What is happening in Kolkata is enough to make Marx and Lenin turn in their graves. The Indian communists of West Bengal have given up their ideology and are going out of their way to attract capital – Indian and foreign.

Kolkata boasts of India’s largest Pizza Hut outlet, as well as highest selling Sony World franchisee. As if these symbols of capitalism were not enough of a reminder of a changed world, Manabendra Mukherjee, minister of IT, in the state’s communist government can look at Westside and Pantaloon malls on Camac Street from his office.

Bengal, a bastion of India’s communist rulers for 29 years, is witnessing a sea change. The communists remain in power but their philosophy could not be more different. They have embraced pro-market reforms with a vengeance – as if to make up for all their failed policies in double quick time.

Bengal’s government encouraged Pepsi to set up its potato processing plant in the state. Currently the company is doubling its 80 crore investment. The state has now become India’s second largest grower of potatoes. Dabur too has set up a fruit processing plant. Moreover, four companies from France have shown interest in investing in food processing. The communist Chief Minister, Buddhadeb Bhattacharya’s, avowed intention is to obtain investment and he doesn’t care whether it is Indian or foreign.

Though Bengal was always India’s top rice producer, it has now become No.1 in producing vegetables and pineapples as well. This has happened because, unlike in the erstwhile Soviet Russia, farms in Bengal are privately owned and whatever the tillers produce they keep.

No wonder Bengal has stunned India with its growth rates, and turnaround in industrial and agricultural development. In the last decade its economy grew by over 7% a year, while even Karnataka – the state which has Bangalore as its pride – could only manage a 6.4% yearly increase in its domestic product. Gujarat at 6.1%, and Haryana at 5.8% were way behind.

This growth has been led by Rs.27,000 crore of private industrial investment flowing into the state in the last 13 years. This investment was higher than in Maharastra, and second only to that in Gujarat.

The communists now woo private capital as if their lives depended on it. The investment in iron and steel projects is in hundreds of crores. Kolkata exports, from minister Mukherjee’s favourite IT complex, software and BPO services valued at Rs.1,400 crores. What is happening in India’s Bengal is no different than what is taking place in Lenin’s Russia and Mao’s China.

China, especially, exhibits capitalism. Its pro-market and pro-investment policies have gone far ahead of India’s in liberating businesses from red tape and controls. Where as India grew by 6.9% in 2004-05, the figure for China was 9.5%. If we account for what has happened since 1980, China is even further ahead. Its average annual growth of 9.5% exceeded India’s 5.7% by a whopping 3.8% every year.

This extraordinary growth in China has been due to its ability to convince investors to regard it as the ultimate opportunity for profits. While in 2001-03, China garnered in excess of 10% of the global foreign investment, India could not even get to the 1% mark.

China has become the world leader in exporting textiles. The success of its private entrepreneurs sends a chill down the spines of world’s competing businessmen. In 2004 alone China exported US$ 97 billion worth of textiles. India could only manage to send abroad textiles valued at US$ 14 billion.

Textiles are not the only success story. China’s manufacturers, across the board, are bedeviling the world with their newfound aggressiveness in closing deals. They are hungry for domination in the world markets and are leaving their competitors in the dust.

It is ironic the way China has jettisoned the teachings of Marx, Lenin, and Mao. Even more ironic, though, is how, in other countries including Nepal, communists still cling to their failed ideology. Let the Nepalese communist parties send their cadres to Bengal, China and Russia. Let them understand how these places, where communism originated, function. On their return, they just might influence their leaders into embracing capitalism, markets, reforms, and hence prosperity.

The Himalyan Times

On December 6, 2004, this column carried my article ‘copy China, not India’. A friend, Ramesh, objected. ‘Isn’t India doing well?’ he asked.

India is not merely doing well, it is shining. India has never done better: the stock market is at its peak; foreigners are investing in amounts never seen before; trade is at its all time high; earnings from outsourcing and software exports are the world’s envy; the treasury is bulging with reserves of 125 billion dollars; and more.

