Thoughts on current developmental economic situation in India
By A.N. Saripalli
During the last 4 years our Government has been repeatedly making tall claims of a national GDP of about 9% and various economists suggesting that because of the demographic dividend that we enjoy in the world today that our GDP at this level will sustain for a long time to come if not grow into double digit. However, the benefits of this growth are not trickling down the pyramid of the base except in the case of probably state of Gujarat thus resulting in a widening gap in income distribution and regional development.
A factor that fortifies this conclusion is the fact that while a decade back global poverty was associated with Low Income Countries (LIC), the association is now no longer applicable. Out of world’s 1.3 billion poor people today, 80% are now living in Middle Income Countries (MIC) and only 20% in 39 LICs and most of them are in sub-saharan Africa. This means that in MICs the economic gap is widening due to lack of equitable distributions of incomes and wealth resulting from either poverty alleviation programs not working or being hijacked by the corrupt.
Another report places poverty level in 12 Indian states at far higher than sub-saharan African countries. A further significant disturbing factor is the widely accepted fact that while at least 15% of the amounts sanctioned on social schemes during the Rajiv Gandhi era were reaching the beneficiaries, the same has now gone into single digit %. This has resulted in a lot of social development issues not being addressed and one can be sure that the Millennium Development Goals on a number of parameters will not be met.
The various social issues that need to be addressed on a war footing are:
1. Corruption – Everyone knows about this and the less said the better. However, there are reports that the Hon Finance Minister has asked the country’s premier management institutions to compile a fact sheet of the extent and render suggestions on how to address it. Probably it has become essential in the wake of recent large scams viz. Satyam, IPL, Aadarsh Housing, Iron Ore Mining, CWG and 2G. Dr. Reddy the Ex Governor of RBI was reported, presumably correctly, to have recently stated that the much hailed PPPs do not work in India because the notion of PPP is different in India viz. Partnership of investing public funds for private profits. Even if one were to ask a rocket scientist about how to tackle corruption, he will be able to give an instant solution – make making black money difficult and using it even more difficult viz.
1. Demonetize high value currency, introduce Cash Transaction Fees by Banks and encourage use of plastic money.
2. Replace Personal Income Tax with Consumption Tax and use the human resource pool at the Tax Department that would be released from this burden to monitor corporate entities tax compliance.
3. What is the logic in reduced STCG Tax on Securities and exemption of LTCG totally, who does this benefit and where is the empirical evidence of benefit to the economy? Instead, there would have been some logic if funds invested in initial IPOs/FPOs with a minimum lock in period were given such exemption as they would have helped raise the resources to contribute to industrial growth, development and employment creation; the present legislation only widens the already existing income disparity.
The government will do well if it increases the STT and funnels the proceeds to address developmental issues affecting rural industry viz. create rural agro-techno-industrial parks and grant incentives to facilitate setting up of agro processing and allied industries in rural areas to do away with middlemen and provide rural employment. However, the one good thing that the Government did was taking the demat route for stocks that has helped in closing one avenue of black money of the three favoured ones viz. stocks, gold and land.
While one can argue that the price of gold is shooting up because of international conditions, the same cannot be said of land and the price of land has shot up over the last 5 years probably because the stocks can no longer be bought with black money. This hypothesis must be hitting the bull’s eye because, despite the severe downtrend caused by recession, housing prices have not dropped as there is no distress sale of land and cost of building inputs remains high.
4. Regulate usage of land and facilitate sale only in Demat form to ensure transparency and reflect real transaction price or convert from freehold to leasehold. Real Transaction Price has a bearing on resources to be raised by the exchequer in terms of Rates and Taxes. Although the Registrars insist on quoting of PAN, only transactions above a high threshold are reported to IT Department. One does wonder why the IT Department does not insist on all land transactions to be reported and data maintained so that at a flick of the button, the Department would know the exact land holding of every PAN holder.
5. Tighten dealing in gold, probably take the demat route to ensure that there is absolute record of gold purchased/sold/transferred and this should probably be possible once the Unique ID is in place if one does not want to use the existing PAN. By doing this, we can ensure that only a person who has a physical gold balance in his account can sell/transfer.
6. Shift from multi party politics to dual party (ruling and opposition) so that coalition politics do not have a bearing on governance issues facilitating petty political parties holding governments to ransom and indulging in corrupt practices for private gain at the expense of the exchequer.
