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Control the excesses

india Updated: Oct 29, 2011 23:02 IST
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Awave of protests against the excess of capitalism has started in the US and has subsequently spread to many other nations and raised a concern in India as well. One could attribute this protest as an outcome of the growing inequality and poverty in the US and has aggravated through loss of jobs and houses among the middle class.

This has become much more serious after the banks and private sector, which has benefited a lot through taxes as part of bail-outs, ignored the ‘main street’ while bringing back the emphasis more on the ‘Wall Street’ after the recovery and ended up only in drawing hefty pay cheques and bonuses.

The possibility of these protests spreading to India may be very remote. With two-third activities happening in the informal sector and an almost similar level of people still not part of the formal financial system, the current upsurge in the US may be of less concern for India.

India had its own share of protests against corruption in public places. But on the ideological ground, it might prove handy for the Indian Left as the protests in US are perceived as the outcome of neoliberal policies of the State.

But the recent incidents in both India and the US are a warning to India to reinvent its policies and control the excesses both at the government as well as at the private sector. For the US, the protests might focus on containing the excesses of financial markets, making the financial sector relevant for real sectors, forcing the State to follow redistributive policies and addressing the issue of ‘regulatory capture’.

But India needs much more expansion of financial markets that increases financial access to the needy, channelise the unproductive savings towards productive investments and reduce the transaction costs, which are high, through improving efficiency.

The second issue is that of excessive focus on growth policies than on redistribution in the post-reform period. The government has increased the entitlements in terms of employment guarantee, food security and human development. The current inflation crisis, some argue and it is partially true, is a by-product of the inclusive development strategy of the government. Otherwise, the current rigidity in inflation should have stoked protests similar to that of in the US. In other words, the impact of Occupy Wall Street on India would be minimal.

Still, there is a need to address social issues within the free market system. One might look at the Capitalist Regulation mode, which allows for healthy co-existence of both market and social institutions.

—The author is a Professor with the National Institute of Public Finance and Policy