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“Distributed Growth model” is the need of the hour. Growth alone will not suffice.
India’s budget preparation is in the final leg and it will be unveiled soon. Last two budgets have put the focus correctly; by giving thrust to rural development, agriculture and infrastructure, but the bureaucratic red-tape has been an impediment. We have a long way to go and we need to evolve a new model – the ‘Distributed growth model’. All these decades, we have chased the ever-elusive “double digit” growth, but we are not going to achieve that with the current approach.
“Too many economists spoil the budget”. We had a world-class economist running the country for a decade, we had the best economists running the RBI and the erstwhile Planning Commission, and we still could not achieve double digit growth, and floundered. So, it’s time to have a fresh look at our economic approach. A mere change in the interest rates have not done anything, and will not. Economy is not about tax collections, interest rates or money supply alone, it is much more. ‘Text book economists’ do not understand the country’s complexities, and neither they do good to the economy, or to economics. Also, the general perception is, that only 3 % pay taxes. Yes, 3 percent may be paying direct taxes but every citizen of India pays taxes indirectly when s/he purchases a product from the market. With GST implemented, all the more! So, to use this reason of low tax payer’s base is wrongfully placed.
It is time we considered a model that leads to growth which percolates downwards and spreads wide, that what I call as, ‘Distributed Growth model”. How do we make it happen?
Let’s look at the following data;
Health & Education
Recent study had revealed that 50 million go below poverty line due to healthcare costs. Also, it is a known fact that most of the ‘educated’ are not ‘skilled enough’ to do the jobs that the country needs as its economy evolves. Hence, education and health needs investment. If the workforce is not healthy and competent, how can the economy be strong? In fact, anecdotally (since I am not an economist by training), I would take the liberty of stating that GDP growth would be equal to the GDP spends on education, and health! Our healthcare system and education system is in shambles and it needs massive investment. For achieving ‘distributed growth model’, investment in health and education are a precondition.
Strongest thing about India’s economy is ‘1.34 billion consumers’, who run the consumption story (growth engine) for the country, and we add about 18 million new consumers every year. With more opportunities for consumers from Agriculture, MSME and Tourism; and assuring them with quality health and education; we will fire the economy to grow 10 percent a year, and that too, sustainably.
I see foreign trained economist keep warning India about the Fiscal discipline. If the investments are going in areas outlined above and not in opex, we must not worry. Even if the fiscal deficit reaches 5 percent, investments in these sectors will payback, and our economy will be amongst the 3rd largest in a decade. USA is a case in point. It is too big an economy and though its fiscal arithmetic is baffling, does it worry about its ratings or deficit!!?
In oil rich Gulf countries, GDP and GDP per capita appears fantastic as statistics, but since the oil fields are in the hands of a few royal families, the wealth gets concentrated in a few hands. Recently, the annual Oxfam survey has found that the wealthiest 1 % Indians garnered 73 % of the wealth created in 2017. This is due to the ‘Concentrated Growth model’. So growth alone with not suffice , and we need ‘distributed growth’. In the “Distributed Growth” model lies the answer. India should move to this model before the gap between ‘have’s’ and ‘have nots’ increases more!
What the policy makers must aim is on enhancing the income and money in the hands of consumers by creating more avenues to work, earn and spend. This will happen if we invest in agriculture and value addition in allied agro based industries, MSME, tourism, infra, health & education.
Lastly, let us not forget, electorate will evaluate Modi government’s performance on health, education, employment, electricity and inflation. These hold the key to a massive win in 2019.
Good economics is long term politics!
Rajendra Pratap Gupta is a leading public policy expert. Views are personal
Hon’ble Prime Minister Modi,
Namaste Sir,
Your time is very valuable and hence instead of seeking a personal appointment, I am writing this letter to you.
Peter Huntsman, CEO, Huntsman Corporation, US, said at the recently concluded ‘Vibrant Gujarat’ summit, which was inaugurated by prime minister Narendra Modi, that “Mr. PM, you visited our country in June and there are many of us who wished you would have stayed and taken over leadership of our country”.
This is the first time in history that any head of state would have received such a compliment and it is not easy to come by, and that too, for a developing country! This speaks volumes of how much the world believes in your exemplary leadership and seeks your guidance as a Vishwa Guru! I have always said that you have brought a lot of trust and respect to our country in the short span that you have been at the helm, and I am sure, what we have seen till now, is just 10 per cent of what you can do, and that you will totally transform the country over the next 10 years.
The earlier governments kept singing the slogan of ‘Garibi Hatao’ for decades, but, actually, they neither had the will nor the vision to do so. You have clearly shown that your focus is clear and you have clearly articulated the path to Garibi Hatao by your vision to provide water, electricity, house (with toilet) and access to every Indian by 2022. Moreover, the last budget set the direction for empowered citizens and developed India by focusing on rural development, agriculture and infrastructure. Rather than promising to people, you have decided to work hard and deliver, and this had been missing in the country and because of which, the people have lost confidence in politics and politicians both. You have a big responsibility of not just running the country as our most revered Prime Minister but a bigger goal to bring back the trust in politics and politicians
We have recently seen that you stand for your principles. Demonetization and the surgical strikes have proven that you will not hesitate to take tough decisions in the interest of the poor and to safeguard the nation. A few in the opposition have talked against demonetization. Post demonetization, we are clear about where the money is! Else, the so called world class economists talked about double digit growth and fooled us for years without even knowing how much money was in the system and where! Now other countries are considering to implement demonetization.
