New Delhi: The Indian governments plan is effectively to make free debt available to companies which is not a good idea, said University of Oxford Professor and Masters Union Master, Karthik Ramanna while making his observations on the country's Rs 20 lakh crore bailout package announced to fight the economic damage induced by COVID-19.
"This is not a good idea because the government will then absorb the cost of failure, but if things succeed then the taxpayer will get no benefit," Ramanna said in his "Masterclass" by Masters' Union School of Business in Gurugram.
"We must structure the bailouts as non-voting equity so that governments don't get into the business of interfering with how businesses are run; but they do get a share in the upside," he said.
The US did that in 2009, during the financial crisis and the US government even made a small profit on its bailouts, said Ramanna who is Director of the ‘Master of Public Policy Programme' at Oxford.
Saying that business executives should have more skin in the game to avoid gambling with public finance, he suggested more claw backs for executive bonuses if it is found that they were deliberately reckless with capital risks.
The professor, who is also on the Board of Advisors of the Masters' Union School of Business, warned that while bailouts are now necessary to prevent the country from plunging into a great depression, they are often misused to socialise the risks so that businesses benefit from the upside, but they do not bear the cost of the downside.
"If this is how the bailouts are structured in this crisis then the outrage will only grow, and capitalism will become more illegitimate and countries like India will find themselves thrown back to the dark days of socialism," he said.
Ramanna also shared his observations on how India can seize the opportunity with businesses looking to shift manufacturing from China.
He said the biggest barrier for businesses relocating to India right now is the threat of legal expropriation, particularly for multinational businesses in capital intensive industries like manufacturing
"The shift away from China is not going to be as dramatic as people are suggesting and it is not going to be as rapid as well," said Ramanna who spent close to a decade teaching at the Harvard Business School prior to joining Oxford.
He said creating Special Economic Zones (SEZs), fast track courts are going to be just as important as providing real estate.
In India, real estate is not the only missing infrastructure -- power, water resources, high speed telecommunication, ports and transportation infrastructure is important, and missing too, he said.
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Ramanna also warned that the accelerating pace of "deglobalisation" in the wake of COVID-19 does not bode well for world peace.
The Masterclass series from Masters' Union brings together leaders from the field of business, academics and administration to delve on how Covid-19 will impact the different aspects of business and economy.
Masters' Union is a technology-focused business school led by veteran leaders, executives and businessmen.
Situated in Cyberhub, Gurugram, it plans to start its first session from August 2020.