The signs of prosperity are everywhere. There are more cars, cell phones, houses, flyovers, cinema halls, shopping malls, foreign goods, and TV channels.

Delhi is beginning to look more like the rich cities of the West than the Delhi I was used to. Clothes from Nike, Levis, Benetton, Hugo Boss, and Van Heusen vie for attention. McDonald, KFC, TGIF, and Dominos offer the most popular of the world’s fast foods. Wines and cheeses from all over the world have finally arrived. Honda, GM, Hyundai, Suzuki, Ford, and Mercedes cars are seen all over the city. No international hotel chain worth its name wants to be left without a presence: there is the Hyatt, Marriott, Holiday Inn, Intercontinental, Hilton, Meridian, Crowne Plaza, and Radisson.

Yes, India has come a long way since Manmohan Singh first liberalized India’s economy in the 90’s. What could not be done with strict government controls in the 45 years of the leftist-socialist Nehru-Indira-Rajiv period, has been achieved in under 14 years of limited market reforms.

Everyone is benefiting. In fact there is no way to keep the advantages limited to a few. What is happening in India is not unique. Goods which start out as luxuries for a handful eventually become everyday necessities for a majority.

Millions of Indians are now hooked to their cell phones. These now exceed the number of landlines in most States. Phones, which were available to eight million people when the government operated the network just a decade ago, are now owned by 90 million. In the next 2-3 years cell phones will be held by 200 to 300 million subscribers.

Under state ownership people could view only what India’s government TV channels wanted. Not any longer. Private telecasting companies have spelt the end of programmes showing Indians how to grow potatoes. Dozens of channels now compete for ‘eyeballs’ with never ending creativity.

Hardly anyone flew during the days of Indira Gandhi, 50 million people will do so in 2005. Outbound tourism from India is set to break all records. Every major country is wooing the India traveler. With the end of monopoly of Indian Airlines and Air India, private airlines, particularly low cost Deccan Air, are taking ‘flying’ to the masses.

Those who owned the Fiat and Ambassador cars earlier now ride in Mercedes, Fords, and Hondas. Those who rode scooters have Maruties, and those who had bicycles have scooters and motorcycles. Those who walked have cycles, or use the new underground trains.

It is not Delhi alone, but other cities also which are being metamorphosed. Benefits are spreading, rural areas are doing even better. Most companies are reporting that the highest growth in sales of their products is being witnessed, not in big cities but, in smaller towns and villages.

So where is the problem? Why did I ask Nepal to copy China not India? It is just that India can do better. It can shine ever more brightly by letting markets, which are doing so well with the half chance that they got, take care of education, employment, and development too. India can overtake China only if it junks wasteful populist measures and reduces govt. intervention in the economy.

India needs to stop collecting taxes in the name of education. It needs to shelve plans to spend 60,000 crore rupees in guaranteeing jobs to the poor. Labour laws need to be rescinded, reservation for small industries and for jobs needs to end. Currency needs to be convertible and foreign investment easier. Customs and excise duties need elimination.

India’s growth will then go from 6-8% which is great, right into the stuff of legends perhaps touching 20%. However, until such policy changes happen it will be China which will remain ahead.

The Himalyan Times

The evidence is staring us in our face. Government is inefficient. Get it out of our lives. Restrict it. Let it perform only its core functions. We will benefit greatly.

Consider the opening of the skies between New Delhi and Kathmandu to private airlines. The exclusive privileges of RNAC, IA and Druk, have been revoked – hopefully for ever. We now have Jet, Sahara, and Cosmic offering us flights as well.

As would be expected, fares have crashed, service has improved, and travelers have a much wider choice as to the time they leave or arrive in Kathmandu. The benefits are going to the travelers, travel agents, hotels, casinos, and others associated with the tourism industry of Nepal.

