Dear friends and their families:
For the sake of simplicity I have divided this talk into three parts namely : (a) As a nation where do we stand. (b) The American socioeconomic setup and its future, and why the call for last days of American supremacy (c) The Great Indian Dream, summed up and the steps to achieve a 12% to 14% growth rate in order to achieve American living standards.
Let me begin by quickly giving you an overview of the last five decades of India as an independent democracy. Just as I would love to talk about our achievements as a nation I would like to say that there are not many worth mentioning. The other day I heard one the senior cabinet ministers say that India is ranked 139th out of 174 countries in the world in the human development index. He was giving the speech to villagers of Rajasthan who had no idea of the HDI nor was their any attempt to explain them the concept. The situation summed up everything. India’s rank, the people he was talking to and their miserable condition represented the reasons, abject poverty and illiteracy, and of course the non committed insincere political will where someone who represents the reason for such a situation, whose predecessors nor colleagues have ever done anything to change it is talking about human development for the sake of votes. Yes, we are ranked 139th and not along with any country of decent global respect nor with other Asian countries but with the sub saharan African countries. Let me talk about some figures with the help of which I want to explain the need for this seminar. Today, 40% of the Indian population is living below the poverty line. Cliched? I will explain. The poverty line in India is defined at Rs. 1,667 for a family of five per month. Only Indian politicians and economists with all their insincerity have the ability of calling this a poverty line. The poverty line should be called the destitution line. Imagine Rs. 375 per head per month is enough to be above poverty line! No wonder in the red light district of Bombay, Kamathipura, women are bonded into prostitution today because years ago their grand parents took loans ranging from Rs. 12 to Rs. 50. Today we have 0.5% of world trade. Compare it with China. Their percentage might still be on the lower end because of the phenomenally competitive prices but to realise the Chinese impact one has to go through the shops of Europe and USA and pick up from the cheapest of products to the costliest of designer items, and discover that they are all Made in China. India alone accounts 30% of the total illiterate population of the world and we are excited of being the country with the most qualified educated human resource. I will tell you what it means. In India we have 1 Indian doctor per 2,400 Indians but we have 1 Indian doctor serving every 1,325 Americans in the United States!
Today, 40% of Bombay is a slum and 35% of Delhi defecates in the open. Only 232 towns in India have sever system and that too partially including Delhi. Five lakh people still carry human excreta on their heads. Everyday and every night 300 million people go hungry to bed which is more than the combined population of USA & Canada. We created such a lot of noise when just about 50 people died of plague because the rich sector of our economy was also under danger but when about 4,50,000 people die every year of T.B, about half a million people suffer from diarrhoea everyday no one raises a whisper. Infact the health situation in India is worth taking a look at in the comparative manner.
Name % of low Infant mortality Under 5 mortality Maternal mortality Food calorie Life weight babies per 1,000 per 1,000 per 1,00,000 per capita Expect.
Cuba 7 14 14 54 3,130 79
China 6 29 42 130 2,650 68
India 30 90 142 550 2,230 60
These deaths due to curable deseases are not deaths but lives brought to an end by our non commited leaders and these should all be added into the tally of number of homicides in the country. The food production by China with about 60% arable land compared to India is 450 million tonnes as against the 200 million tones that we produce. It is mainly due to bad irrigation facilities. In the villages of West Bengal we need just Rs. 15 per person i.e Rs. 120 crores per year for the next 8 years but we don’t have that money. We do have Rs. 2,00,000 crores to be given away to the Indian middle class and the organised sector with the new pay commission in the next 5 years. We have around 200 million people unemployed and compared to the fact that the downsizing processes in USA which have resulted into 2 million people being unemployed, has resulted into so many protests across the nation one wonders why Indians at least the educated class too fails to see the deprivation and sufferings around.
And finally let me throw some light on perhaps the most important machinery in a democracy: The Judicial machinery. We have in India 10 judges to every million people compared to more than 120 in the US. In a recent survey conducted it has been found out that the total backlog of court cases in India is more than 30 million and on an average it takes 20 years for a dispute to be resolved. But, of course, disputes being resolved don’t mean justice being done. For, more often than not the criminal gets scot free and justice delayed in any case is justice denied. If this sounds oft repeated, imagine this. The provincial armed constabulary of UP stopped the buses which were travelling to Delhi to demand a seperate state for Uttarkhand. The bus in which the women were travelling was isolated, women dragged out, clothes torned and according to the CBI atleast seven raped by the gentlemen in uniforms. The men folk tried to intervene and 14 were shot dead on the spot. The DM of Muzzafarnagar (where the incident took place) said that when a man sees a woman in a deserted sugarcane field the first instinct to surface is the basic desire for conjugal union. Such was his ability to deal with human sentiments as an IAS officer! At the pace at which our court cases are resolved it will take another 324 years, only to dispose off the backlog. Government is involved in more than 60% of all civil suits appeals. The success rate is as low as 5% to 6%. Its common knowledge that almost all public prosecuters are on sale. We are into the Guiness Book of Records not because of big achievements but mostly because of aboriginal habbits like the longest nail or the longest moustouche or in this case for the longest legal disputes in history. A land dispute in Maharashtra lasted 650 years. All stemming out of what I call the great Indian complacency.