7. Legalize political donations and monitor election spends to ensure that electorates are influenced by characters, agendas and performance alone and not by the crumbs that are thrown around.
8. Using the power of Information Technology, increase transparency in all government departments that deal with registrations, applications, licenses, renewals, government receipts etc. and facilitate the invisible eye of the Tax Authorities to keep tabs on wealth, earning and spending patterns of entities. In fact, in USA, when the Government suspects any one of any unlawful activity but cannot take action for want of adequate proof, the recourse taken is for IRS to nail them irrespective of who they happen to be. We too have similar tax provision but how often do we get to see it used. Reading the personal wealth declarations of our elected constituents makes a mockery of the whole process and how many of our bureaucrats do file such personal wealth declarations annually with the regulators and how accurate they are and whether they co-relate to the declared incomes.
We are world leaders in producing IT software and one in four IT professionals in US is an Indian and it is ironic that our Government has not utilized this resource to develop IT infrastructure to keep tabs on undisclosed incomes and wealth leading to creation of black money and a parallel economy worth many fold. This is the famous horse and the cart problem and unless you harness the horse to the cart, the cart cannot be driven and assuming that it is the government that is to harness the horse to the cart, we have a serious problem on hand to find out why our government is not yet ready to harness or what they are waiting for.
What is required is for all Indians including our politicians to stand up and put public good ahead of personal interest and that would require a lot of political will and a change of mindset universally across strata. We have beautiful acts but it is the implementation where we fail and that in turn is ruled by our mindset that we must keep on accumulating wealth by any means to hoard for generations to come presuming that we will be producing duds who cannot take care of themselves or even if we produce intelligent guys, what if they have a rainy day. If the world thought this way, we would not have tall figures like Warren Buffet, Bill Gates etc.
In the Indian context, one only sees the erstwhile Tatas that created SRTT that owns a major chunk of Tata Sons which in turn holds majority stake of Tata Group. For the normal Indian, charity means dropping a coin in the temple hundi and that too not without making the lord a partner in the misdeed seeking a favour in return.
The recent spate of scams prompted Gandhian Anna Hazare to take on the Government to bring in Lokpal Bill with an urgency causing the Government to buckle down on its knees and give in to his demands owing to massive public support for the cause. We have many such Bills that have been passed but failed in implementation.
The Indian society is a lot more materialistic and self centered and what really matters to them most is the welfare of the immediate family and their long term protection cocoon woven many a time by corrupt means and only a law that hits out at this cocoon will have some effect.
If the Lokpal Bill needs to have teeth to bite, then the draft must contain provisions to the effect that the kith & kin of any one convicted of corruption will not be entitled to any form of benefits from any Government viz. admissions to Government run educational institutions, Government jobs, Government elections, National sports, National passport etc. i.e. a fear of being stripped of all these benefits will definitely act as a disincentive to build corrupt cocoons or empires.
The Government that has created reservations based on caste, religion, gender etc. would be legitimate in creating a denial of benefits by law and enforcing this denial on all those that are proven guilty of corruption, the simple logic being if the Government can create reservations based on birth in a certain family, it should likewise have the right to create the denial of benefits that comes attached to the stigma of corruption perpetuated by the parents and in the process there could be cases of candidates who would otherwise have been eligible for reservations would be subject to denial if the parents are corrupt.
2. Agriculture, Malnutrition, Poverty Alleviation & Food Security – The recent comments of Chief of Planning Commission that rising prices are due to increases of rural incomes makes an interesting reading. One wonders if the real reason is not fall in agricultural production and we are afraid to admit it and in proof stands the recent statement of Shri Rangarajan that the right to food cannot be implemented by the Government because it does not have the financial resource to carry the burden but what is probably omitted in the statement is even if the Government were to have the financial resource, do we have the physical resource to satisfy the government.
If there was increase in rural incomes, we should be able to see it in the quality of life of rural households in which case there would be no reports of rural people of Vidisha (a constituency from where our leader of opposition got elected) lifting night soil to eke out a living or reports of farmer suicides or dying of handloom industry.
There is a lot of population migration of young people from rural India to urban centers with the hope of a better life and probably only the hopes of one in ten thousand are realized. This population migration while on one hand takes away the rural labour essential for farm production on the other hand chokes the urban centers that are already bursting at the seams. There is very little effort on the part of the government to address issues such as rural employment creation, rural agricultural infrastructure like irrigation, processing centers, cold storages, transport linkages, seed distribution centers, farm equipment financing etc.