While you have initiated some big changes and more are likely to follow post the budget and the assembly elections, it would be pertinent here to state that the biggest drag on Rajiv Gandhi and Dr. Manmohan Singh Government was the same bureaucracy that we have inherited and which failed them, and it will fail this government as well if we don’t get rid of this imperial legacy – bureaucracy. We are beholden to bureaucracy as if, without them, the government cannot function, but the history proves that bureaucracy has ensured a status quo for this nation and worked on the principle of ‘I, me and myself’. Actually, the current bureaucratic set up is a bottleneck for fostering innovation and enterprise.
Let me quote;
“Rajiv wanted to revolutionize the bureaucracy and make things more efficient”. –Mark Tully in an interview
“You have sought a change in the manner in which this country is run and reform of administration to improve the quality of services will be our immediate priority”. Dr. Manmohan Singh, June 2004
Some of these leaders identified the real problem in India for implementing reforms as the failure of the bureaucracy to implement, and which let them down. I have written about the need and the path to transform the bureaucracy.
Also, am submitting the following for your kind consideration;
* ACR system be changed to CPR (Comprehensive Performance Review, wherein, 50 % of the appraisal depends on the individual performance, 25 % on the department’s / Ministry’s performance and 25% on the overall government’s performance).
* All posts, starting with the Joint Secretary, to be on a 5-year contract, based on annual comprehensive performance review, linked to implementation of the budget announcements and yearly plans. No bureaucrat be appointed as Secretary who has less than a year to retire & a bureaucrat at the level of Secretary have a fixed tenure based on yearly comprehensive assessment
* Start the lateral entry and compare the performance of career bureaucrats and professionals inducted in the government
* Sack the non-performing secretaries to send a strong message.
* This reform cannot be left to bureaucrats, as they will never let it happen. Also, if this is not done, it will be the biggest setback to the Modi Administration and will cost dearly.
In the USA, key officials come with the incoming President and are aligned to his vision. Also, the USA, U.K. and New Zealand governments have transformed bureaucracy to make their nations innovative and growth oriented.
Jairam Ramesh was bang on when he said, ‘the responsibility for bringing in reforms and change cannot be outsourced to bureaucrats and technocrats, as reforms, in essence, is a political enterprise”.
In the past, the political leadership could never deliver on getting rid of bureaucracy, despite the identification of the problem and only made statements from time to time to reform the bureaucracy. We are hopeful that, with a leader like Modi at the helm, we can now see this major reform becoming a reality, which will unlock the true potential of every Indian, and if this happens, in 2019, you can plan the mission of 400 plus for Lok Sabha.
Rajendra Pratap Gupta
Disclaimer: The views expressed are based on facts and experience and personal
Time to change ?
Last year at the Economic Times Global Business Summit, finance minister Arun Jaitley had said that “the creeping acquisition of Rajya Sabha is on”. The thumping victory in Assam and an increased vote share across states show that the BJP government at the Centre is marching towards its goal. Also, the party seems closer to the goal of ‘Congress-Mukt Bharat’ after the latest assembly polls.
However, these results need introspection from all political parties. While the results have led to comments from party veterans like Digvijaya Singh’s observation that Congress needs “a major surgery” and Satyavrat Chaturvedi’s similar prognosis involving “a cardiac surgery”, the Narendra Modi government needs to conduct an open heart surgery for a ‘Bureaucrat-Mukt Bharat’. In 2014, India had voted in Modi to spearhead radical change, end corruption, execute citizen-friendly policies and administration, provide development with jobs, and lower prices.
The prime minister started well by meeting the secretaries and not his ministers. But somehow, the bureaucracy, after a while, started ignoring the ministers, as they had direct access to the PMO. I know of a minister who lost his portfolio because the secretary of the department made repeated complaints against this honest man who took a tough stand on irregularities happening in the ministry. Finally, the bureaucrat succeeded in ousting the minister.
I had a meeting with an additional secretary in the presence of a Cabinet minister. We discussed a few programmes that could be implemented on a priority basis. The additional secretary had a problem for every solution we proposed. He provided reasons as to why a major programme could not be implemented. And when we provided a workable solution for each one of his ‘problems’, he finally agreed on a timeline — without ever delivering. During the meeting, he kept flaunting that he had just returned from a meeting at the PMO.
Dragging the Nation Down
Then there was a senior technocrat in a ministry whom I met last month. He immediately told me to send him an email and promised that he would get the job done. The email was forwarded to his junior for action only after nine days! And this, despite clear instructions from the Cabinet minister a few days before. Most bureaucrats don’t seem to be bothered with the job at hand.
When people single out politicians for corruption and non-performance, I beg to differ. The bureaucracy runs the government. If the bureaucrats did their jobs well without fear or favour, we would not have straggled so far behind China. We have been terribly let down by the bureaucracy. There are always exceptions, of course. But they are far and few between.
Bureaucracy has still not got out of the officer culture that they have been used to for about 60 years of Congress rule. The role and orientation of the civil services has to change. Bureaucrats need to give up their role of ‘administrators’ and work on becoming ‘developers’.
I keep hearing that bureaucrats are afraid of taking decisions due to the fear of being hauled up by the Comptroller and Auditor General (CAG), the Central Vigilance Commission (CVC) and the Central Bureau of Investigation. But aren’t these institutions also in the hands of their fellow officers? Why on earth are bureaucrats afraid of bureaucrats?
It is time for the officer to learn a few lessons from the armed forces. Soldiers join the army knowing well that while working for the country, they can lose their lives. The working conditions for soldiers are not as comfortable as that of bureaucrats and neither do most of their pay scales match those of bureaucrats. And, bureaucrats are also soldiers for development and they should not worry about action against if they discharge their duty impartially and without fear or favour.
