Externalities are usually costs of production that companies do not pay for by dumping the costs on the larger society. With the Indian government obliging, guess who is paying for these profits.

Our Prime Minister is an economist. He may be a politician, he may have the good of people at heart, human rights, environment, social responsibility may be on his list. But we know that he is a damn good economist. So surely he should understand this!

The free market argument is based on the understanding that goods will be produced and distributed based on the ‘hidden’ hand of the market. It is argued that the most efficient system is one where free market defines processes of production and distribution and the government supports the free market process.

One fundamental requirement of the free market is the absence of externalities – there should be no costs that the profit making entity does not pay for, or that it dumps on the larger society. Surely, Dr. Manmohan Singh knows this. Surely, when he and his government makes his policies, given that he is an aficionado of free market policies, he would ensure that corporations externalities are eliminated.

But in fact, policies have in fact been exactly the opposite. First the seeds market was deregulated. Before deregulation, government policies demanded that all packets of seed have at least 85% germination rates. After deregulation, no such specification was presented and in fact no testing was demanded. MNCs flooded the market with seeds that were priced higher and often had germination rates of 50%.

In other words, spurious seeds were allowed in to the markets. With falling yields farmers were badly affected. Guess who paid for the profits made by these agro-businesses. One can only speculate which entities were interested in such changes in regulation and what forced the government to change these regulations.

Earlier this year, the government of our learned PM decided that Environmental regulations were too tough on industries. Never mind that MNCs had to operate with much more stringent laws in EU or North America. Never mind that a corollary of economic liberalization claims that environmental standards will actually rise in third world countries.

Our government decided that the people of India could afford to pay for pollution by these industries. That these industries did not need to pay for their pollution while the made profits from their products. In fact, they would not have to comply with Environmental Impact Assessment for the first two years. And we know what might happen there after.

Again, one can only speculate what motivated such a change in law. Who were the interested parties? And the speculation becomes even sharper when one learns that the CEO of Walmart seeking to change the laws of India vis-à-vis FDI in retail can meet the primary guardian of our interests within a week while farmers in Andhra, Punjab or Maharastra can meet him after over hundreds have died.

Communities are protesting the externalities of Coke bottling plants in over half dozen locations – externalities that include dumping of toxic wastes (investigated by BBC), illegal occupation of village land, withdrawing of hundreds of thousands of liters of water everyday while water tables continue to fall. In fact, in AP, the state government had agreed to treat the water for Coca Cola at subsidized rates. What is the cost of these externalities?

And how is this nation of die hard patriots comfortable that a large company can continue to rake in huge profits on the back of such externalities paid for by communities who have very little voice? How come our leaders with such remarkable knowledge of economics are unaware of the basics of free market economy? Or are they simply unwilling?

Our government continues to provide incentives for companies to come and disrespect human rights regulations and environmental regulations that they need to obey in every developed country. Welcome to the economics of externalities.

- Sanat Mohanty

Related Links
Market Critique of Coke Policies
P.M. Manmohan Singh and Swaraj
Address to President Kalam
Who Does the Government Serve
Congress and BJP: Twiddle Dee Dee, Twiddle Dee Dum