The leadership standards have been deteriorating at a pace which is faster than one can comprehend. It was evident more than once clearly during the Orissa clamity. We saw leaders who just talked, corporate world which cannot go beyond seeking concessions from the Government, an NGO sector which has become an industry and the rest of us had little choice but to watch helplessly. It was the biggest national clamity in independent India. For political reasons the television did well to create a feeling of nationalism during the nuclear tests and the Kargil war but in this case the response was meek. After more than 14 days a task force was made headed by George Fernandes which should have been made in the first 24 hours. With thousands dead, millions homeless, epidemic spreading and food riots breaking out Orissa surely deserved an address to the nation by the Prime Minister on Television. FICCI, CII and ASSOCHAM most probably did not even bother to write to their members asking for donations. Due to political intervention by our leaders, one after another of our public sector enterprises have been doomed. Indian Airlines has 400 employees per plane compared to the international average of 140. DTC in 1984 had 4,300 buses with 22,000 employees and today it has 4,000 buses but the employees have doubled to 44,000. The public sector today is giving away in crores as consultancy fees to McKinsey and likes which in as long as I can remember has never thought of giving a solution beyond “disinvesting in diversification plans and concentrating in core business”. After all, if every solution has to be explained in a matter of such a short time like while coming down from a lift as they call it : the famous lift test, the solutions can’t really be better. Recently they did it with SAIL. In the SBI case quite rightly they are meeting with strong protests since they asked them to tone down all rural branches and concentrate on corporate customers. SBI workers say that they already are concentrating on corporate customers but if they reduce the rural focus who takes care of them? Commonsense business wisdom in any case says that diversification is core to long run business stability. No intelligent FII ever seems to be investing money only on one company shares! Bringing in of such unwarranted external consultanting agencies thus reflects the kind of hands the PSUs have fallen into. If you call me a skepetic and say that I am only trying to highlight the negative side I want to ask you, do you have an answer to all this?
After over four decades of planning, in the last decade we espoused the free market system as a path to a better life for our people. Our economic principles are shifting to the principles of liberalisation, privatisation and globalisation with its promised trickle down affects of prosperity and resultant stability. But by now it is absolutely clear that the new dispension appears to have difficulty in percolating down the nations rural grassroots from where the majority of our people look upward for release from an unending cycle of grinding poverty and deprivation. While the IMF and World Bank would like us to believe that this is due to faulty implementation of free market economics, experience in other developing countries seem to suggest otherwise. The exclusive fiscal oriented approach of unrestrained cowboy capitalism imported from the wild west and thoughtlessly applied to devel oping societies across the world has generated a bitter harvest in Russia, other East European countries and many other developing countries which rushed to adopt them in unthinking haste. Its viciously competitive, no holds- barred, financial bottom line approach has sidelined many of the world’s lesser developed lands and peoples from a place in the sun. Market oriented approach has triggered off massive job losses, unemployment, land alienation, food riots and tensions of economic disparities leading to rising organised crime, degeneration of public support systems and environmental degradation. These of course are being referred to as the growing pains of a market economy with deferred promises of a brighter future but it ignores the worsening realities of the present affecting the internal stability of an increasing number of countries in an endless chain from Brazil in South America through the Central American countries to the erstwhile Asian tiger economies of Indonesia, Malaysia and Thailand which have been through the worst crisis in their history to date. Even the North American Continent, has seen the emergence of Zapatista insurgency in Southern Mexico, as native people who have been sidelined in the gold rush have decided enough is enough. Russia and some central Asian Republics are rapidly becoming ungovernable. First World bastions like Germany are affected by record unemployment while in the United States with which we will deal later, small traditional family farms are being gradually wiped out under the burden of debt. It appears that the problem of small farmers in Andhra Pradesh, Maharashtra and Punjab have much in common with their American counterparts in North Dakota, Montana and Wyoming. We need to realise that economic prosperity for a nation is not about economics alone, for a nation cannot be run like department stores with only one motive and that is profit maximisation. A nation’s prosperity is a combination of strong social development along with the rest. Capitalism today needs reengineeering and restructuring so that the social face emerges out. India’s experiences in the great international free market bazaar has not been entirely pleasant. The Thapars are being forced to sell off diversifications in glass, nylon and edible oil projects and struggling with its flagship company, Ballarpur industry. The Mafatlals flagship company is in losses and the thousand crore National organic chemical industry is to be sold off and Gujrat Gas stakes have been already sold to British Gas. The TATAs seem to be doing fine though Lakme has been sold and so has been TOMCO. The Goenkas both R.P and G.P are in deeper waters with 40% of their companies in losses. I know Infosys and Wipro have proposed takeovers of Rs. 40,000 crores each signalling the fact we might have failed to catch the global manufacturing bus but have been able to latch on to the global knowledge bus. But how long the honeymoon of companies with assets around 169 and 450 crores respectively with net profits of just 144 and 176 crores will last is something that we need to carefully examine. Most importantly comparisions between big Indian companies being acquired and Indians acquiring small foreign firms may not be justified (refer to my note on the Internet Mania).
