In six months of spectacular roller coaster ride, steel prices have fallen by nearly half, from over Rs 60,000 per tonne to slightly above Rs 30,000! When the prices were ruling high, the Government of India was requesting the steel producers to exercise some restraint in the price increases. Now that the wheel has come the full circle with steep declines in commodity prices, the CII and other representatives of Indian industry are at the doorsteps of the same Government with bailout requests. This has become part of a larger trend in Indian (businesses everywhere) corporate sector, where businesses scramble to seek Government help to tide out the bad times.
First, there were our super star software companies calling out for concessions and support when the rupee appreciated (where are these voices now?). Then the captains of banking sector (some of the same voices were the loudest opponents against RBI's resistance to more comprehensive de-regulation of the equity and debt markets, and full convertibility on the capital account) of were calling for bailouts while at the same time claiming that Indian financial institutions were not exposed to the dubious sub-prime assets. Now the steel and commodity producers are calling for their share of the bailout pie - fiscal concessions, deferred payments, concessions in supply of electricity and other inputs etc.
It does not require any deep insight to realize that business cycles with good times and down turns are recurrent themes of the economic timescape. Though the extent and depth of the peaks and troughs vary, in general the industry and the economy show a sustained upward growth trend (otherwise firms would leave the industry and go elsewhere!). It is obvious to anybody that private firms in each industry need to manage the lean and bad times by drawing upon the profits made during the good times.
There is nothing exceptional about these responses by the corporate sector. They are an inevitable consequence of the moral hazard evoked by the regular and repeated precedents of corporate bailouts during downturns. It is therefore necessary for governments to respond firmly, atleast now, to such requests and send out the message loud and clear. The tax payers did not (rightly) partake a share of the windfall profits (which were reaped during the recent boom) enjoyed by the respective firms and industry, and it is therefore unjustifiable to expect them to take the tab for the losses sustained by the same firms during the downturn.
When the going is good, the captains of Indian corporate sector constantly (and again rightly) rail about excessive government regulations and claim that such interventions distort the market incentives. The same logic applies, with equal relevance, to the present situation too. As the cliched saying goes, you need to take the good with the bad!
Governments should intervene in the functioning of markets only under extra-ordinary circumstances. A slowdown that would lower the economic growth rate from 9% to 7% (or even 6% or 5%) cannot by any yardstick be called extra-ordinary (even as late as 2001, a 6% GDP growth would have been spectacular!). And given the domestic market dependency of Indian corporate manufacturing sector, the effects of the global downturn could be smaller and shorter than doomsday predictions would indicate. The present appears to be extra-ordinary also because we are living through them now!
It appears to be clearly a case of "what is sauce for the 'good-times' goose is not sauce for the 'bad-times' gander"! Indian corporate citizens need to grow up, for there are formidable global challenges they have to face up ahead, if they are to become world beating business leaders!
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