Reply to Editor - Cover Story of Economist - 24th Aug 2013 - How India got its funk

Dear Editor of Economist Magazine,

Hope this email finds you in best of health and spirits. I’m a regular reader of Economist magazine. But to my disappointment, the Cover story of your 24^th Aug 2013 Edition has been poorly drafted and investigated.

To substantiate my point I would use pointers which would help you in understanding my perspective so that you can take an educated decision on what went wrong with the Cover Story.

Firstly the fall in rupee and the sentiment for Foreign Investors related to India has less to do with US Fed’s hinting to reduce the bond purchase program, whilst it has to do more with the systemic change which Indian social system is witnessing. To elaborate it further, India is perhaps the only democratic country in the world , to implement full fledged transparency in all matters including public finance & government functioning. This has been made possible through RTI ( Right to Information) through which any citizen of the country can find out information related to all expenditure including public office & the Prime Minister’s Office, at a very nominal cost, as low as INR 10. This has been implemented as law a few years ago and due to which the approval process of any large public project has been carefully monitored & watched and hence delays are bound to happen. This is a systemic change and India like any other economy would take few years to adjust. Once this is done, movement of approvals would be faster tracking the growth back. Good news here is even if politicians don’t want this to happen, it’s a natural process and would evolve on its own.

Secondly, your point that business tycoons are wary of investing in India is contradictory. When one of the largest FMCG companies (Unilever, Glaxo Consumer Care) or liquor companies (Diageo) decides to invest few billion dollars in equity in an economy when they have options of almost 40 countries available, it reflects the interest of the World business leaders to come to India and do business with Indians. Money which has exited the Indian capital markets has been hot money of hedge funds which track daily returns. FDI is good for any economy better than FII. Not saying that FII money is bad, but surely conviction of business leaders for an economy can be seen through FDI investments. Infact long only funds have constantly been buying India at all levels of distress. It’s the domestic Investors and domestic mutual funds who have been selling and that is on account of high fixed income opportunity which has been arising in Indian markets.

Thirdly Food security Bill, which has given hope to the country that less number of people go hungry and empty stomach to bed in night. As per your statistics India spends INR 90,000 Crs as food subsidy, whilst the Food Security Bill which entitles 81 Cr population of India subsidized food would create burden of INR 1.20 lac crore incrementally, INR 30,000 Crs, which is manageable looking at the government expenditure. With Unique Identification Program (UID) being implemented the cost of distribution and its effectiveness would only increase. Most of the state government including Tamil Nadu, Chattisgarh, Gujarat already has Food Security Scheme for the state. Some states which might not currently help would lead this move in the right direction.

Fourthly, the Poor state of Nationalised banks. These were the same banks which didn’t face any risk of bankruptcy during the global meltdown and stood strong the test of all defaults when mighty ones of the West crumbled. Government of India on an ongoing basis has been getting the banks to waive the farm loan credit and that is the major reason for some stress assets in their balancesheets. But this was needed to stop the condition what otherwise would have led to Arab spring. If rural India is in stress, recovery of loans can create civil unrest and hence this was done. Indian government on a constant basis has been recapitalizing the banks ensuring Basel 3 norms are followed and implemented by mid 2014.

Having mentioned all the points above, I do agree lots can be done if political will is there including simplifying the tax regime, creation of Irrigation infrastructure, which itself can lead to  incremental 1.50% GDP growth for next few years etc.

But my point has been that Cover story doesn’t portray the true picture of the Indian economy and the logic behind it for a Global investor.

Many thanks for reading it patiently.

Hope this would change in times to come.

Skilled Labour & Workforce – Need of the Hour – July 2013

It’s been 66 years since independence. We have seen eras with 4% Hindu rate of growth to 9% of accelerated growth. There have been times when India has been self sufficient despite of throwing multinationals out of India and there have been times, when Indian policy makers have changed rules and have open doors to those multinationals to bring precious foreign currency back in India and give boost to the ailing economy. In all these 66 years what has not happened is inclusive growth.

Definition of Poverty has changed, number and statistics have changed but average Indian still reels under pressure to meet his basic necessities meet. He looks at the government to give him food, and shelter at subsidized rates or free so that he can feed his family and make his ends meet. Various state governments and Central government have tried to provide for his basic necessity of food, earlier through Public distribution system and now through Food Security Bill.
Still average Indian still looks upon government for his sustenance. It means, in case, if government fails, which can be possibility despite of ordinance, then he fails to provide food and shelter to his family and thus he and his family can die due to hunger.
Government is the caretaker of the country and its people; its job is to ensure creating capabilities and creating environment and infrastructure to ensure self sustained people, fending for them. But instead what government is spending is on today’s needs to live rather (Non developmental expenditure) rather than building skillset for future.
In 66 years of independence building 30 technical institutes which have some most fierce entrance examination can surely be counted as success. But what happens to millions of students who enter primary education and don’t have willingness and resources to sit for IIT and other engineering examinations. They all have primary, secondary or higher secondary qualifications but no skill set to earn. As per official data, India’s official population stands at 127 Crores. As per the official estimates 49.80 Crore population is employed, but the employment to those and their family members doesn’t generate enough to provide them with a square meal.
If one looks at it, few reasons can be attributed to it, one is disguised employment, which means person believes that he is working but his work can be done by existing person in the system. In other words to generate employment, government is promoting inefficiency in the system.

Second is intermediation. India has witnessed a robust growth in service sector. Information technology has been one of the largest contributors. Apart from that financial services followed by retailing, marketing follow suit. What has happened that intermediation has become such a large industry in itself that it has employed lacks and lacks of people directly and indirectly, qualified and unqualified. Most of this intermediation doesn’t need any skill set and hence it easily absorbs labour in this sector. But in days of recession and during economic downturn, where economic activity itself comes down and people look for efficiency, intermediation goes down under fastest, hitting the overall growth of the economy further.
Service is surely the need of the hour but creating skillset in labour force could lead a sustainable advantage for the country. Currently unskilled labour force is exported around the world legally and illegally to cater to the needs of various industries including infrastructure and construction. When the need is over, labour is thrown back in the country by changing the policy as it happened in Middle east and again he goes back in the trap of poverty.
Government is collecting education cess to ensure implementation of RTE, similarly if government implements Right to technical education from sixth standard in all schools across India, alteast, labour with some skillset like masionary, carpentry, plumbing or any other art or skill, he can fend for himself and his family, even if he drops out before graduation or higher secondary.
This would lead to more innovation and research in these fields and thus increasing efficiencies for the economy and contributing to GDP growth of the country.