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What Sachin Pilot Can Learn From Margaret Thatcher

I think we have gone through a period when too many children and people have been given to understand, “I have a problem, it is the Government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!” “I am homeless, the Government must house me!” and so they are casting their problems on society and who is society? There is no such thing!

File Photo of U.S. President Jimmy Carter and British Prime Minister Margaret Thatcher (AP Photo)

These words were spoken by British Prime Minister Margaret Thatcher in 1987. My fellow panelist Harshal Shah has called for government support to realize India’s economic potential.

I’d like to make the case that the apt thing for the government to do is to get out of the way. India’s entrepreneurial ecosystem can grow best by evolution, not the design efforts of bureaucrats and ministers.

The role of government is widely misunderstood. Government exists for providing strong national defense and internal security, investing in essential physical infrastructure, setting policies to allow markets to flourish and designing effective regulatory mechanisms to ensure that markets remain free, fair and competitive.

This does not translate to the government dedicating itself to ensuring jobs for everyone or world-class education for all. There is a compelling case for providing a social safety net for the lowest income-groups, but this should be executed in ways that empower those groups to increase their income and economic ability over time, instead of making them dependent on government handouts.

There is rampant and deep-set confusion about the cause, effect and remedy for India’s economic problems, most of which are self-inflicted. Driven by political calculations, India’s government has landed it in a morass where a nation which claims to be a global superpower in the making has the closest rendition on Earth to the Biblical vision of hell.

Economist Niranjan Rajadhyaksha crunched the numbers recently about the meaning of that staggering figure, calculating that over six decades, government spending has outpaced GDP growth by 3% annually on average. While the Indian economy had grown 578 times since 1950, the government’s expenditure has grown by 3020 times.

It is no coincidence that the sectors which have the most entrepreneurial activity and dynamism, mobile value-added services and Internet, also have the least government interference. In other sectors, entrepreneurs run into India’s infamous red tape sooner or later, even today. Valuable time and resources are wasted in managing the environment. Moreover, sectors such as agriculture and mining which are heavily regulated are also highly inefficient and unproductive.

The level of mergers and acquisitions activity in India is disproportionately low relative to the size of the economy. Only recently have founders and promoters sold their companies to larger corporations or investor groups. Low M&A is also a reason we have dynastic succession in businesses – when owners can’t exit the business, they have no choice but to bequeath it to their children, forcing them to manage those companies even if they don’t want to and breeding massive industrial inefficiencies due to fragmentation.

Those who have earned money lawfully through business have every right to bequeath their property to whosoever they deem fit – that is the very essence of the concept of private property. Some of them, such as the Tatas, have voluntarily made sustained contributions over the last century to nation building perhaps of even greater impact than Rockefeller or Gates. Nearly 70% of Tata Sons Limited, the main holding company of Tata Group, is owned by charitable trusts which have helped established institutions such as the Tata Memorial Hospital, Indian Institute of Science, National Center for Performing Arts and several scholarship schemes which have continued to help Indians study abroad.

It is true that the government investment has successfully facilitated a dynamic entrepreneurial culture in countries like Israel and Singapore, but India has a vast population among other factors, making it almost impossible to emulate those models.

Recently, Minister of State for Communications Sachin Pilot said that the government was focused on maximizing revenue via the 3G auction, claiming that the spectrum belonged to the people of India. This is typical of the government’s socialist mindset, and that it comes from a Wharton-educated Minister who is often projected as a visionary young leader is certainly alarming.

The spectrum is best used to provide the lowest-cost 3G service to Indians, not to maximize the government’s revenue as a custodian of the spectrum which would only result in investors in the sector re-pricing their product offerings higher to make up for the payout to the government. Mr. Pilot’s ministry is effectively taking money from the people of India and helping price a potentially transformational technology out of the reach of many Indians. His government intends to take that money and redistribute it through questionable social sector programs.

Mr. Pilot needs to be reminded that there is no such thing as society – there are only individuals, as Ms. Thatcher had eloquently said:

There is a living tapestry of men and women, and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves. And each of us, by our own efforts, is prepared to turn round and help those who are less fortunate.

The day the majority of Indians realize the wisdom of this philosophy, is when India will break the shackles and emerge as an economic power to reckon with.

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