Lack of this vital infrastructures results in exploitation of the farmers by money lenders and middlemen and they fail to get a fair price for the produce thus forcing them out of agriculture resulting in increase of arid land and fall in production. There is already a trend of corporates eyeing big chunks of agricultural land and one would not be surprised if we eventually end up with corporate farming and farmer labouring for the corporate and all infrastructure falling in place at a fast pace immediately thereafter because of corporate lobbying.
If this were to happen, while we can guarantee price increases resulting from monopolies, we cannot guarantee production increases because empirical evidence from China suggests otherwise viz. when initially Mao distributed the land to bring in more households into farming, production rose; later on when he collectivized the extents, production fell and subsequently when China fragmented the farms again production shot up. Even as of today the average size of farm land per household in China is only 1.6 acres and that is half of what it is in India and yet their average production per acre is more than twice that of ours.
A US based NGO is working with Rural Development Initiative in partnership with Government of India to put more land into the hands of the rural landless poor through a scheme called Indira Kranthi Patham based on China study. What is needed along with the land is also a hand that is prepared to assist; otherwise the land will again find its way back to the rural rich.
To add insult to injury, the talk of financial inclusion (meaning in real sense going beyond opening of a no frills zero balance savings account – we used to have this sort of financial inclusion before the advent of computers and these accounts ended up taking huge space in the form of inoperative ledgers and thanks to the advent of computers, the physical space requirement is not a constraint any more) has remained only on paper as it can only happen when the very people you are aiming to include are provided with necessary skills, training, opportunity and markets to make financial inclusion a reality that we can all be proud of. We now hear talk that the Unique ID project of the Government will enable the Government to address financial inclusion to the extent of opening a no frills Zero Balance Savings Account as if lack of it was what prevented the process.
Empirical evidence from a number of densely populated countries that tried similar ID process suggests that they did not succeed and the money spent went down the drain. What has been missing is not an identification process but a strong intent to put in place an ethical system to address such large social issues probably because the Government does not have resources at present nor the will to raise them in the future and the private sector that talks only on paper about Corporate Social Responsibility does not bother to join hands together to form a common consortium platform to address such issues.
The Government must realize the famous tenet – if you give fish to a man, it only lasts a day while if you teach a man to fish, he can last a life time provided you do not destroy the water bodies. This is what has happened time and again as the Government tries to dole out monies rather than fix the problem like Mr. Chidambaram’s farmer package did not arrest farmer suicides – they are committing suicides even today.
The Banking institutions are prepared to lose money on huge loans to big fish at lower rates but are not prepared to lose on small loans to small fish with higher rates. When the loans turn to NPAs ironically while the big fish are still treated to a cup of tea and a smiling plea, the small fish are hounded, abused and scorned; we must learn to admire the mysterious ways financial inclusion addresses the haves and the have nots.
Probably India would do well to take a leaf from Mr. Yunus and his co-operative micro lending operation that charged higher than market lending rates but still managed to survive in Bangladesh and has transformed the lives of millions, the core philosophy of the movement being trust reposed on low income populations pays high dividends provided agencies are prepared to work with them to alleviate their status in society.
The only thing that the Indian Government did was to bring in Mr. Yunus to address the Members of the Parliament about two years ago probably as a tribute to his Nobel Prize and nothing more than that intended in deed or action. The Government is aware of the fact that over 40% of the food produced gets lost even before it hits the markets due to lack of economically viable processing & transport infrastructure and the Government before calling for a second green revolution will do well to put efforts to minimize this wastage if it wants to address national food security that in turn is essential to ensure that no Indian child is malnourished. The Government will also do well to realize that malnutrition tends to bring down GDP.
3. Housing, Health, Hygiene, Sanitation & Pollution issues – One only needs to travel into a lot of rural areas to realize that there is a vast amount of regional imbalance on this front. The poverty stricken states are worst hit and their standard of living and quality of life is much worse today than 3 decades back.
The only development they can feel is the light coming from a light bulb that lights up when the government has excess to provide them after meeting all other demand and a cell phone connectivity that invariably loots the unsuspecting poor people by bombarding them with charges for unrequested services (it is ironic that even Tata Docomo that is operated by the iconic Tata is no exception) and TRAI is a silent spectator.