If people don’t have the passion and commitment for the country, or if they join the civil services for a job that gives them only authority as an administrator — or only for a safe job with a good retirement plan — don’t join the administrative services. Modi has a grand vision and is a man of action. So, either the bureaucrats rally behind the prime minister’s vision and implement his government’s idea of India by focusing on development with passion. Or we get rid of them.
Goodbye to Bureaucrats
Union road transportation minister Nitin Gadkari has got rid of bureaucrats in his ministry in key positions while having achieved a lot in a ministry considered tough to handle. Could Gadkari’s prowess as a minister have anything to do with the fact that his private secretary and key members of staff are from outside the Indian Administrative Service (IAS)?
So, we need to get rid of the British Raj-era kind of bureaucracy and its officer culture. Otherwise, the bureaucracy will be the biggest bottleneck for implementing the vision of the Modi government with the country paying a price it cannot afford. Fortunately, the prime minister has three years left in his current tenure. So, the next goal for the government should be a ‘Bureaucrat-Mukt Bharat’.
The writer is a public policy expert
The first reform that the BJP has to undertake is reform within: the way its leaders conduct themselves within the party, in the government and with the public. Leaders would do well to remember that power flows through you and not from you. Politicians tend to forget that the public has chosen them to serve as servants and not as masters, and that the power that flows through them can start flowing through any other leader. See how many cabinet ministers lost, in the 2014 elections.
A minister’s personal assistant complained: “people come from the minister’s constituency, congratulating him for a scheme that is a total failure and no one dares to tell him the truth. He takes the praise at face value and continues to expand the scheme, unaware of the ground level talk’. Be careful of praise and encourage people around you to speak the truth, even if it is unpleasant.
Seek Out Honest Feedback
Ideally, the party should set up an internal team that critically examines the government’s functioning and gives feedback to the party high command before it is too late. Another big problem with the senior party leaders is that they seem to ‘know everything’ and are not interested to listen, but like lecturing.
If this does not change, the leaders don’t learn anything new, but only share what they know. So there is no value addition to their knowledge. Leaders must encourage others to speak and listen carefully. But the public must also realise the importance of the leader’s time and be brief and to the point and speak the truth without caring for the consequences.
Servants, not Masters
All senior leaders and ministers must make it a point to visit the field regularly and that too, unannounced, and spend at least 30 percent of their work time in the field. If the visits are pre-announced, the areas and projects are decked up for the ‘show’ and the reality remains hidden. Surprise visits will reveal the real situation on ground, so that corrective actions can be taken before the media starts the post mortem, and the public sentiment turns to anti-incumbency.
Read as much as you can. A few leaders who have reached the top are voracious readers. ‘A good reader is a good leader’. Leaders must dedicate time daily to reading newspapers and relevant literature and books, to keep themselves updated on what’s going on around them A new breed of leaders are convinced of their own genius and don’t feel the need to consult anyone. In reality, it would be great to bounce new ideas off a senior leader or colleague, to take advantage of their wisdom and experience.
Politicians must be clear on what they want to accomplish in the short, medium and long term and must state their working principles for the team (office staff and bureaucrats), and give them enough freedom to take decisions within the defined framework and evaluate them for their deliverables. It would be a great idea to take the power of saying ‘no’ from the bureaucrats. For saying ‘no’, they should have to take approvals from the immediate senior. This one change will transform the way the government works.
Intent & Will before Vision
Also, it has been seen that the personal staff of ministers tend to be more ‘powerful’ than the ministers, and most of the time, lack basic courtesy while dealing with the public. This must be tackled on priority, as wrong handling can have a cascading negative impact. All politicians know that it is not possible to meet the expectations of every citizen in their constituency, but it is certainly possible to talk to them respectfully, and explain the situation directly, or through staff, if some particular thing cannot be done.
And, don’t work only in the fifth, pre-poll year, but work for all the five years that you have been voted for. A lot of leaders show off their clout by quoting internal discussions of the government or the party in the media. This negates decades of good work and weakens the organisation, and must be avoided at all costs.
People said that Narendra Modi has a vision, but they forget that, before the vision, you need to have the ‘intent’ and the ‘will’, and the vision shapes up automatically. Once you have the vision, you need to implement it, and there is no substitute for hard work. With Modi running the government, leaders will do well to learn and unlearn quickly, so that they deliver on the sky-high expectations set after the 2014 results Well, all the above will naturally happen if you have genuine intent to work for the people.
A lot many people come into politics for power and position but forget that politics is only a platform for serving people The Indian public knows what to do and when! Results of 2009 and 2014 clear any misgivings that our leaders have about the maturity of our voters and the strength of the democratic system and so, don’t forget that ‘prepare and prevent is better than repair and repent’
Rajendra Pratap Gupta
This article appeared in The Economic Times on 26th May , 2014 in the edit page
Decade under the UPA I & II can rightly be summed in one line, the ‘Decade of Decay’, in which India had a free fall on all fronts – be it economic failure, diplomatic humiliation, failure of foreign policy, intrusions across borders, corruption & scams or crimes against women. There has been gross misuse & total denigration of government & constitutional institutions and this has eroded the office of the Prime Minister. The Government dithered by each passing day, casting gloom and doom on the country that was once under the NDA regime called the ‘Emerging Super Power’. In 2004, NDA left the Government with 8.1 % growth. The UPA could not even maintain that growth and mismanaged the country so badly, that the growth rate declined to 4.8 %, with the nation in a deep mess. We have lost a wonderful opportunity and have pushed the nation 20 years behind and rendered millions jobless and hopeless.
CAD now exceeds even 1990-91 Level – India is revisiting the crisis of 1991.
