One of a minister's most coveted privileges is patronage. Murli Manohar Joshi loved it. Jaswant Singh was a man of greater integrity, so his practice of patronage surprised me, as I said in this column from Business World of 22 March 2004. Incidentally, Murli means a flute: Murli Manohar is one of the many names of Krishna, whose weapon was the flute - he won many a heart with it. Jaswant means successful.
Now Jaswant plays his murli
Murli Manohar Joshi, the Union minister of human resources
development, has invited much opprobrium for his reduction of IIM fees. The
reduction was unnecessary, since no one who got admission to an IIM went
without a bank loan if he needed one. It was unjustified, since those who are
going to earn crores in their lifetime do not deserve a subsidy from the HRD
ministry. And it was mala fide; Joshi and his favourite bureaucrats are fond of
throwing their weight around, so it was reasonable to assume that their reason
for reducing fees was to make IIMs them financially dependent on the government, turn them into supplicants, and to exercise undue
influence on them - including influence in
getting undeserving favourites into IIMs. Joshi said in as many words that his
constituents complained that their offspring found it difficult to get into
IIMs. Price determines demand. The lower the fees, the greater the shortage of
IIM seats, and the greater will be the value of a phone call from Delhi that
gets someone a seat.
Now fears have been raised that
Jaswant Singh is about to do a Murli on Infrastructure Development Finance
Corporation (IDFC). The Financial Times reported that the government
planned to merge IDFC with State Bank of India. Reserve Bank is about to
transfer the 15 per cent of equity it holds in IDFC to the government.
Altogether, institutions owned by the central government hold 43 per cent of
IDFC’s equity. It should be enough to push through a merger. Vinay Rai, of the
finance ministry has denied any plans of merger. But Nasser Munjee, managing
director of IDFC, has resigned with six other senior executives; obviously they
know something more than Rai is prepared to disclose.
Behind these power moves there
are issues. A frequent point of friction in the board meetings of IDFC is that
it is not prepared to fund a project that happens to be the favourite of some
government or the other. The reasons are clearly specified in IDFC’s project
appraisals: they lie sometimes in the poor prospects of the industry, but
mostly in the fact that governments have not created the conditions required to
make the industry commercially viable. This is most true of power. Despite a
plethora of regulatory organizations, state governments have neither freed
electricity tariffs nor ceased unduly to favour their electricity boards. So
competitive markets do not exist, and electricity has been a no-go area for
IDFC.
IDFC’s obduracy has sometimes
forced the government to change regulations and deal more evenhandedly with
entrants into infrastructure industries. Thus IDFC’s discussion papers presaged
the migration to proportional taxes and unified licensing. Conversely, policy
reforms have induced KDFC to increase its lending; in telecommunications, for instance,
it has funded both green field investment and acquisitions.
But if you are in the government
and see development worth billions of Rupees held up by IDFC’s pigheadedness,
you may sometimes feel like beheading it and feeding it to do-good politicians.
Such murderous feelings may have peaked in the ministry when the finance
minister announced that he would give Rs 500 billion for an infrastructure
fund. The amount is so huge that he cannot afford to give it out of the budget.
He has to enlist off-balance-sheet entities like Industrial Development Bank of
India. IDBI, like other government financial institutions, is in poor health, so
it is not surprising that Jaswant’s covetous eye fell on the bonny baby IDFC.
Possibly this is an unfair
reading; I hope it is. If it is, then it is time for some diplomatic handling.
The finance ministry officials are livid at the temerity of IDFC’s management,
and would love to sack them. Such feelings of high dudgeon come naturally to
those in government, but are counterproductive in policymaking. The finance
minister should call over Nasser Munjee, ask him to take back his resignation,
and ask him what he wants. And instead of trying to suborn IDFC, he should
insist that all projects financed out of his kitty undergo the litmus test of
IDFC approval.