Let us now begin with a comprehensive analysis of the American socioeconomic situation and its implications on mankind. This is imperative since the Indian economy today is passing through a period of crucial changes; Changes which are leading to the Americanisation of the Indian economy. Opening up of the economy, privatisation and globalisation are all aspects which can be easily branded American. The expectations from the current changes are not only in terms of an increase in consumer choice but also in terms of growth of purchasing power and reduction of unemployment, two of the most important features used to measure the effectiveness of economic policies. So, before trying to find out what effects the above will have in India, let’s first see what it has done to its country of origin i.e. U.S.A.
No, for a change we won’t be talking about how opening of an economy means allowing foreign television channels to come into India and damage our highly ethical and moral culture. The true opening up of the American economy started from 1973 marked by sharply declining tariff barriers and increasing trade with other countries. This year is significant since this is the time from when America started bringing down its tarrif barriers from the average of around 40% to the current average of around 5% and became a country with totally open policies and free trade. As the Americans reduced tarrif barriers, employment in their internal manufacturing sector industries slowly started declining and today only 17% (down from 35%) of the labour force in U.S.A. is employed in the industrial sector. The foreign companies, in this case mainly from Japan entered the American markets, facilitated by the low tariff rates sold their products at highly competitive rates and captured the market. The Japanese government had always encouraged domestic competition thus the companies had built up strong and highly competitive products which could face the stiff American competition. Slowly all major American manufacturing setups from automobiles to consumer electronics, machine tools, textiles and shoes etc. took retreat. The U.S economy thus slowly became more service sector oriented than manufacturing oriented. It may be noted that it is the manufacturing sector which gives higher worker productivity thus giving rise to higher standards of living. Thus a country has to definitly to do all it can to protect its manufacturing sector. From 1973 onwards the real income of 75% of the U.S. workforce has been constantly declining to the extent that in 1997 it touched the same level as those prevailing in pre 1960’s. Things will be more clear with one look at Table 1 which has come out of the President of Americas own economic report. At the same time it is worth noting that while the share of GDP of the bottom 20% of US had been constantly climbing from 1950 till 1973 (4.5% to 5.5%), it started declining constantly since then and stands again at 4.5% today. At the same time the share of the top 20% which had constantly been declining from 1950 till 1973 (42.7% to 41%) has been climbing ever since and stand today at 44%. In 1949 1% of the Americans owned 21% of national wealth and in 1997 it stood at a phenomenal 42%. This is exactly what the free market system does. Table 1
Real wages in the United States, 1950-1997 (Applies to more than 75% of the Americans)
|Year||Real Wage||Real Wage Growth|
Let’s now come to the Indian economy and try to analyse it keeping in mind the above. Mind it we are not trying to take examples from the economies like those of Mexico, Indonesia etc. which are highly debatable, we are drawing examples from U.S.A. the saviours of the gospel of freetrade. The whole process in India first began with the start of privatisation. It is surprising that the public sector which has such enormous support and investment from the government is showing its inability to perform. If the private sector does well because of the professionalism prevailing in it why can’t the same be brought in to the public sector. Couldn’t the public sector also employ graduates from IIMs or keep professional managers? Could not public sector be given required autonomy to work? The whole process seemed more to be for the benefit of individuals than for the public. It seems the governments policy is to “Privatise all profits and nationalise all losses”. Else how is it to be explained that we allow private co’s like the Dalmia’s to buy up co’s worth Rs. 300 crores for Rs. 26 crores, or Modern Food with assets amounting to more than 2,000 crores be sold to HLL for a little over 100 crores or ITDC disinvestment of 10% be done at just 50 crores and for that matter, private airlines to operate on profitable Delhi - Bombay routes (where Indian Airlines in any case was making profits) and retain the loss making routes of Delhi - Dibrugarh to itself, take over innumerable loss making private sector organisations? Most importantly only 8% of the GDP comes from the corporate sector and one is forced to wonder how justified are we to have a whole set of economic policies targeted only at the top 8% of the society.