Between 2001-02 and 2003-04, the nation had a pleasant experience on balance of payments, turning surplus for continuously three years, which was unprecedented after the post-independence period. All the gains of the NDA period have been frittered away in saving the dynasty rule through various election-financing schemes
Total public debt on India is Rs 4,606,350 crore, and the debt per capita stands at about Rs 38,000
Economy is slowing down and the banks are under strain. Defaults have led to NPAs almost doubling from the 2009 levels. Rs. 2.43 lac Crore of estimated NPAs are in 40 listed banks as on December 2013. Rs.4.0 Lac crore is the amount of restructured loan under the CDR scheme.
The Indian rupee, which was at par with the American currency at the time of Independence in 1947, has touched its historic record low of below 68.80 against the dollar under the UPA
The employment generation actually decreased sharply between 2004-05 and 2009-10, especially when compared to the earlier five-year period.
In the five years from 1999-2000 – 2004-05, NDA created 60.7 million new jobs against the 2.76 million new jobs between the years 2004-05 to 2009-10 under the UPA. Now, India is going to lose more jobs in the coming years due to the wrong policies of the UPA
416 million poor, 316 million illiterate & more than 600 million population without toilets sums up the outcome of the economic policies followed by Congress
India continues to be one of the hungriest nations in the world & accounts for 42 per cent of the world’s underweight children.
India’s Human Development Index rank has a negative trend for the time period 2007-12, which indicates deterioration in the indicators determining the Human Development Index.
Whenever it came to low rate of growth, UPA justified that it was due to global economic situation, but the same cannot be justified for the increasing food prices in India. In November 2013, the Food Prices Index fell by 4.4 % globally, while in India, the Wholesale Price Index (WPI) was estimated to be close to 20 % in November 2013.
On one side, we have European Union’s inflation rate declining to a four-year low, and on the other side, UPA is groping in the dark for the past decade to find a solution for inflation and deficits. Country’s growth that reached near double-digit due to initiatives of the NDA government has come down to 4.5 %, that too remained because monsoons played a face saver and there was a high growth in agriculture ( 4 %). Year 2013 had an unusually good monsoon favoring a good agricultural yield, but had the monsoons been average, the growth would have been below 3 %. It was the agriculture & not the Government Policies that saved the nation from a collapse!
Health and education are defining sectors for equitable human development and sustainable and inclusive economic growth of India.
Despite levying a tax to fund education and enacting a law to ensure access to education for all children between the ages of 6 and 14, the government hasn’t succeeded in improving the learning outcomes in India’s schools, because the UPA thoroughly bungled the Sarva Shiksha Abhiyaan initiated by the NDA.The quality of learning has either shown no improvement or actually worsened in the nine years of the UPA’s rule
Recognized as a critical element for India’s growth, the UPA government had claimed way back in its first term, that 6% of the GDP would be spent on education, which is a bare minimum for an emerging economy like ours. Nonetheless, the sector still stands at around 4% of the GDP today.
It is unfortunate, but the UPA government and the Ministry of Human Resource Development have surely missed the focus on Education and Employment, and the Research & Development expenditure has stagnated under the UPA.
Healthcare is still inaccessible and unaffordable to the masses. Out of pocket spending is still high at 78 %. Goals set forth under NRHM have not been achieved and the scheme has floundered. UPA has failed to deliver health, or healthcare, despite a huge spending.
Due to lack of investment (both public & private) in agriculture, the share of agriculture in GDP has dropped to less than 15%. UPA has failed to increase investment, productivity & profitability of agriculture, leading to farmer suicides, migration from agriculture and widening the urban-rural divide. The Nation is left at the mercy of rain Gods!
The past decade has witnessed, a directionless Indian Foreign Policy under the UPA I & II; of alienation and antagonism in relations with South Asian neighbours, & of international humiliation. India has been miserably failing in accomplishing its national interest due to poor diplomacy
India has slipped to 60th position in terms of its competitiveness globally. This is India’s lowest ever rank and also 31 place below its peer emerging market -China. With regards to GCI, India is placed at 60th position out of 148 economies
India is ranked 134th position out of 189 countries in terms of ease of doing business
Transparency International’s Corruption Perception Index in 2012 ranked India at 94, out of 176 nations
In the global happiness-ranking list, India stands at rank 111-much after Pakistan (rank: 81) and Bangladesh (108).
International rating agencies have been warning that India’s Baa3 rating is in danger of a downgrade, which has vitiated the investment climate. Any further downgrade would club the economy with junk-grade countries.
The fiscal profligacy of the UPA government has put India into a tight corner when it comes to repayment of borrowings. Government bonds worth Rs 1567 billion (Rs 1,56,700 crore) is coming up for redemption in fiscal year 2014-15 & In the fiscal years 2015-16, 2016-17, 2017-18 and 2018-19, government bonds worth Rs 114600 crore, Rs 231200 crore, Rs 256700 crore and Rs 242400 crore are coming up for redemption, respectively.