One can hardly talk about government initiatives addressing issues on water, housing, health, hygiene, sanitation etc. Even acclaimed schemes such as Aarogyasri in AP are full of bullet holes and the beneficiaries are hardly the intended ones as most of them take treatment in corporate hospitals, come in cars and don’t look like the rural poor. The corporate hospitals have turned out to be licensed loot machines as they (having long forgotten the medical ethics and the oath they took at the time of receiving their graduation at the expense of the honest tax payer) are not subjected to legislation such as Essential Services and MRP and hence are even charging Rs.500/- for a dressing pad that costs Rs.20/-and this is fact and not fiction.
When they can operate like this freely in urban centers assisted by the government through well conceived and ill implemented schemes such as the much hailed Aarogyasri, it would be naive to expect rural health initiatives. I wonder why the Government that catches shivers over onion politics, calls a hurried conference of the who’s who comprising of top brass of the country who unanimously decide that heads of hoarders must face the guillotine and roll, is not at all bothered about taking any action over the corporate hospitals.
Probably in the eyes of the Government, it is possible to live without dressing pads but not without onions and hence price of onions is more important than the price of health and while it is absolutely outrageous and unethical for an onion trader to charge a price that is deemed exorbitant it is reasonably ethical and highly dignified for a corporate hospital to charge Rs. 500/- for a dressing pad that actually costs Rs.20/-.
At this juncture, it would be appropriate to salute Pakistan’s pride for refusing to accept emergency medical supplies offered by India in the wake of recent disastrous earthquake that ravaged lives putting them at great health risks, while our politicians and bureaucrats have no attribute called pride in their characters and hence have no shame in passionately appealing repeatedly to Pakistan to open borders for trucks to carry onions into India as if onions for India were far more valuable than life saving drugs to Pakistan.
If one were to take a realistic view, corporate hospitals are committing a felony that is of a greater magnitude than the poor onion trader that has no control over either the production or the price as it is far more difficult to produce and hoard onions than dressing pads. The electorate in our country must be ashamed at how vote bank politics influences our sense of wisdom, pride and patriotism by subjecting us to witness scores of such events in our daily lives and yet we let it pass remembering the oft repeated phrases – forgive and forget or let bygones be bygones. It is no wonder that we are the world’s largest democracy in silence.
Botswana, a small desert country of a million and a half in Africa that can only use 15% of its land, and about 20 years younger than us can teach us a lesson or two by introducing us to some of its beautiful government schemes – 1. To cover road fatalities, they have a small cess of a thebe for every liter of fuel sold and this cess would go into a Motor Vehicle Accident fund to cover road fatalities across the nation and 2. To help the poor citizens with health, they have a scheme of issuing Government Purchase Orders to patients that can not be treated in hospitals in the country to be treated in a foreign country normally South Africa. When a small developing African country with a miniscule population can do it, why can’t India that is geographically six times bigger and demographically a thousand times bigger think of similar initiatives like a small cess on:
1. Pharma production to fund health initiatives,
2. Student communities & related industries to fund education initiatives,
3. Food production industries to fund agricultural initiatives,
4. Sales of land & buildings to fund land & housing initiatives,
5. Fuel, gold & stocks to create infrastructure for rural industries
and finally ensuring that there is a fool proof mechanism in place to make sure that the end use of the funds is monitored in order to achieve the desired objectives through transparent accountability.
4. Education, Employment & Entrepreneurship – With the exception of probably states like Manipur, Kerala and Goa, the rest of the state governments have practically denounced taking any pride in running professionally the elementary, secondary and higher secondary space thus leaving the field open to corporate schools.
The physical infrastructure in terms of land and buildings though dilapidated exists with the Governments but what is absent is the committed intent to revitalize and if necessary partner with BSE 500 companies by inviting them to adopt the institutions. The consensus among the industrialists is that the modern crop of university graduates is not fit enough for them to be productive unless they spend a lot of time training them.
This is the reason why Infosys had to put up a huge training centre in Mysore and has to provide a training of at least a year before they can place them on the job and the house of Tata’s too have such centers. If this is the state of education, one can guess what is happening at the mushrooming corporate schools and universities and that too in urban centers. Rural education initiatives have been few and the only notable ones are the kendriya vidyalayas and Sarva Shiksha Abiyan. A lot needs to be done on this front too like opening of rural vocational training centers based on regional characteristics so that the son of the soil is empowered with the skills of the region to exploit the regional potential through private entrepreneurship with governments and private sector participants providing catalytic support.
