6 steps to move from cozy socialism and crony capitalism

Market economy is not something the government can “impose”  overnight. It requires social recognition, re-drawing of social contracts, probity in public life and ethics in relationship-based transactions


Three societies, namely China, Russia and India are struggling to become market-oriented economies from having been in different shades of socialist practices. Of course, China and Russia were hard core socialist economies with the state controlling most aspects of the economic sphere. India adopted the “socialistic pattern of society” wherein the commanding heights of the economy were controlled through state ownership.

Major companies in heavy and light industry, banking and insurance  were all State-owned. State ownership has in practice the following characteristics


  • • Senior executives are appointed based on political preferences

• Major expansion/location decisions are taken based on political consideration

• All major decisions regarding lending or waiving of loans are based on political considerations

The State begins to occupy a dis-proportionately large role in different aspects, not only  of economic activity but also other areas like art, literature and films. It distributes favours and it also gives out awards. Over a period of time a state dependent “Culture” gets created, wherein the answer to every problem is assumed to lie with the Government.

State acceptance is confused with 'social acceptance' and State awards or rewards are equated with excellence in the corresponding field.

Obviously, this creates  huge corruption in the system, where greasing palms slowly begins to fuel  the engine of any business decision. Substantial amount of time in doing business is spent in dealing with Government minions and worrying about regulatory compliance. Huge departments are created to satisfy compliance needs; business men have a major pre-occupation –namely managing Government. It starts as an art and ends up as science.

Knowing a minister or a bureaucrat connected with your business is more important than knowing your business. In such an atmosphere, innovation, customer care and service excellence take a back seat. Even sectors, like information technology (IT) in India shines due to its off-shore activities. Good numbers of capable youngsters vote with their feet and migrate abroad.

Bank lending decisions are suspect and no serious system of punishing defaulters or chairman for wrong or sometimes mala fide decisions. See an excellent write up that recently came out in this magazine --

In such an atmosphere, when you “open up” the economy, it means entry to large amount of foreign capital and encouragement is given to the same old group of business tycoons to expand their activities. Again, access to power centres is more important. Clamour for reforms ultimately ends up as clamour for foreign capital since that is the easy option to many business tycoons and Government.

Market economy is not something the government can “impose” on the society overnight. It requires phenomenal amount of social recognition, re-drawing of social contracts, probity in public life and ethics in relationship based transactions.

Moving away from socialistic pattern of society to market mechanism is not accomplished with a magic wand. Also, market mechanism need not be only the Anglo-Saxon model. It can be different one, based on specific cultural habits and traditions. Fortunately, in a country like India, in spite of all efforts by the Nehruvian socialistic pattern of society, except some 20% of the GDP, all others were generated by private initiative. But regulations and license permit raj have created a humongous corrupt bureaucracy and to come out of it is not easy.

Our innate ability to respect private initiatives has to be brought back. For that the following needs to be done...

1. Dismantle half the ministries at the Centre, which are mirror images of ministries at the State level

2. Dismantle more than half the ministries at the State level, which are mostly money making activities for the babu class

3. Strengthen municipal and corporation level activities by banning construction contractors and real estate barons occupying elected posts

4. Abolish most local regulations on shops and establishment Acts,  food and adulteration act and introduce swift and severe punishments for wrong doing

5. All courts to function in two shifts with enhanced pay for participants. At least criminal cases should be concluded within three years

6. Courts should be discouraged from giving adjournments

The central Government should basically focus on defense, foreign affairs and central taxes and state governments on law and order.

The initiative to do things should be left to individuals and the state should only be a regulator stepping in when things go wrong. It is not an easy task to build a proper market-based economy when most businesses are unfamiliar with it.

Crime will lead to punishment is the only mantra, which can make systems function with probity. Last, but not the least, political leadership must show maturity and probity and a willingness to accept that networking and Sifarsu-based system is no good.

Are we ready?

