p style="font-weight: 400;">Our politicians and bureaucrats are capable of making the lives of businesspersons miserable in several other ways. There is likely to be more emphasis on price controls; the pharmaceutical and medical devices segments are already facing the brunt of unnecessary government intervention; other sectors of the economy may also feel the heat.</p>
<p style="font-weight: 400;">As it is, the terms like ‘profiteering’ and ‘hoarding,’ horrifying relics of the dark ages of socialism, are doing the rounds in officialese and journalese. I say horrifying because these terms are predicted upon the belief that there are limits beyond which no retailer, stockiest, etc., charge the price of an item or keep the stock in his possession.</p>
<p style="font-weight: 400;">And who, pray, would decide these limits? Some bureaucrat or inspector, who is likely to be either incompetent or corrupt or both. There is a worse possibility: he is competent and honest, and be the bane of the folks condemned to suffer him. For he would try to control the functioning of the market—something which is beyond human control, as Fredrick Hayek pointed out—and thus ruin everything he touches.</p>
<p style="font-weight: 400;">Something similar happened in Kerala, where the commies actually put many of their outlandish economic doctrines into practice, like enforcing minimum wages rules and dictating cropping patterns. The consequences were deplorable.</p>
<p style="font-weight: 400;">Greater controls at the national level, especially after a debilitating pandemic, would result in more frightening after-effects. Therefore, we should thank our lucky stars if economic policy post-corona doesn’t get more biased in favor of dirigisme.</p>
<p style="font-weight: 400;">Given the facts, it seems unlikely that COVID-19 would speed up economic reforms</p>.