Saturday, 26 April 2014

Yell SCAM at 115 decibels

Something as obscure as fixing the price of natural gas for drillers can become a hot and loaded debate in India - proof that doing anything, anything at all,  in this country has become so difficult . This is a slightly old story, but draws some important lessons.

Firstly the story itself. In March the government raised ( or tried to raise) the price of natural gas it pays to domestic drillers from $ 4.20 per BTU (British Thermal Unit - what a curious measure) to $ 8. India imports gas currently at some $12 , so on the face of this this does not seem too controversial. Yet a huge hullabaloo erupted with big charges of corruption and how the government was selling out to the Ambanis. The then Delhi Chief Minister, Arvind Kejriwal even filed a , constitutionally questionable, police complaint of fraud. The word "scam"; so fondly used by Indians was merrily bandied about. Consequently the policy has been put on hold  - another favourite Indian trait. We love to get stay orders - never mind that the stay can go on indefinitely and can cause more harm that the act attempted.

The purpose of this post is not to argue whether a fraud was committed or not - The Economist, which is as neutral as you can get in such matters has written an article saying that it is unlikely that any major wrong has been committed.  Instead , this muse is about some lessons that this affair shows

Firstly, political leaders have become completely irresponsible and can basically say anything and charge anybody with anything, without fear of censure. It is one thing to debate a policy matter and have a different view. It is yet another thing to fling wild allegations, file a FIR with the police, accuse anybody of anything and get lots of high decibel airtime in India's breathlessly loud TV channels.

The second lesson is that India has come to such a sorry state that shout scam and everybody will believe it  no matter what the facts are. In fact, who cares about the facts, if you will pardon the pun. The more outrageous the scam allegation is, the more believable it is. Corruption has become so entrenched in public life that nobody believes that there is no scam in anything !  In reality, this is not true. "Scams" are still the exception. Much of government actually functions reasonably well. We exaggerate corruption wildly. Sure there is a lot of it and some of it is quite outrageous. But , it has been my pet theory, that we are all individually far more corrupt than the government collectively is.

Thirdly, governments should simply stay away from price fixation or valuation of any sort. Whether they are straightforward or corrupt is immaterial ; they will only be seen as dirty. At best they will be incompetent. At worst, they will be stinkingly corrupt. It would be a master stroke for the new incoming leader of India to simply abolish price fixation with the stroke of a pen. Where there are large markets, preferably international (like the price of natural gas), simply let the market decide. Where there are no reference prices, run an auction.

But the most important lesson of all is for Reliance. This was a case probably where Reliance didn't do much wrong and has actually suffered significantly (read the Economist article). And yet it would be a difficult task to find a single Indian who believes Reliance is clean. What an image to build for a company, and for a family. This image has been built over time for the following reasons

- The father built the company by taking every advantage of the license raj and manipulating government policies in the past. There is little doubt the he took business-politics nexus to great heights
- The company is secretive, aggressive and has a reputation of dirty tricks. Nobody, be it customer, supplier, and probably even employee, likes the company.
- The Chairman builds a 27 floor most expensive house in the world right in the middle of Mumbai when the majority of the population in the city  lives in appalling housing or none at all
- Making money is the sole obsession of the company and the family - they do very little else for the community unlike other entrenched business families like the Tatas and the Birlas

Little wonder that when somebody shouts scam at Reliance it is instantly believed, whatever may be the facts. In the long run, with a reputation like this, the company will not survive. The elder and the younger Ambani may wish to ponder over this fact - they have made enough money and one more rupee , or one trillion more rupees will not make the slightest difference. Instead they may like to spend the rest of their lives rebuilding their, and their company's, tattered reputation.  When you are dead and gone, your greatest legacy is not your wealth, but your reputation.


Anonymous said...

There should be an auction for drilling, kill monopolies and allow new entrepreneurs. then people may belive goverment or reliance is not corrupt.

Sriram Khé said...

Yes, that Mumbai Mansion was an awful display of wealth and power. And such an emblem of what is wrong with the Ambani approach to life in India. If ever there is a need for PR folks to work on creating a better image, the Ambanis provide a good case study.

Giving back to the community, to the country, has always been an unwritten rule--even the robber barons of America did that. I suppose we can be happy that at least the Ambani brothers have not the gone the Koch brothers route of outrightly using their money in politics. Count your blessings, Ramesh ;)

I do hope that the Indian government approach to regulating prices in many aspects of the economy will be ditched soon. Sooner the better.

Ramesh said...

@Anon - Yes, there should be auctions and yes they should simply abloish all barriers for entry and let wheoever who wants to enter to do so. Completely agree

@sriram - Amen. Yes, Scalia & Co should be made to answer for the likes of Koch brothers.

Prats said...

My 2 cents on this-

Ambanis/Reliance are a business house, their reason for existence is to generate maximum profits for themselves shareholder/stakeholders.
It is the duty of the government to ensure checks and balances are in place that this money making is not at the cost of the exchequer. So it is the government which is failing to do the job. Nothing wrong with Reliance, any business man worth his salt will sell the product at a higher prices if he finds takers for it no rocket science here.

Ramesh said...

@Prat - Agree; businessmen will be businessmen, but even in the quest for profits, sometimes it is better to stoop to conquer.

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