P.S. Intriguingly, an e mail-released today by Jet Air says that it plans to merge its Konnect type services with main airlines, which -among other things- means providing meals to all passengers. The note says subject to Government approval

(Views expressed in this article are personal)
(Prof R Vaidyanathan , Professor of Finance and Control, has taught at IIM Bangalore for over three decades and is consistently rated as one of its most popular teachers. Prof Vaidyanathan has coined the term 'India UnInc' for the largest component of the Indian economy comprising small entrepreneurs, households. Prof Vaidyanathan sits on the advisory boards of SEBI and the RBI.)



Sankar Amburkar

3 years ago

"Are we ready?" - if this is a question to the (paid) readers of moneylife, the answers most likely to get is an resounding "YES". If this is question for the entire country then probably NO.

We have heard the political circle and pundits talk about various reforms in many forums. What is required now is action. There are some who are ready for it and there will be many who will oppose. The question I have is "How do we implement these changes?"

Mahesh S Bhatt

3 years ago

Professor its good to give gyan from IIM B but challenge is we defeated Anna who was fighting for Bhasmasura Corruption across boards.

To get permission for Sports Complex we need Sports Ministry, HRD & scores of respective sports body.

This is global so what are the real challenges.

We had extreme socialism failing extreme Capitalism making world stare at World Biggest recession.

Inculcate Values for Vision & Wealth.preview Mahesh


3 years ago

Who will bell the many cats? Sixty Seven years of India's grotesquely evolving Animal Farm constitution, where "all animals are equal, but some are more equal than others", "four legs good, two legs bad" and "farmer Jones is coming back" have surfaced a neta-babu-milard-cop-kleptocracy and ensured that the sina-qua-non of power and wealth is corruption, cronyism and abuse of power. The very raison de etre of the Indian Republic is to apply the resources of the Nation to personal pelf, pomp, pleasure and perpetuation.

shadi katyal

3 years ago

The article does shows the way for such changes but will the bureaucrats let it change as they donot wish to kill the golden goose of bribery.
As for the public mindset has to be changed and after the liberalization people found the freedom and quality products yet we did not go all the way.
Permit Raj has to be dumped and I fully agree that lot of ministries must be abolished. We are still tied to the apron of colonial days and thus too much interference of Govt in every aspect of investments and industrial polices.
Our greed drove INTEL away from India to Vietnam despite INTEL wish to build a $2 Billion plant.
We have certain anti-industry social elements who try to block any progress. POSCO is a good example.
Govt must get rid of all PSU and let the private management take over as senior Govt officers are a hindrance and live in the cocoon life of VIP. Many export industries had been
destroyed because of highhandedness and undue interference.
Nation did not fully liberalized and thus now we are confused.
The Russian model of Nehru does not suite but Anglo SAXON will do better as it is a tested one.
Can new Govt do it????

Abhijit Gosavi

3 years ago

From some recent alarming tweets on twitter, it appears that RBI hires are also based on connections. Perhaps, RBI was always like that (I honestly don't know), but with the new govt. in place, there was great hope that things would change and that merit would supersede connections.

If merit/due process of interviews in hiring are ignored, then, nothing will change, and that makes me v. sad. Honestly, I am appalled that economic policies do not appear to be changing. Elderly people like my parents did not stand in long lines to vote for a continuation of UPA policies. And I say the following from the bottom of my heart.

Prof. Vaidyanathan, whose excellent book (India Uninc) I am currently reading, is undoubtedly an expert on the Indian economy. Homegrown experts like him have a superior understanding of the problems there than people studying these problems from miles away. What they say needs to be taken far more seriously than someone who even had released questionable data about the Gujarat model.


3 years ago

Professor Vaidyanatha , is a well respected person and his opinion will surely count.

Somehow he seems to have truncated the article without going the whole distance in many critical aspects like real estate, forex convertability, stock exchange , food and distribution , education etc. All these areas have created massive corruption and utter disregard to talent and quality.

