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Conspicuous consumption and the PM

My first reaction when I read newspaper reports of Dr Manmohan Singh's speech to the CII was one of astonishment and outrage, writes Vir Sanghvi. Write to author

india Updated: Jun 15, 2007 15:10 IST

There are few politicians in India who most of us respect more than Dr Manmohan Singh. Even those who are ideologically opposed to him or differ with his style will concede that it is hard to think of a politician who is a more decent human being than he is. Which is probably why I waited two weeks to write this piece. My first reaction when I read newspaper reports of his speech to the CII — and I guess this was your reaction too — was one of astonishment and outrage.

According to the papers, Dr Singh had told private industry (ie, members of the CII) that CEO salaries were too high and attempts should be made to bring them down.

In itself, the statement was not without precedent. Over the last decade, America has been obsessed with CEO remuneration. Innumerable surveys have demonstrated that CEOs of public companies have forced their tame boards of directors not only to award them vast salary hikes but also to give them golden parachutes so that, even if they do not perform well or if their companies are taken over, they can still exit with millions of dollars in pay-off.

But, in the Indian context, the issue is not so simple. Almost from the year we became independent, Indian industry has been in the hands of a class of crony capitalists who have paid off politicians and manipulated governments to ensure that vast profits are earned by their companies. Such profits have not necessarily been based on managerial or entrepreneurial acumen or, even, on any conception of India’s national interest. In fact, as the fat cats got rich by manipulating the licence permit quota raj, India got poorer and poorer.

One of the best things about the reforms that Dr Singh initiated when he was finance minister was that he ended the cosy certainties of that era. It was no longer possible to make billions merely by manipulating the system and few industries could survive solely on political patronage.

You and I benefited too. For years and years, as salaried employees, we have been treated as domestic servants. Our bosses have spoken of their own entrepreneurial abilities but we have always known that this is a cruel joke. Accidents of birth, straightforward corruption and manipulation of the system have determined the structure of wealth in India.

But after the Manmohan Singh reforms of the 1990s, that has begun to change. You need only to compare any list of the top 20 business houses of 1990 with today’s ranking to know how much Indian industry has changed once the licence permit quota raj ended.

And you need only to look at measures of salary to recognise that, finally, the middle class executives who toiled so that the fat cats could get rich, are getting a fair reward for their efforts.

Gone are the days when professional managing directors of multi-crore companies scrounged for money to send their children to colleges abroad, while indolent, incompetent maaliks got fat on black money stolen from the very companies that their middle class executives ran for them.

So, if the Prime Minister’s point was that professionally appointed CEOs of successful companies should go back to the sad, bad old days, well then, he was completely wrong. I don’t remember Dr Manmohan Singh ever saying that companies should make lower profits. So, if the profits are going to be made, then why should they go to the owners alone — and most large companies in India are still promoter dominated, unlike the US — and not to the salaried people whose managerial abilities actually contribute to the creation of wealth? What kind of government is it that rewards fat cats, largely hereditary industrialists and lectures hardworking self-made professional managers?

I wasn’t at the CII session where the Prime Minister made this speech but I am assured by his people that the context of his remarks was mis-reported. Apparently, he did not mean professional managers but was referring to promoters who paid themselves large salaries from their companies.

If the apologists are right and all the journos covering the function got the context wrong, then what does it say about a) the calibre of the coverage and b) the confusing quality of the speech-writing, that the sentiments were so misinterpreted?

But I’m willing to give Dr Manmohan Singh the benefit of the doubt — given that he was also reported to have railed against crony capitalism in the same speech, a sentiment I heartily approve of — and accept that he was referring to fat cats, not professional managers.

But I think the Prime Minister still needs to ponder two things. One: how bad is his government’s PR with the middle class that we are so willing to believe the worst about his statements? And two: yeah, yeah, we support all that stuff about how vulgar conspicuous consumption is, but if you are so hot on austerity then how can you make Subirammi Reddy, Delhi’s party king, a minister? The man has no claim to fame and no political credibility other than an ability to entertain. And yet, he is a minister in this government. So why should anyone take this regime seriously when it lectures us on conspicuous consumption?

Similarly, if the government feels so strongly about this, then why doesn’t it get its ministers to stop throwing lavish weddings that cost crores?

And what about the lifestyles of ministers themselves? What about those Lutyens houses that would cost several lakhs a month to rent if they were on the open market? Those fleets of cars? Those retinues of PAs and flunkies?

Governments that live in glass houses should not throw terms like conspicuous consumption around.

Which brings us to the serious part of his speech. Dr Manmohan Singh must recognise that his government’s greatest achievement is economic growth in excess of nine per cent. The inevitable consequence of this new prosperity is that people will spend their money on goods they once considered out of their reach.

And his government has helped to make such goods available by reducing import duties and by allowing greater foreign investment in such sectors as retail.

You cannot put more money in the hands of people, give them things to spend this money on, and then lecture them on conspicuous consumption.

Of course, conspicuous consumption is vulgar. Of course, it offends me to see people spend crores on weddings or on ostentatious homes. But finally, these are moral judgments. One man’s conspicuous consumption begins where another man’s luxury ends. One man’s taste is another man’s vulgarity. And India is changing too fast for all the old definitions to endure.

One example: I used to always insist that I would never use a foreign car. But in an environment where nearly every car is a foreign brand (even if it is assembled in India), what relevance does that stand have? What constitutes a foreign car now? Another problem: why should industrialists live in small houses if the President occupies Rashtrapati Bhawan? Why should a managing director travel by scooter if the PM is driven around in a BMW?

I know Dr Manmohan Singh’s views fairly well. And I think I know what really worries him: the spectacle of farmers committing suicide while fat cats buy private jets. Like him, I am deeply concerned — as regular readers of this column will know — by the inequalities engendered by the new prosperity.

But the answer is to raise the lot of the poorest. It does not lie in sermons about salaries and consumption. These are slogans from a bygone era. And today, all they do is create more confusion. In a complex, growth-driven India, they ring hollow, and seem utterly contradictory.