India wants austerity to begin at the boardroom

July 14, 2010

A news article on Tuesday said India’s finance minister plans to call a meeting of about a dozen top CEOs to tell them to adopt a more austere lifestyle.

An “ostentatious lifestyle” by CEOs does not reflect well when nearly 40 percent of the population lives below the poverty line, Pranab Mukherjee plans to tell them.

Austerity is arguably a big deal for Mukherjee: he was instrumental in launching an austerity drive last year in the Congress party following the worst drought in four decades, exhorting his colleagues to fly economy and cut back on their foreign jaunts.

Congress President Sonia Gandhi asked party leaders to give up a fifth of their salaries for drought-relief work, and several members made a show of even taking the train.

But their claims rang hollow when it was revealed that the foreign minister and then junior foreign minister had been living in luxury hotels for months. Others continued to build grand marble statues of themselves on taxpayers’ money.

Clearly, with a good monsoon in sight and the economy expected to expand 8.5 percent in the year to March 2011, the government now feels it is the turn of India Inc to be austere.

According to the recent Merrill Lynch-Capgemini annual wealthy list, India’s population of High Networth Individuals grew 51 percent in 2009 to 126,700, the second fastest expansion in the region.

Is that reason to commiserate or celebrate?

Yes, our wealthy are not very charitable, but philanthropy cannot be mandated.

Yes, CEOs splash out on yachts and private jets and fancy homes. But this is not illegal.

Equally, there are stories of CEOs sharing hotel rooms and driving themselves, and cutbacks that far exceed the token economy flight.

Mukesh Ambani, the world’s fourth wealthiest man, last year took a two-thirds salary cut after the prime minister, known for his simple lifestyle, commented on “vulgar salaries”.

Ratings agency Moody’s recently said the government must do more to address the problem of runaway inflation, namely by adopting fiscal austerity. But with state elections looming, it is debatable if the government has the political will to step up austerity measures.

So it would seem more expedient to ask CEOs to tone it down.

But the government needs to get its own house in order before tossing stones at India Inc.

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