Protectionism and profitability

In a good editorial BS writes

What about creating greater equality of opportunity, so that wealth does not accumulate in the hands of a few? This is the nub of the issue. India has failed to provide basic nutrition, health and education to hundreds of millions of its citizens. At the same time, it has protected too many markets—so those who own assets (like land) find the value of their holdings sky-rocketing, as the new real estate tycoons will admit. The same conclusion of excessive protection is indicated by profitability levels (an average of more than 10 per cent of sales) in the leading companies. This is high by any international yardstick, and suggests that we need more competition in the system (still lower tariffs), and more players in every product or service market (like telecom). If profitability drops as a result, so will share prices and wealth. In other words, the systemic problems that the wealth-poverty divide points to are the lack of attention to the needs of the majority at the bottom, and excessive cosseting of markets.

In another editorial it raises even a more interesting point.

At one level, the government is duty-bound to investigate fully the precise nature of the Ghosh-Singh holdings. At another, this complex arrangement raises questions about the enforceability of sectoral caps in shareholding. The problem in the immediate case has also been caused by lax supervision. The arrangement was made a year ago and disclosures made to the department of telecommunications in April and subsequently to the FIPB. The FIPB then issued a letter confirming the deal to Hutch-Essar in August. It is obvious that the FIPB’s decision now to go afresh into the whole question has been provoked by shareholders who want to put a spoke in the Vodafone wheel. This is reminiscent of government meddling in corporate battles in the eighties. It is true that, unlike such skirmishes as Swraj Paul versus H P Nanda, and M R Chhabria versus Shaw Wallace, government-owned financial institutions (FIs) no longer play a key role in determining the outcome of takeover battles. But as the Hutch-Essar affair shows, the government still has the power to influence corporate battles if it so chooses.

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