Economy airfare to Delhi used to be Rs.13,000. Not any longer. All sorts of offers are available. It is easy to travel for Rs.9,600 if you are alone, and if you are in a group, you may pay just Rs.8,000.

If on average 500 travelers use these flights daily, and they now have to spend Rs.1,600 less on their tickets, that means Rs.800,000 a day is being put back into the pockets of the traveling public. On a yearly basis commuters will save Rs.300 million on their travel to Delhi alone. One can now have some idea of how much government monopolies, restrictions, and licensing requirements are costing the people of this country.

The savings have seemingly come out of thin air. Everyone is smiling. Consumers are paying less despite increase in the general price level. Private airlines are happy otherwise they would not have so eagerly commenced operations. Everyone related to the travel trade is ecstatic hoping that additional travelers will mean more money in their pocket.

The only loss has been that of ‘inefficiency’. Bloated government bureaucracies manning RNAC and IA now have to compete and this competition is making them improve too. Those in the travel trade tell us of how the arrogance exhibited by the staff of these airlines has been replaced by a new found humility.

The only question is, why did it take so long? These steps could and should have been taken much earlier. We had enough examples of the success of ‘open sky policies’ in the world.

Let us take the US. Almost 13 years ago, on December 10, 1991, this is what was published in the International Herald Tribune under the heading “Deregulation is working”.

“… deregulation has mostly done just what it was supposed to do, giving most air travelers more flights, more convenient schedules and substantially lower fares.

… For every Midway or Pan American that has departed, a USAir or Delta has taken its place.

…the number of airlines competing on typical routes has risen by one-third under deregulation. That is why fares are now 20 per cent below what the government would have set under its old formula.

… In a new study, Robert Gordon of Northwestern University shows that hub-and-spoke schedules have added more nonstop flights than they have eliminated. And there are more convenient options for nearly every traveller.

…the Brookings scholars conclude that travelers are better off, to the tune of tens of billions a year in lower fares and added convenience.”

It is apparent that no business should ever be granted monopoly or semi-monopoly privileges. Competition benefits us and it is only a matter of time before the benefits spread to all the people of a country.

The road ahead is clear. There should be no further hesitancy or partial steps. Open the skies completely. Allow any airline from any part of the world to come to Nepal. We need more flights and more competition on every route. Let any airline which is willing to fly from Kathmandu to any place on earth do so.

Further privatize all airports and allow them to cater to not only domestic airlines but to international ones as well. Allow international airlines to fly on domestic sectors too and open the domestic airline business to foreign investment.

The benefits to the people of Nepal would not be in millions of rupees but be in billions.

The Himalyan Times

In response to my December 27, 2004 article advocating reduction in taxes, Don Michaels sent a letter, published in THT, making a case for an increase. Let us analyze each of his arguments.

Don’s first contention is that even if taxes are reduced businessmen will not reduce prices. Don is right that when taxes go down, the prices may not immediately go down, but, in general goods are available at a cheaper rate to consumers in a lower taxed nation than in a high one. Isn’t zero or very low taxes the reason that countries like Singapore and Hong Kong boast of the world’s highest per capita trading volumes as well as living standards which are the envy of those of us in the 3rd world?

Further, high prices due to high taxation reduce demand and thus lower economic activity in the country. If Don, you can afford to buy a Toyota RAV 4 for Rs.20 lakhs, you may not, perhaps, be willing to buy it when taxes result in it being priced at Rs.40 lakhs.

Does Don really believe that if duty rates are brought to zero from say 100% prices will stay the same? How can they? Competition amongst sellers ensures that the consumers get their reductions fast.

Second point made by Don is that, “governments use taxes to build infrastructures; without them nations cannot progress”. I do agree with the later part of the sentence. Nepal does need infrastructure, desperately so. However, if anyone thinks that government taxes result automatically in building infrastructure, that person is dreaming.