Erosion of moral and societal values and governance
Crimes & corruption are on the rise across the nation and scams have impacted all the sectors like Panchayat, Housing, Education, Health, Agriculture, Mining, telecom etc. No one is untouched from corruption in the UPA regime
Corruption has become a part of the daily life. There is hardly any day when we do not come across the cases of flourishing corrupt practices getting exposed in one form or another. The policies of UPA have resulted in fast degradation of moral, societal,and cultural values
Use your right to vote to seek a change for a better India
Rajendra Pratap Gupta
Please ask the Hon’ble PM to give a statement on a scheme similar to the Food security bill launched with much fanfare in 1975 to reduce malnutrition . This scheme was called the Integrated Child Development Scheme (ICDS) . It has been around for the past 38 years and now again another bill to remove malnutrition ? Despite this scheme being around for about four decades, the scenario is as mentioned below ;
It is a matter of serious concern that the mean per capita consumption of calories has never crossed the minimum threshold for intake ( 2400 Kcal in rural and 2100 Kcal in urban areas), and still about 3/4th of the households do not consumer the minimum calorific intake (Dr.D.K.Taneja, 2013, p. 21)
Protein Energy Malnutrition (PEM) most commonly prevalent in India . 45.3 percent of children under 3 years are under weight as per NFHS -3. Also, as per NFHS-3 , 33 percent of adult women and 28.1 percent of adult men have below normal BMI (Dr.D.K.Taneja, 2013, p. 301)
According to the information procured from the Ministry of Women and Child development via RTI through their letter dated 25 July 2013 ( F. No. 10-1/2011-CD.II(Pt.II)
Total money spend in 11th plan on ICDS was Rs.43829.53 Crore
Total money spent in 2012-13 is 15701.50 crore
During the 12th Five Year Plan, a total approved allocation of Rs. 1,23,580 crore has been made for the scheme. Any additional requirement of funds under ICDS Scheme can be met through Supplementary Demands for Grants and savings. ( Source http://pib.nic.in/newsite/erelease.aspx?relid=93731 )
I think food security bill means ‘another bill for the poor and dollars for the congress’ .
This bill might be another money-making scheme in the name of aam aadmi .. Already, all the FM channels have been bombarded with advertisements for the Food security bill making the intentions of congress very clear that this is a poll gimmick
Rajendra Pratap Gupta
Recently , very few people noticed a four line news that , Moody’s Investor Service downgraded the so-called financial strengths ratings and the baseline credit assessments of;
1. Bank of Baroda
2. Canara Bank
3. Punjab National Bank
The outlook on Union Bank of India has also been changed to negative .
This is the first indicator of ‘Gloom & Doom’ that is set to hit the economy soon. Somehow , India has missed the recession in 2008 , but India will now enter into recessionary phase that is likely to last between 3 -6 years .
Somehow , the investments that came due to ‘overselling’ the India story like the SEZs, power plants , airports are fading off and most of the infrastructure companies are under a huge pile of debt. More NPAs and job losses will follow .
I see that not a single politician or an economist can put his head out and speak the truth that India is hitting a phase of recession ( probably , they do not know it , like the American crisis ). From a high of 9 per cent growth , we are already down by 45 % in our GDP growth . How else do we define recession ? Are we already not into a recession with companies laying off people every month and our growth slowing down by 45 % ?
Let us accept the situation and plan now. Else , India will be headed for an unprecedented crisis. I am not more worried with 2014 election as much as the rapidly falling economy . On many occasions ,i have pointed my friends across political parties that they would be better off losing 2014 elections than winning them , as there is enormous crisis to be faced, and a lot of dirty and hard work to be done to reverse the falling fortunes of this country and it is not going to be an easy 2014 for politics and politicians .
Let us consider this situation ;
India needs foreign exchange – USD . This can come due to ;
Now , exports might start shrinking or remain the same , so not much can be done on that front .
FDI comes in India for
1. Either setting up manufacturing
2. Investment in corporates / stock markets
All the money that comes in FDI needs to produce profits due to either exports or domestic consumption . Both are not going to happen the way investors look at ROI or IRR on their investments as the local consumption story is missing . India has already passed off 100s of millions of poor as ‘middle income aspirational class wanting to spend’ , and this was the biggest fraud of Sonia & MMS led congress government and 100s of corporates have lost millions of dollars every month and are now exiting India or slowing down
Only way the foreigners can make money is dabbling billions of USD in stock markets . So, now FDI’s constitute 11.2 % of GDP in India (2011-12) , and FIIs can play a spoil sport for Indian Economy and generate a balance of payment crisis in any trading hour !
Also, how i could i miss writing about another direct cash transfer scheme of Congress ! Party has got a new way to make money ‘ CSR spending’ under the new companies act .Now politicians can ask corporates for CSR spending and bang ! You know why this bill got passed so easily. And if i am a corporate and i wish to get a license or avoid something OR seeking favours like Robber Vadra, i will give money under CSR to a politician’s NGO….. Wow , another MNAREGA, NRHM and a wonderful legal cash transfer scheme , So who says that XYZ paid bribes , now you cannot prove it , it was just a CSR spending . So, corporates , what are you waiting for , come buy your Rajya Sabha seat , it just cost 100 crores in CSR spending ! Come and block your seats now , it is election year , and sweet -legal deals available through all state leaders and through various national schemes , we have legalised bribes and you have an option to chose your preferred medium . Hurry, this is the last congress government. Hurry up, come , before we run out of time as Elections are likely in November
BTW, time for any sensible politician to come out with a job creation and wealth generation model for India before thinking of FDI or going back to 9 per cent growth
Earlier we realise , the better it is . India is into a recession now !
Rajendra Pratap Gupta
Indian Economy – econoquake waiting to happen, with disastrous seismic cracks
It is a known fact that when symptoms become visible for a chronic disease, complications are tough to treat and the disease is in an advanced stage, but if the disease is diagnosed in earlier stages, the diseases are easy to treat and cure. In India, now symptoms like fiscal deficit, current account deficit, increasing NPAs, inflation, unemployment, lack of investment sentiment, withdrawing of investors etc. are symptoms of a economic earth quake (what I call as econoquake), and it is like a disaster in slow motion for India.
The Indian economy has passed through its worst phase after independence since 2004 and the rot continues to grow.