Also the suggestion that state be a ' regulator' should be replaced by 'facilitator'

Gopalakrishnan T V

3 years ago

The article is well presented and needs to be given a serious thought for implemetation of various suggestions to reap the benefits of socialism and remove the disadvantages of crony capitalism.In all our public policy documents,the intentions spelt out are really laudable but they provide lot of scope for corruption and no scope to arrive at the benefits derived. The need to have a social audit with persons of proven integrity with only social bent of mind is what is called for to ensure that the benefits intended under public policies are really derived and reaching the masses. Business run on political considerations, contacts and influence only damages the social amd moral fabric of the society and that is what is seen in our Public Sector Banks with staggering NPAs,dishonest and unskilled professsionals getting appointed as Board of Direstors, auditors lack of concern for ethics in dealing with public moneyetc. This article should serve as an eye opener and should help to bring the badly needed change in our system of Governance and management of Public Policies and institutions.

Bankimchandra Desai

3 years ago

Prof.R. Vaidyanathan's suggestions are known to all politicians and bureaucrats for long. Rajiv Gandhi with absolute majority could have done this. He did not. Now NaMo has a chance to do this. He will NOT do this. His very survival, political, will be at stake. Absolute political power at New Delhi was his dream, which he will not allow to wither away.


3 years ago

The Article is comprehensive and impresses directly those who want something better for the country and disown the current system of governance-corrupt to the hilt and incapable out and out. The principle and practice of market economy is clearly dependent on a nexus between Govt and private operators. PPP model means all resources like land, forest, water and minerals to be provided free by the Public and profit to be earned by the Private. Inefficient functioning by the Sarkari Babus and the Govt machinary must be brought under criminal code and made punishable under the law.Somebody should explain how and why Babus and most of the corrupt politicians are still not behind the bars when everyday we read of the proven stories of their incompetence.

Abhijit Gosavi

3 years ago

Several excellent policy recommendations. The govt. needs to read this.

MLF Seminar on Women & Money: Money Made Simple for Women

Women normally leave financial decisions to men – often at their cost. They can easily take charge of their finance. It’s not difficult, as this workshop showed


Moneylife Foundation recently conducted a workshop titled “What All Women Need To Know about Money”. This workshop was presented in association with the “Womentoring” programme at the National Human Resources Development Network (NHRD Network).

Sucheta Dalal, founder-trustee of Moneylife Foundation and managing editor of Moneylife, began the workshop with her session on the aspect of safety. According to her, women leave all financial decisions to their husband/father, without realising that these decisions can play havoc with their lives. “They are often made co-applicants in loans, and beneficiaries in investments and insurance, without their knowledge. They may then outlive their husbands, end up losing out on their own savings as well as the inheritance, only because of a lack of awareness,” she said.

What should they do? Ms Dalal suggested that women should use nationalised and large banks, and avoid dealing with cooperative banks. In terms of navigating the financial marketplace, she said, “Be careful while dealing with relationship mangers. You are targets for them and they will push harmful products because they know that women are soft targets. No matter what commitments they make, their targets are to sell you their products.” She also added that, if you knew financial products well, “You could use relationship managers to get your work done, but do not trust their investment advice.”

She covered topics from investment traps (such as chain-money schemes and guaranteed-return schemes), credit issues (such as credit cards, credit scores and loans) and also Will, nominations, etc.

During the second session, Debashis Basu, editor and publisher of Moneylife, spelt out various ways in which women can manage their money. Mr Basu emphasised the importance of saving regularly to deal with big expenses (such as children’s education) and, more importantly, ways of saving for retirement. His suggested a financial toolkit: just two to three mutual fund equity schemes, a few fixed-income products, a term life insurance, a health insurance plan and tax-saving instruments. “This should take care of 90% of your financial needs for a safe financial life. Tune out the rest and you will do much better,” explained Mr Basu.

