The deep pink state: Governments may come and go, but statist mindset remains the same

Does India have a deep state? Well, not in a conventional sense, not like the one in, say, Pakistan. But it is certainly there: in the realm of economic policy.

Decades of socialism seem to have endowed Leviathan with some kind of artificial intelligence, gradually transforming it into a deep state. Unlike in a conventional sense, however, India’s deep state is impersonal; it is not about a set of entrenched people but an institutionalised mindset which is innately anti-business.

Regardless of chief economic advisors pleading for reforms in Survey after Economic Survey, the deep state continues to spring up unpleasant surprises for businesspersons. Price control is one such unpleasantness that is plaguing the healthcare sector. The government wants to dictate prices for everything ranging from drugs to stents. The result is that the pharmaceutical industry is slowing down.

According to the market research arm of All India Organisation of Chemists and Druggists, the domestic pharmaceutical market registered a growth rate of 6.4% in the April-June quarter, against 14.8% in the corresponding quarter 2017-18. Yet, an official website hopes that the pharmaceutical industry would rise at a compound annual growth rate or CAGR of 22.4% over 2015–20.

Healthcare is perhaps the worst affected by price controls, but other areas fare little better. Outlets at more than 90 government-run airports in the country will now have to sell packaged drinking water at maximum retail price (MRP); beverages and snacks will also have to be sold at controlled prices. Not much dissimilar is the Maharashtra government’s decision, taken not long ago, to let moviegoers bring outside food to multiplexes. A report from Visakhapatnam said that even the local police was “working out a price control mechanism” so that more CCTVs could be installed.

Then, of course, there is the monstrosity called the National Anti-Profiteering Authority (Napa) –whose very existence militates against the spirit of economic reforms. Unfortunately, the GST Act says, “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.” Otherwise, Napa will be used to penalise them; an enterprise could even be shut down.

It needs to be mentioned here that Napa is not a dead letter; no anti-business mechanism in our country ever is. A consumer helpline was started in August. In another development, the Napa Director General accused Hindustan Lever of profiteering. The authority claimed that the FMCG major pocketed Rs 320 crore by not transferring the lower GST to consumers.

Five observations can be made here. First, such laudable objectives as affordable healthcare and cheaper goods are always sought to be met on state dictated terms. Prices, our political masters believe, can come down not by augmented economic activity and increased competition but by fiats, rules, and regulations. They don’t believe in the invisible hand of market forces but in their own intervention, which is invariably highhanded.

Second, there is reluctance to learn anything from experience – domestic as well as global. Telephone tariffs in India have come down drastically not because of government but competition. Even in the West, where state capacity is far greater than in our country, price controls have led to problems.

Third, there is no harmony between ends and means. Politics may be the art of the possible but economic policy remains very much the art of the impossible – in India at any rate. What our policy and decision makers promise is universally laudable – cheaper health facilities, lower prices, higher growth, et al – but their actual policies impede in achieving these goals. Indeed they invariably result in stunted growth, arrested development, higher prices, and shoddy goods and services.

Worse, anti-business attitudes are hardening. Minister of state for corporate affairs PP Chaudhary said in an interview, “The ministry has recently set up Centralised Scrutiny and Prosecution Mechanism (CSPM) to examine the records of top 1,000 firms which are mandated to spend on CSR. The ministry after an inquiry has sent preliminary notices to 272 companies for violations committed during 2015-16. In the previous year, penal action was initiated against 254 companies in this regard.”

In other words, India will soon become the only country in the world – and first in the history of mankind – where somebody could be thrown behind bars for not being philanthropic, even for not being philanthropic enough.

This brings us to the fourth observation: statist policies are exasperating the wealthy and wealth creators. In March, a Morgan Stanley survey said that about 23,000 dollar millionaires left the country since 2014. Dirigisme triggered this quit India movement.

And, finally, there is non-stop state intervention. In cosmology, there is a view called steady state theory. It states that the universe is expanding steadily while getting created continuously. While this theory doesn’t enjoy much support among astronomers today, its analogue in India’s political economy still holds sway. The deep state incessantly generates anti-business rules and regulations. Governments come and go; statism stays the same.

In the form of a pink deep state. It steadily, indeed steadfastly, keeps creating statist abominations.