Here are some symptoms that tell how serious is the disease; Indian rupee was trading at 8 Rupee to a dollar in 1973, and has become Rs. 60 to a dollar. Does it not indicate that valuations of this country, and the fact that the economy has weakened by about 750 % in the past 40 years! Ideally, we should have grown and become 1 Rs. to 1 US $, but the poor leadership from these ‘Text Book economists’ (Manmohan Singh, Chidambaram, Montek, Subbarao) have brought down this great nation. Let us analyze a little more in detail
All the data or facts I am quoting are from credible sources and are publicily accessible . (http://blogs.economictimes.indiatimes.com/Whathappensif/entry/rbi-data-shows-how-upa-killed-the-rupee?fb_action_ids=10151534667996725)
If the 10-year RBI data on short-term foreign debt is analyzed, it is fairly obvious that the UPA destroyed the value of the Rupee. In 2004 when the Vajpayee Government was voted out, the foreign debt at $ 112.4 billion was well covered by the forex reserves. Nine years later it has grown by 350 percent to $ 390 billion and the forex reserves cover falls 25 percent short.
However the rise of foreign debt is not the only reason why the Rupee collapsed from Rs 39 to a dollar to Rs 61 for a dollar during the intervening period. Foreign debt is a necessary evil that is needed by developing countries to push forward their needs to fund foreign capital funded infrastructure. Usually such addition of infrastructure results in long-term asset building that adds to improved productivity of the nation. However in India’s case the rise of external debt has been primarily to fund the current account deficits catering largely to the working capital needs and funded through the short-term loan at higher interest rates. This short-term debt component was very comfortable at just 3.9 percent of the Forex reserves when the NDA was voted out of power nine years ago. By 2009 when the UPA II was re- elected it was around 17.2 percent and by March 2013 the short-term external debt rose to a whopping 33.1 percent of the Forex reserves, which had fallen to $ 292.65 billion. With the reserves further dropping to $ 280.18 billion following RBI’s intervention to stem the Rupee slide in July, the ratio would have worsened.
Short term debts and the External Commercial Borrowings that would need repayment during this FY 2013-14 is high and would cause large outflow of dollars and put pressure on the currency intermittently. For example during May 22 and June 19 there was a net debt outflow of $4.7 billion, one of the prime reasons why Rupee tanked.
These ECB’s and short-term debt have grown to an enormous 56 percent of the total debt by March 2013 almost 2.5 times what they were when the UPA came to power nine years ago. As per RBI data short term debt payable during this Financial year is $ 96.7 billion while ECB’s with 6 month to 1 year maturity that need to be repaid are around $ 21 billion, and NRI deposits maturing during the year are $49 billion. The Rupee is catching a cold because the total foreign debt to be repaid this year works out to a massive $172 billion that is around two-thirds the foreign exchange reserves. Even if interim measures to stop speculation are taking by the RBI it will not address the inherent weakness of the system. Rather it may enhance volatility, as speculative traders if restricted will move offshore to short the Rupee.
Similarly, if we compare our neighbor, China with larger population, Chinese currency has become strong. Though, I must admit, it is not a fair comparison! But the essence is, India is also intervening to control the rupee and Chinese central bank also intervenes, but I guess they have done a better job and the Chinese currency has strengthened compared to US dollar over the past decade and the Indian rupee has not just been weakened, it has been ‘hammered’, and continues to be the worst performing currency in Asia. We can compare Malaysian Ringgit, Singapore dollar or UAE Dirham. All these currencies have strengthened against the Indian rupee
Why rupee will continue to fall?
Domestic markets are failing.
CDR gives an indication that the corporate sector is crashing!
The latest data from the CDR cell suggests that Indian banks added Rs. 15,016 Crore of restructured loans in the March quarter, about Rs. 9,000 Crore less than what they had done in the pre ceding quarter. On a cumulative basis, total restructured loans crossed Rs. 2.27 trillion, or 4.4% of the total loans given by Indian banks.
Gross non-performing assets (NPAs) of 40 listed Indian banks rose to Rs.1.79 trillion in December fromRs.1.25 trillion a year ago, an increase of 43.1%. In the past, the Reserve Bank of India (RBI) had cautioned banks about the need for enhanced risk assessment tools to monitor loan quality.
Defaults in Agricultural credit in another bubble?
A surge in exposure to farm debt through Kisan Credit Cards (KCCs) could emerge as a risk for India’s state-run banks, according to experts.
Subsidized loans are given to farmers through KCCs by state-owned banks. Until March 2012, the outstanding amount on such loans was Rs.1.6 trillion through 20.3 million cards, as per the latest Reserve Bank of India (RBI) data. This may have risen to around Rs.2 trillion, bankers said.
Agriculture is one of the largest sources of bad loans for most banks. It is contributing 9.72% to the gross NPAs of SBI and 7% of Central Bank of India. The nation’s largest lender SBI has the largest gross NPAs —Rs.53, 457.79 Crore, or 5.3% of loans, followed by Punjab National Bank (Rs.13, 997.82 Crore, or 4.61% of loans), Central Bank of India (Rs.8, 938.47 Crore, or 5.64% of loans) and UCO Bank (Rs.6, 711.29 Crore, or 5.53% of loans).
FDI is like mirage for UPA
Government’s efforts to promote India as an investment destination does not seem to be yielding fruits as FDI inflows registered 38 per cent decline to $22.42 billion in 2012-13 compared to the previous year.