The BSE 500 companies instead of lamenting about the lack of quality in the crop of graduates could themselves join hands to form a coalition to contribute a small percent of their profits to initiate the funding of a corpus to set up schools & institutions of higher learning across the country so that a decade later they can be rest assured of a good harvest. It is not that we have not had visionaries with foresight in the past and the best example is the Tata group who had set up institutions such as Baba Atomic Research Centre, Tata Institute of Fundamental Research, Tata Institute of Social Sciences etc. Several decades later, we find another great visionary Mr. Narayana Murthy paying tribute to the products at TIFR by honouring them for their achievements at the awards ceremony of Infosys Science Foundation in the presence of august dignitaries such as our Hon. Prime Minister Dr. Manmohan Singh, Nobel Laureate Dr. Amartya Sen and Mr. Narayana Murthy.
Just imagine, if the IT industry had to take this initiative in early 90s, they would not be complaining today about lack of talent and how costly it is becoming to acquire or retain existing talent or the industries requiring graduates in pure sciences, medicine and technology would not be complaining of dearth of suitable resource. It is also relevant to note here that the philosophy of Tatas & Birlas has been on quality and not quantity and it is for this reason that they have been stringent to reward only the meritorious irrespective of other criteria such as caste, creed, economic status etc. for they backed by their experiences, genuinely believed that in the long run it is only quality that does greater good to society than mere quantities of no quality.
Except for Tatas & Birlas of yester years, no other big group has gone in a big way to promote such centers and the private sector must realize that it is not the resource strapped government but itself that has to do something to address this issue, and sooner it is done the better it would be for the sustenance of economy in the long run. We have always lamented that our problem is our population but we have failed to convert this threat into a tremendous opportunity by not creating institutions of excellence for higher learning and providing them with a world class education that would guarantee them employment anywhere in the world. The IT world showed us what to do with our population and why can not we repeat what we have done in IT in other fields be it social sciences, pure sciences, medicine, engineering, law, management, administration, languages etc.
It would also be in the interests of SEBI & BSE 500 companies to reduce regional development imbalances by partnering with various state governments to adopt a few strategically located rural centers to act as hubs in each state and deploy resources to make these centers world class in basic infrastructure such as roads, power, water, health, hygiene, sanitation, housing, education, recreation etc., the State Governments can provide the necessary physical infrastructure and the Central Government can provide necessary incentives to facilitate this process.
This move will ensure creation of a hub and spoke geographic model to reverse migration of populations that will go a long way in reducing stress, increasing happiness and helping to improve health, living standards and quality of life across rural and urban India. The results of such initiatives are bound to be reflected in improved productivity, corporate bottom lines, GDP and above all healthy smiling population.
This can only happen if the majority stock holders of the BSE 500 companies feel that such a move of bringing about greater good to the society at large is far more enriching, purifying and fulfilling than the significant balance on daily display in the personal demat account and for someone who is not going to sell, it should make no difference any which way you see it.
Finally, Indian corporates and politicians must not only pay tribute to the vision of legendary J.N. Tata who was philanthropic to the very core and whose only desire was to do greater good to the society at large and use the wealth created by the Tata empire in the pursuit of this desire but realize that the time has now come to start emulating his ideals and philosophy if India is to hold its head high in the present turbulent economic times.
One can see the realization of this happening when one reads of generosity of corporate stalwarts to name but a few like Houses of Tatas, Birlas, Ambanis, Infosys, Wipro etc. and there is plenty of room still vacant and unless this is filled by a lot of transparent corporates, clean politicians and honest bureaucrats it would be difficult to fulfill the vision of a law abiding, democratic, peaceful, prosperous and enlightened India that would be the envy of the world.
The author is a Fellow Member of The Institute of Chartered Accountants of India (M.No. 038706) and is in public practice as a Partnner in Ketkar & Saripalle, Chartered Accountants, Margao-Goa. The author is also a register member of MANGO an oxford based charity.
Disclaimer: The views expressed herein are the personal views. The author would welcome comments and can be reached by e-mail at firstname.lastname@example.org.