A committed socialist like Rajiv Gandhi stated that not more than 15% of what government collects is spent on what the collection is for. 85% or more just disappears in funding the government machinery and in corruption. Why not let the private sector do the job? Why not allow foreign and domestic investment to be utilized for building of roads, airports, communication networks, and power plants?

In India when government regarded telephones as infrastructure people had to wait for years to obtain a connection. And if you did manage to get one it was just that one model made by a government factory and had to be black. When a member of India’s Parliament complained about his instrument not working to the Minister, he was told that only the ‘lucky’ few got telephones as India was poor and there were no funds for ‘luxuries’. Now India’s private companies are not only supplying phone connections by the millions each month, but, are also contributing thousands of crores in taxes to the government.

Don your argument regarding infrastructure doesn’t hold water. Tax money is people’s money, if it is not collected by government it would be available for whatever people desire including infrastructure. To allocate resources is the work of capital markets not government bureaucrats and politicians.

Thirdly, Don says, “As for ‘taking’ money from the rich, who is it that creates the wealth of a nation? Is it a CEO in his plush office or the worker on a construction site, factory, mine or farm?” The implication here clearly is that the worker builds wealth, the businessmen contributes nothing.

This contention displays such ignorance of the wealth generating process that all other arguments of Don pale in comparison. How can anyone even think that a worker without capital, or managerial resources, can produce wealth? Far from it.

If workers could produce wealth on their own then Nepal would be as rich as the US. Does Thapa, a porter, in a remote mountain village at Lukla work harder, or, Smith, an elevator operator, in New York’s Waldorf Astoria Hotel? Thapa in Lukla barely survives, Smith in New York with 1% of the effort owns a car, an apartment, and flies for a holiday to Mexico each year. If Thapa in the Himalayas expended the same effort as does Smith, Thapa would surely starve.

Don, productivity and wealth are the result of capital and capital is destroyed by taxes. Businessmen are required, for they bring in this much needed capital; without them, there would be no site on which to construct, no factory, no mine, and no farm except for subsistence hand to mouth agriculture.

The Himalyan Times

It is December 7, 2004 as I write this. America remembers it as ‘a day of infamy’. On this day, 63 years ago the Japanese attacked Pearl Harbour.

For me this is a day of infamy in Nepal. Petroleum products have yet again vanished. Throughout the day, queues of vehicles at gas stations lengthened. It is criminal at this day and age for Nepal’s policy makers to repeatedly subject its citizens to this torture.

It is ironic that even as prices at gas stations worldwide decline as a consequence of a drop of US$10 per barrel in price of oil, Nepali consumers cannot fill up their vehicle tanks. How many times does history have to repeat itself before something is done?

That ‘something’ is getting rid of Nepal Oil Corporation (NOC). And I do mean getting rid of it in double quick time. Government has had privatization plans on the anvil for far too long. It is time for action.

NOC must be sold in a fair and transparent manner. But that alone is not enough. Care must be taken to see that it no longer enjoys any monopoly privileges.

Open up the entire oil sector – imports, distribution, and sales – to competition. Allow any company from anywhere in the world to set up base in Nepal.

It is this competition that will end the shortages, bring quality products, enhance the service at gas stations and bring gas prices in Nepal at par with the international market after adjusting for local taxes.

A major benefit of allowing unfettered competition in Nepal would be to end adulteration of petroleum products. This practice wreaks havoc on the vehicles. When companies have to protect their reputation in the open market they see to it that their gas stations sell only quality products. It is only when you have a government protected monopoly that you couldn’t care less about your customers who don’t have a choice.

Why does the economy of this country have to be repeatedly wracked by government mismanagement? Why is no action taken?

Whereas other countries learn fast, Nepal shows a proclivity to take an unduly long time to absorb the lesson of past failures. It should have been clear to all that NOC can’t meet the expectations of the people. The citizens of this country deserve better than over and over becoming a prey of this government organization.