It is clear that the UPA government is on the ventilator and no sensible MNC or investor is going to even announce investment for during this government. Knowing well, that the next government will certainly not be either from congress or due to its support. That is one major reason why we have seen in the last week POSCO cancelled its Rs. 30,000 Crore steel plant on July 16th, L.N.Mittal cancelled its Rs. 50,000 Crore steel plant on 17th July 2013. This is a loss of Rs. 80,000 Crore worth of investment committed to India. Normally, when the government is about to be re-elected, we know that practically, all the companies wants to wash its hands in Ganges, and get speedy approvals for obvious reasons. A ‘Needy’ political party in power wants to ‘cash in’ and so does the ‘greedy’ corporates. We have seen how business leaders get national awards like padamshree and padmavibhushan in the election years or the year preceding the election year … but this time, the scene is different. No sensible business house, no matter how ‘greedy’ it is, will commit any investment before the next general elections. So, I see no respite to Indian economy till 2014 end or may be, 2015.
FII’s the real culprits for rupee slide? May be!
FDI Inflows in India and Outflows from India from 2007 to 2012: (amount in US$ billion)
|
|
FDI Inflows to India |
FDI Outflows from India |
||||||||
|
2008-09 |
2009-10 |
2010-11 |
2011-12 |
|
2008-09 |
2009-10 |
2010-11 |
2011-12 |
|
|
|
Total |
43.4 |
35.6 |
27.4 |
36.5 |
|
19.3 |
15.9 |
15.3 |
12.6 |
|
|
As a % of GDP |
3.4% |
2.6% |
1.7% |
2.0% |
|
1.5% |
1.2% |
0.9% |
0.7% |
|
|
FDI Investment Stocks |
125.2 |
171.4 |
204.7 |
203.9 |
|
63.3 |
80.9 |
96.4 |
108.8 |
|
|
FDI Investments Stocks as % of GDP |
9.8% |
12.7% |
12.6% |
11.2% |
|
4.9% |
6.0% |
5.9% |
6.0% |
|
|
Country |
2008-09 |
2009-10 |
2010-11 |
2011-12 |
Total |
2008-09 |
2009-10 |
2010-11 |
2011-12 |
Total |
|
Singapore |
3.42 |
2.38 |
1.70 |
4.31 |
11.81 |
4.06 |
4.20 |
3.99 |
1.86 |
14.11 |
|
Mauritius |
11.04 |
10.34 |
6.98 |
8.92 |
37.28 |
2.08 |
2.15 |
5.08 |
2.27 |
11.57 |
|
Netherlands |
0.85 |
0.90 |
1.21 |
1.16 |
4.12 |
2.79 |
1.53 |
1.52 |
0.70 |
6.54 |
|
USA |
1.80 |
1.94 |
1.17 |
0.91 |
5.82 |
1.02 |
0.87 |
1.21 |
0.87 |
3.97 |
|
UAE |
0.25 |
0.63 |
0.34 |
0.33 |
1.55 |
0.63 |
0.64 |
0.86 |
0.38 |
2.51 |
|
British Virgin Islands |
No data |
No data |
No data |
No data |
No data |
0.00 |
0.75 |
0.28 |
0.52 |
1.55 |
|
UK |
0.83 |
0.66 |
0.76 |
2.75 |
5.00 |
0.35 |
0.34 |
0.40 |
0.44 |
1.53 |
|
Cayman Islands |
No data |
No data |
No data |
No data |
No data |
0.00 |
0.04 |
0.44 |
0.14 |
0.62 |
|
Hong Kong |
No data |
No data |
No data |
No data |
No data |
0.00 |
0.00 |
0.16 |
0.31 |
0.46 |
|
Switzerland |
No data |
No data |
No data |
No data |
No data |
0.00 |
0.00 |
0.25 |
0.16 |
0.41 |
|
Other Countries |
No data |
No data |
No data |
No data |
No data |
7.65 |
3.19 |
2.65 |
1.23 |
14.71 |
|
Japan |
0.41 |
1.18 |
1.56 |
2.75 |
5.90 |
No data |
No data |
No data |
No data |
No data |
|
Cyprus |
1.30 |
1.63 |
0.91 |
1.32 |
5.16 |
No data |
No data |
No data |
No data |
No data |
|
Germany |
0.60 |
0.63 |
0.20 |
1.46 |
2.89 |
No data |
No data |
No data |
No data |
No data |
|
France |
0.46 |
0.30 |
0.73 |
0.47 |
1.96 |
No data |
No data |
No data |
No data |
No data |
References:
(1) OECD data on FDI in Figures as on January 15, 2013.
(2) Zenith International Journal of Business Economics and Management Research, July 2012.
(3) World Investment Report various issues.
(4) If there are any inadvertent errors in the data, it is regretted
Please see how foreigners are investing money in stock markets, and have taken over 100 Billion USD (108.8 Billion dollars, Which is 6 % of India’s GDP) outside India just in one year (2011-12).
How will our Finance Minister address the Balance of payment issue, which needs 75 billion USD?
11 % of GDP is in the hands of FDI / FIIs? Are we safe? Is our growth trickling down or trickling outward? This is in complete deviation of the path of a self-reliant India propounded by our freedom fighters. We are not building a West India company on the lines of the erstwhile East India Company? Time to take a serious look at the data and take concrete actions. It is a wake-up-call for India
Dr.Akash Mehta compiled this data on FII’s on my request. Acknowledged with thanks Dr.Mehta.
Vehicle sales – another symptom of the anemic economy
Car sales in India fell for a record eighth month in row in June with a dip of 9 percent as economic slowdown and low consumer sentiments continue to hit demand, prompting industry body SIAM to seek stimulus package for the automobile sector from the government.
With actual sales in the first quarter of this fiscal turning out to be wide off the mark from what it had forecast in April, Society of Indian Automobile Manufacturers (SIAM) stayed away from revising sales projections it had made in April this year and stated that even those targets were unlikely to be met, except in two-wheeler segment.