Mr Basu explained which products to avoid and the products to invest in, with an idea of what is the right asset allocation. He went on to debunk myths about risk and explained that gold is a speculative product, not an investment product. He ended the session by saying, “What works in life also works with investments—simplicity, patience and a long-term view.”


What to look for in dueling autopsies of Michael Brown

Post mortem by Michael Baden is only the beginning as teams of specialists study the body of 18-year-old African American killed by police


In the next few weeks, separate teams of doctors will issue autopsy reports about Michael Brown, the unarmed African American shot to death by a police officer in Ferguson, Missouri. If history is any guide, they will differ, perhaps significantly, on how to interpret the gunshot wounds on his body. Michael Baden, the veteran medical examiner chosen to autopsy the body by Brown's family, has released the preliminary results of his autopsy and both the St. Louis County Medical Examiner and U.S. Justice Department have announced plans to conduct or commission separate post mortems.

As a journalist, I've read roughly 1,000 autopsy reports and spent much of my career reporting on fatal encounters between police officers and civilians. Here's some of what Baden found and what experts will be looking for as they examine Brown's corpse:

1. Evidence that Brown was fleeing from the officer who shot him, Darren Wilson. Shots to the back are a red flag, indicating the victim may have been running from the officer rather than attacking. The basic law on use of force turns on whether a police officer acted from a "reasonable belief" that he or she was facing a lethal threat. Baden — who was hired by Brown's family — believes Brown was shot at least six times with all the bullets striking him from the front.

2. Signs of a physical altercation. Forensic pathologists study the exterior of the body for bruises, scrapes and lacerations which can be signs that a scuffle preceded the fatal shots. Witnesses have said Brown and Wilson wrestled in the moments before the killing. On Baden's diagram of Brown's body, the doctor does not appear to have noted any significant injuries other than the gun shot wounds. Baden did not find gunpowder residue on Brown's hands, one piece of evidence that would likely be present if the two men were struggling for control of a gun discharged at close range.

3. Bullet trajectory. Shots fired at a downward angle may indicate the officer fired while the victim was on his knees or laying on the ground. A person in those positions generally poses less of a physical threat. Baden said a shot to Brown's head appeared to have come from above; he believes this was the fatal shot.

4. Number of shots. Baden voiced concern over the fact that Brown was hit by at least six shots. The doctor, who served earlier in his career as chief medical examiner for New York City and as an expert for the New York State Police, was quoted by the New York Times as saying, "In my capacity as the forensic examiner for the New York State Police, I would say, 'You're not supposed to shoot so many times.'" The number of shots may or may not be significant. Training on lethal force varies from department to department. Many forces train officers to continue firing until the suspect has been completely subdued. Some experts say that incidents in which a civilian has been hit with a single shot are more suspicious than those with multiple shots: The lone bullet could have been fired accidentally or in a moment of rage.

5. Gunshot residue. The presence of gunshot residue (GSR) on the skin or clothes of the victim may mean that the person was shot at very close range. Baden found no GSR on Brown's body, but said he did not scrutinize his clothing. Additionally, bullets fired from a few inches away leave distinct wound patterns on the flesh. Baden's report suggests the shots were fired from further away.

6. The presence of alcohol or drugs. Baden has not reviewed the toxicology tests, but results of those tests should be available soon (though it could take the authorities months to release them). Forensic pathologists typically fill vials with bodily fluids — urine, blood, or vitreous humor, the fluid within the eyeballs — and send them off to outside laboratories to be screened for alcohol, prescription drugs, and street drugs. If drugs or alcohol are discovered Brown's system, that information might provide some additional context to the fatal events.

In some police-civilian clashes, the evidence discovered during an autopsy turns out to be crucial. In the case of Michael Brown, it’s not clear how useful this trio of autopsies will be. As the nation tries to understand what happened on August 9, the autopsy results may well not prove conclusive on the key questions.



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