The US, which is the world’s largest consumer of gasoline, too has faced a situation similar to what Nepal faces today. However, that was during the time of one of America’s least economically savy President, Jimmy Carter. He believed in the ‘Whitehouse’ micro-managing everything from the distribution and pricing of oil to rescue of hostages in Iraq. He was a failure and lost the election to Ronald Reagan. Shortly after Reagan took office in January of 1981, he reversed Carter’s actions.

Reagan did this by removing price controls on oil and ending the practice of allocating oil by government fiat. The results confounded Carter and his supporters. They had said that eliminating the price ceiling on oil would result in an unacceptable increase in prices people would have to pay at the pumps.

Did this happen? The results were the reverse of what Carter expected. Deregulation freed the market, ended shortages, queues at gas stations vanished overnight, and best of all the price of oil dropped.

Though prices in the US go up and down in response to international fluctuations, no President since Reagan has ever instituted government ownership or control over oil flows. And the American people have never had to queue up at pumps again.

Private companies in America are adept at fulfilling the needs of their customers. Gas stations are sparkling clean, display prices prominently and many have department stores on premises. And customers have a choice. If you don’t like the service of one you can go to another. Each oil company – Texaco, Chevron, Exxon and many more – have their own or franchised gas stations.

Should the Nepali consumer not be pampered with similar levels of service and have the same choice as his American counterpart?

The Himalyan Times

The world has woken upto what is happening in China. In the last two years, every international business magazine has done at least one cover story on China. ‘Fortune’ not only put China on the cover in its special October 11, 2004 issue, but devoted the entire magazine to it. ‘Times’ cover had Chinese gymnasts on it in its August 16, 2004 issue. ‘The Economist’ has featured China on its cover in each of the last three months; China’s growing pains were in the August 21-27 issue, September 25 – October 1 featured Chinese leaders, and the November 20–26 reported on China’s growth spreading inland.

Why all this attention? China, in the last century, was largely ignored by the world. The only time the world leaders took note of this country was when it invaded Tibet. Today, any country which ignores China does so at its own peril.

The reason is that China’s 1.3 billion people are beginning to matter. China has become one of the world’s largest market for most goods, it is also one of the world’s principal exporters. China’s demand for oil is insatiable. In 2003, it surpassed Japan to become the world’s largest buyer of oil after the US.

What accounts for its economic clout? The answer lies in the phenomenal growth of the Chinese economy since the 1970’s. In the last three decades China has been growing at 10% per year: This double digit growth has propelled it to the status of an economic superpower.

At a growth rate of 10% an economy doubles itself every seven years. That means in 14 years, the economy quadruples, and in 28 years the economy’s size grows to 16 times of what it initially was. Give the country another 7 years of 10% growth, it will double again becoming 32 times of what it was at the beginning of period from which we are counting.

This is why China which did not count for much in the 1960’s is starting to matter. The evidence of this growth is everywhere. Each major city in China has thousand’s of skyscrapers. Shanghai’s growth puts New York to shame. Shenzhen is growing faster (over 10%) than the growth rate of Singapore and Hong Kong combined. Little heard Chongqing is the world’s largest city with its 31 million people. It is estimated that $200 billion of private capital will be invested in this city alone in the next 10 years.

China has become the world’s trading hub, its exports and imports are growing at a pace at which it is expected to cross the one trillion dollar mark by 2005. Its trade with the US and Japan already exceeds $250 billion.

China has left India far behind. Indians in the 1960’s enjoyed a per capita income which was higher than that of the Chinese. Not any longer. Each Chinese is today, on average, thrice as rich as each Indian.

The difference would have been even greater had India not started to reform its economy and liberalize in the 90’s. It was a case of too little too late for India. If India has to match China, it needs to do far more.

Double-digit growth rates require investment. Huge amounts of it. China understands this, India is just beginning to do so. China gets $50 billion in foreign investment, India aspires to get 10% of that. India will have to do better, much better, it will have to liberalize more, tax less, reform its labour laws, end its reservation policy for small industries, and bring down its inspector and regulatory raj. In other words India would have to become more like China.

