So, let me bring the focus back to economics as our dear PM beckons us to. He explains that all this negativity tells on India story and investor confidence. Let us brush them under the carpet for some time even if the carpet can not hide the prominent hump of huge scams. Today, he has promised stern action against people who fail to stop big ticket corruptions. (I wonder where will this leave him?)
There has been lot of noise around second wave of reforms and they are being labeled as ‘big ticket’ reforms. I have read large number of articles, seen people arguing endlessly on TV channels about the positives and negatives of his moves. Generally, media has been supportive to Manmohan Singh this time around. I am reminded of parents who find even pass class heart warming for a child who had been written off whole year around.
It seems the middle ground of discourse has disappeared from public communication in the harsh political environment that looks at everything in extreme “you are with me or against me” scenario. Common man is confused with these extreme positions. I am putting my views as a common man here, not as a political scientist or an economist. I shall avoid statistics which you must have studied in endless presentations.
India is famous for its low ranking in transparency, high ranking in corruption and red tape that has changed its colour to green tape with environment ministry becoming the new ‘door keeper’ for the governing class to open the doors to new avenues with ‘right’ kind of persuasion. Why a cleared project is stalled and then allowed again without any critical change in the original plans is a mystery that only insiders can fathom. We ordinary folks can only go by folk stories. Ask any foreigner, of any skin hue, his/ her problem is with these roadblocks and complex financial and bureaucratic structures, not with laws about foreign investments percentages.
When environment was good under Narasimha Rao, NDA and for some time under UPA 1, investors poured in to invest in any avenue they could find. They slowly began withdrawing when they found the efforts to overcome the roadblocks (of red/green tapes, corruption) and uncertain policies were not worth the trouble, not because FDI was not allowed in Retail or Insurance etc.
Prof Vaidyanathan of IIMB has repeatedly pointed out that FDI is not more than 7-8% of our total investments. Thus, India’s growth story since 1992-93 has not been written by FDI but by DDI (Domestic Direct Investment), through savings of ordinary folks of India, the brave house wife who manages to save in any kind of condition. Our own big industrialists prefer to invest outside India now, rather than in India. Ask any corporate leader privately and he/ she will confirm this. Investment figures give away this story.
Just two days back I met a law abiding miner, who never had any enquiries or charges against him, who refused to bow down to mining mafia of Karnataka, but whose mines have been shut down. He is scouting for new businesses only overseas, including Africa. There are large number of stories like these. Those NRIs who were brave enough to invest, have been rebuffed with our archaic laws being ‘fine tuned’ by vested interests in ruling elite and are going back, or have just stopped in their tracks.
Thus, reforms that we require are more critical in public policy and fiscal policy than in tweaking investment rules. These may be laws on setting up industry, business or infrastructure; or taxation. Nothing is happening on this front that would lubricate the economy like no other systems can, including ‘speed money’. Even policies in Direct Tax, Indirect Taxes already planned, are in cold storage. Manufacturing sector and infrastructure are languishing.
Agriculture is still dependent on rain gods and there is no plan for supporting farmers with better advice about planning their crops, or storing what they produce. No retail FDI will provide good warehouses for bumper crops that rot every year. Instead of working on the main growth engines our PM and FM are trying to provide better platform for investment in services and trading sectors. The reason we rode the last global recession was our robust domestic economy backed by our rural populace, not FDI. The solution doesn’t lie only in retail FDI and similar gestures.
We read and hear both for and against arguments about FDI in retail. All the approaches have both positives and negatives. But, from all the noise, I can only draw the conclusion that one cannot be sure if panacea of our ills lay with better retail chains and ensuing supply chains. FDI will not lay out better roads and bridges. Jury is still out, depending on which side you are. While critics bandy about figures against large chains, supporters only talk theories, no figures. If the one reads various analyses, they don’t assure us that FDI in retail can really change the economic scene much. Yes, it would surely cheer up investors from overseas as their own markets have grown stagnant or are declining.
Scandals of last few years show how crony capitalism has ruined Indian economy. FIs and FDIs had no role to play in these shenanigans. They only enjoyed the fruits of these shenanigans. They cannot play the role of catalyst to Indian economy that our policy makers envisage, if we don’t reform our systems. For example, due to policy paralysis and manipulation of Indian Mutual Funds and Insurance funds by government, they have lost whatever control they had on capital market and are ruined.
Capital market is now controlled by FIs. Retail customer is just a puppet or a witness in this market. We can imagine how market would behave or tend to swing with more control on it through more investments by FIs. FIs are nobody’s friend, they can bring in money or suck it out, depending upon how we treat our own industry and commerce. FI is a short cut to cover up our weakness and foolishness of past misguided economic policies. It is like someone taking loans to overcome hard times brought upon by profligacy and bad business decisions. Ultimately, such outside money it can only spell doom if we don’t correct our own mistakes.
Are we sure that the reforms, which in current form basically boil down to inviting some foreign funds, whatever the social cost, are actually reforms? Or will they result in creating a deformed society and system where the individual will end up as just being a consumer, nothing more. A society that will forget all its traditions of saving, taking care of own family and elders rather than depend on state; individuals who strive for something beyond physical greed and wants. Before, critics start throwing brickbats, let me declare that I am not declaring that poverty is virtue. But, I do say that unadulterated consumerism is not the way to happiness.
Key to India’s success lay in clearing the cob-webs of policy paralysis, pushing hard against stuck up infrastructure, making taxation and other laws simpler, implementation of laws stricter (enough of ‘law will take its own course’ please), not in marginal increase in FDI. This is the easiest step to take. Such direction will only reform India, but deform Bharat. A strong reformist governments beckons investors on its own. Look at UK bowing down to Gujarat ‘correcting’ its perception about Narendra Modi.
For a starter, let us recognize the our retail industry is not ‘unorganized’, it is a micro-enterprise, it is a part of a age old self supporting and self regulated sovereign economic system that had made India an economic power till the end of 18th century. What India needs is efficient clean delivery mechanism of governance so an honest person can live a life of dignity, while India roots for glitzy malls, ‘wow shopping experience’.
Reforms don’t mean abandoning country’s public health system, abandoning public hospitals to rot. Reforms don’t mean abandoning public education system and handing it over to education sharks. The earlier system how so ever rickety, allowed level playing field so poorer sections could aspire to study in good institutions and rise in life like many of our leaders. Today’s system has created an economic barrier to higher education its prohibitive cost that serves only India not Bharat. What Bharat needs is a government that nurtures a citizen to be on his/ her own and aspire to grow, not doles that would create societies that are always beholden to ‘mai-baap’ sarkaar.
We have a strange kind of nation emerging, where crony capitalism takes the cream through superficial reforms and its associate in loot, the government doles out various bleeding schemes that bleed honest tax paying citizens. As long as we keep trying to map Indian economy on to either Marxian or Western Capitalist model, we shall not find the right answers to the problems we face today.