According to the latest figures, domestic car sales stood at 1,39,632 units in June as against 1,53,450 units in the same month last year.
We know the problem. So what next?
India has focused too much on FDI / FII’s to bring in dollars, and the capitalists countries are like Shylock (Merchant of Venice). They will extract their pound of flesh. So, India got quick dollars from FII’s, and FII’s made quicker returns and exited the markets and today FIIs have 11 % of the investment in stocks, as I have given the data above. The fact is that, a clutch of foreign investors can destabilize India by withdrawing their investment. FIIs are short-term hedgers and they damage infringe long-term damage to our currency & country. Small retail investors become bankrupt because of FIIs. What came out as a myopic solution to our fiscal deficit and balance of payment crises has today turned into a major national security issue?
Economic Competitiveness: We need to focus on economic competitiveness. We have lost in the last few decades.
Areas to focus, agriculture – we need to amulify agriculture (taking a cue from Amul’s experiment of cooperative movement in milk). We need to support farmers. Make a paradigm shift in modernizing agriculture, training, and equipping farmers to set up SME food processing units. This should make us the top most processed food country in the world in the next decade. The national highways project of Shri. Vajpayee (Golden Quadrilateral Project) was the best step taken since independence for inclusive growth, and this must be pursued aggressively. During NDA regime the road building was 20 KMs a day and under UPA it is down to a KM or two. The Atal Behari Vajpayee government bequeathed a robust economy to the UPA. Remember that the growth rate registered in 2003-04, the last year of the NDA regime, was an impressive 8.5%. Foreign exchange reserves were plentiful. General prices were well under control. Share markets were booming. And there was a general sense of well-being. Work on the Golden Quadrilateral highway linking four corners of India was on in full swing. And various public infrastructure projects under the Public-Private-Partnership model were proceeding without any hitch.
Now, in the last year of the UPA-II, we are back to the Hindu rate of growth. If the economy logs anything above 5% it would be a miracle
(http://www.sunday-guardian.com/analysis/back-to-where-the-economy-was-during-the-early-90s)
My personal prediction is, that we will be below 4 % in growth soon if the regime continues the same way and I have predicted it long back
(https://commonmansblog.com/2013/06/04/the-titanic-is-sinking-can-we-do-something/)
Tourism- spiritual tourism – Tourism is the next best bet after agriculture and we must focus on it by innovating in this sector. I have detailed plan for creating millions of jobs and billions of dollars through employing matriculate youths in this sector.
Intellectual property (IP): India has become a sweatshop and nothing wrong in it, but we need to focus on building IP in science, technology, defense, & agriculture. It is shame that India has not even built a software platform (operating system) and still relies on Microsoft and IOS. Indians in software arena should take a challenge and build the best operating system rather than spending billions of dollars buying MS Office and Apple operating system or Google. We need a search engine developed by Indians. India spends billions of dollars on universities but the IP registered by just one company Texas Instruments (for the sake of giving example I am quoting Texas Instruments) from its Bangalore office might exceed the patents granted to researchers in Indian universities. We need a complete over haul in our education systems that give the world the most valuable IPs, which can be monetized.
Geographical indicators (GI’s): We all are aware that many Geographical Indications like Darjeeling Tea, Mysore Silk, and Champagne across the world have become premium global products. While protection of GIs is very important, it is all the more important to extract economic benefit out of registered GIs. In India we have 184 Indian GIs has been registered till now but hardly a few of them have accessed global market.
On the other hand we are also seeing growing number of GIs from other countries like Peruvian Pisco, Scotch whisky, Cognac, Prosciutto de Parma, Tequila etc. have registered in India.
While it is understood that not every Indian GI has the potential of capturing global market, but many of them have. However we have not seen enough initiative and support system for such promising GIs having healthy export market. There must be a plan to build on the legacy of these GI’s, and targeted GI must be turned into a USD 10 billion global markets for Indians.
Boost manufacturing with a focus on SME’s: Women’s employment has taken an alarming dip in rural areas in the past two years, a government survey has revealed. In jobs that are done for ‘the major part of the year’, rural women lost a staggering 9.1 million jobs. This emerges from comparing employment data of two consecutive surveys conducted by the National Sample Survey Organization (NSSO) in 2009-10 and 2011-12. NDA, during 1999-2004, 60.7 million jobs were created while UPA Government, during 2004-2009, created only 2.7 million jobs. (Data source: National Sample Survey Office).
Organic farming, Herbals & Nutraceuticals: The whole world is moving to traditional and complimentary medicine and India has a scientific traditional medicine dating back to 5000 years. We can create rotation farming for herbals and organic foods and create millions of jobs and billions of dollars worth of exports.
Foreign policy: Neighbors can help. We need not be hooked to G8 / 14/ 20. It is time to have a strategic alliance in Asia, A-2 (India and China) on the lines of G-4, we need to create A-4, the big 4 Asian economies must come together to lead Asia. This is where India must initiate moving from G-20 to A-4.
Lastly, it would not be wrong to say that lakhs of small and medium enterprises , and even 27 big corporate houses have 41 trillion rupee debts (http://www.livemint.com/Companies/7TnLNfHilL2UOkPVNku8UM/Kumar-Mangalam-Birla-is-the-highestpaid-director.html ) . So , this is a steriod induced survival for most of the corporate entitites be it small or big .More pain is expected by this year end. So the government needs to keeps its head low and overheads lower and find solutions to avoid NPA’s . Though, it is an another thing, that UPA has in itself become an NPA.
Rajendra Pratap Gupta
A Common Man's View Point (Blog) 