Is government interference justified?

Mon, 16 Jul Pre-Open

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Umpteen numbers of times we have talked about the Indian government interference in the functioning of the private businesses. And the current episode in the state of Gujarat seems to be another example of the same. As per a report in a leading newspaper, the Gujarat government may have used pressure techniques to push out state-based private players such as Adani Power and Torrent Power from bidding for Gujarat Gas stake. British Gas has been trying to sell its 65% stake in Gujarat Gas for quite some time. This arm twisting by the government seems to be helping GSPC (Gujarat State Petroleum Corporation), a state-run public sector company, in getting the stake at a cheaper valuation. After all, after the abrupt withdrawal of bids by other groups, GSPC led consortium remains as a sole bidder for the stake.

This action has again fuelled the much debatable question of whether the governments should interfere in private business affairs. Well, we may never have a clear cut answer as it all depends on the situation. Sometimes, the government needs to interfere to protect the larger interest of the people. And sometimes, this turns out to be means of exploiting the same public. Several scams such as the 2G and mining scams are vibrant examples of the same.

But the most important thing is the message given by the government to the outside world. After all, investor communities across the globe always weigh the political environment before investing in a country. And in a country like India, which is already reeling under the huge trust deficit due to several policy flip-flops, any government, central or state, must take steps keeping this thing in mind.

Well the Gujarat government may always argue that the move taken by the government was in the interest of the people of the state. It will help the government avail the gas at lower prices. In addition, there is nothing wrong in trying to buy foreign company's stake at lowest possible valuations. However, the manner in which it was done may raise doubts on the state's much-talked-about friendly image for the corporate. And the state may lose its face in the long run.

We strongly believe that governments should limit its interference to policy frameworks. They should lay down the best possible rules with wide consultation of all the stakeholders. However, they should definitely refrain from being a part of the business itself like in the case of 2G pricing and illegal mining. Else, sooner than later, it would backfire.