Where is Nepal in all this? Unfortunately, it copied India. It needs to stop doing that. Nepal should align itself with the business friendly policies of China and it too will be transformed as China has been. 35 years of even low double digit growth will propel Nepal’s per capita income from its present US$250 to US$8,000 i.e. each Nepali will then earn, Rs.50,000 a month. Wouldn’t that be transformation for real? If this was to happen, Nepal too would attract the world’s attention as China is.

The Himalyan Times

After a gap of a few years I again visited Las Vegas in the US to attend a gambling conference and exhibition. Hotel rooms continue to be added at a break-neck pace to the already existing stock of over 1,25,000 rooms in the city. The latest two billion-dollar casino cum hotel almost ready is the ‘Wynn’.

Even more than being a gambler’s Mecca, Las Vegas has become a destination of choice for the world’s biggest conferences. And why not? Las Vegas has the accommodation – dozens of hotels with 5,000 rooms each – mega shopping malls, entertainment, and the world’s biggest conference infrastructure.

How did this happen? What made Las Vegas in the middle of the desert state of Nevada, the fastest growing city in whole of the US? Las Vegas shows the power of enlightened laws. It shows what can be achieved by lawmakers when they act in accordance with our basic instincts to be free to do what we want to with our money including gambling it away.

Las Vegas is in a perpetual boom because it has legitimate gambling, is liberal in issuing casino licenses, and has no state income tax. Realizing that gambling cannot be eliminated by merely declaring it illegal, the lawmakers of Nevada did away with hypocrisy which characterizes politicians, faced upto the truth, and said, ‘lets make Nevada the world’s gambling capital’. I cannot think of any other advantageous factor that sets Nevada apart from other states in the US.

In fact, whatever other facts come to mind about Las Vegas and Nevada are negative. Nevada is landlocked having no access to the seas like California has. And yet it is Las Vegas which is thriving while California has been in an economic decline for more than a decade. People of California finally rebelled against their governor, threw him out of office, and brought in Arnold Schwarzenegger who promptly reduced taxes on cars by 66% – one of his most popular actions so far.

Nevada has an arid landscape and an inhospitable climate. California’s coastline makes its cities like San Francisco have perhaps the best weather in the whole of US – whatever may be the time of the year, it is neither too hot nor too cold. However, all this is scant comfort to businessmen who prefer lower taxes in Nevada. Many move out of California and migrate to Nevada to take advantage of its liberal business environment.

This shows yet again the importance which businessmen attach to low taxes and low regulation. A desert blossoms while an oasis shrivels – all depending on what the policies instituted by the state are.

At the conference, I noticed that there were exhibitors showing their wares from all over the world. There were roulette wheels from England, horse-racing simulators from South Korea, computerized gaming devices from Slovakia, and slot machines from Australia. There was hardly a continent which was not represented.

What amazed me was the number of products they had moved from their countries to the Las Vegas exhibition center; the exhibition covered over 200,000 sq. fts. I asked some of the exhibitors whether they faced any regulatory problems in bringing their goods for showcasing in the US? They said, ‘No’.

Contrast this with what would happen in Nepal; a company from Bangladesh wanting to bring its goods to exhibit in Kathmandu, would have to obtain multiple government approvals. Customs here would presume that the foreign exhibitor is going to sell his goods in Nepal, and would, therefore require it to make a deposit equivalent to the duty payable on importing that particular good. In the US, no such deposits have to be made. The conference organizers have special approvals which make showcased products duty exempt.

It is enlightened practices like this which result in a massive influx of conference tourists to the US. Everything is linked. Lower regulation helps tourism which in turn gives a boost to trade as well.

Nepal can do better than the US, why not convert this nation into a duty free one? Watch it boom as people come for shopping, gambling, and yes for conferences too.

The Himalyan Times