Government support to private business

November 29th, 2011

The recent controversy with respect to the government bailout package for Kingfisher Airlines brought to light some interesting issues in the public domain. The main argument against the sanction of a bailout package was that Kingfisher was a private enterprise and public money (i.e. taxpayer’s contribution) should not be utilised for the purposes of bailing out a private enterprise. Rahul Bajaj chipped in with his usual one liner saying that private enterprise is all about risk and reward – the government cannot insulate a private entrepreneur from the risk of failure.

Once an official denial came regarding the bailout package, it seems all has become quiet on that front. Unfortunately the controversy did not last enough to stir a debate on the larger question regarding the theory of the extent of government support to private business which still remains unanswered.

Merely arguing that the bailout package should be denied because Kingfisher is an enterprise run by the private entrepreneur does not muster support in the true economic sense. The argument looks even more devoid of economic logic when we contrast this with the government decision to hand  (repeatedly) bailout packages to Air India (the latest being discussed is for about 30 thousand crores). Even in the countries where capitalism is considered as a religion, during periods of economic crisis, government bailout packages for private enterprise is very common. The US bailout packages for the banks in 2008 and the current European rescue plan are examples in this direction. Hence to feel that a private enterprise should and can never get a government bailout package is not correct.

Governments need to ascertain the exact reasons which plague the enterprise which have resulted in the current situation and they also need to ascertain the fallout of the failure of the private enterprise on the economy as a whole before deciding upon the need for a bailout. In fact, empirical evidence of such government interventions has shown that the cause is not that important as is the effect of the failure.

Today there is no debate as to why the banks in the US reached a situation where the government had to pump in billions of dollars to keep them in business. The analysis of the causes of the failure can only decide the nature of the bailout package. In India the concept of bailout packages is very common - maybe not in the form of a direct cash bail out but camouflaged in the form of fiscal incentives like tax concessions etc. In the former there is the application of the tax collected while in the later the collections are reduced at source.

As the economies across the globe come to grips with reduced growth rates, the question of the extent of government support to private business will raise its ugly head again and again. Merely denying Kingfisher a bailout package is not an answer, what is needed today specially in our country is a full-fledged national debate on the issue. support to private business digg:Government support to private business newsvine:Government support to private business reddit:Government support to private business Y!:Government support to private business