Coming next to globalisation. Many people have already raised the question on if we need Bhujiyas, Yogurts or Rice manufactured by MNCs. Let’s talk about the effects. Just like what happened in U.S.A., Fortune 500 Co’s and other MNCs with huge turnovers (the turnover of some of the Fortune 500 Co’s being almost equivalent to our total industrial production) would easily wipe off our internal industries. They can take in heavy losses for a few years, put in heavy investments specially in advertising in case of consumer goods and influence the consumer mind to buy their product even if the product is of similar quality. Once the industry in India is demolished they can then rule it. They don’t even need to bring in new investments either, they would rather prefer buying up an existing set up and use it, like it happened in the case of Coke, Whirlpool etc. What they fail to realise is their success is also going to evaporate soon as the increase in consumer goods is not backed up by an increase in purchasing power of the masses. As they come in, the jobs instead of growing start shrinking facilitated by smart exit policies of golden handshake etc. An increase in consumer choice at the cost of consumer security!! Our past record of domestic competition shows that the government had always encouraged monopolistic tendencies thus ignoring the benefits of competitive capitalism. This has resulted in low quality products which were being dumped on the consumers and are now being out- competed in the market by MNCs. Once our manufacturing sector is wiped out we would be left with no other option but to enter the service sector like the Americans have done with companies like Mcdonalds etc. Japan today owns several of the sky scrapers of New York including the Empire State Building, thus today a large portion of the famous New York skyline is in Japanese hands. Just what Japan has done to the U.S.; U.S wants to do in India.
Further more all this has serious psychological implications on the masses. The consumer is being made a dustbin where the producers are dumping their innumerable products regardless of whether the consumer needs it or not. Needs (being a state of felt deprivation) are being created through advertisements showing people happy using particular products, dissatisfaction being spread and happiness is being made a function of the products we use. The MNCs not only are trying to rule the market but in effect also ruling our minds. They are altering our perceptions of what is worthy of emulation and admiration in life and in other people and directing us towards valuing the images created by advertisements and mass media which they own and control. The dream of being individual masters of our life is being propagated and instead we are being made cogs in the wheels of the bureaucratic machine with our thoughts, feelings and tastes being manipulated by the government and industry. Economic progress is and would remain restricted to the rich/rich nations and the gap is ever widening. We are thinking less about what is good for man and more about what is good for the system, thus we don’t mind mechanising our work at the cost of people remaining unemployed. Though in U.S.A. they give unemployment allowance it is humuliating and gives rise to antisocial activities as the adage goes “idle mind is a devil’s workshop”. By throwing in more and more products and glamorising them, we make people crave for more products and thus run the danger of converting a satisfied man into a greedy one, who stops caring about people around. Just like the idea of permanent peace is illusory amongst greedy nations so is the idea of a classless society in a nation filled with greed. We forget while talking about more consumer choice that unresticted satisfaction of all desires is not condusive to human well being nor is it the way to happiness or even maximum pleasure. The world has seen more voilence in recent days than ever before. Had Kuwait been an apple producing country instead of an oil producing country, I wonder, if Iraq would have been bombed so ruthlessly and for that matter had Kosovo type conflict been in UK and Scotland instead of in an erstwhile communist nation whether even UK would have been bombed to stone age as they did to Kosovo. Every country has ethnic problems and the solutions don’t lie in bombing them. I personally think that even in the US there is a big ethnic problem. Research has found out that if the white US ranks first in Human Development Index the black US would rank 37th! The next two paragraphs would make it more clear.
We have to clearly make a distinction between those needs which are conducive to human growth inherrent in human nature and those needs whose satisfaction leads to momentary pleasure. When we buy a 12th pair of Nike shoes the satisfaction derived can be called momentary but when we spend more time learning music the satisfaction derived lasts for a life time. But when a mind is being bombarded with new material concepts everyday it becomes very difficult for a human being to concentrate on anything other than material satisfaction, thus making people more materialistic. It is when a husband can give a diamond ring to his wife that he loves her, than when he can’t; Though in reality love has got nothing to do with a diamond ring or a washing machine or a pressure cooker etc. This way of thinking finally shows up in the rate of divorces taking place in the developed countries which definetely is not merely a coincidence but has a lot to do with consumerism. When the female in a lingerie ad says “All my boy friends love it” it definetely promotes a concept which finally leads to more births outside marriage, divorces and rapes (the same applies for ads in which the man uses a deodrant and the caption goes “for a man who doesn’t need to try hard”) all very common aspects in America. All this goes ahead to weaken the social fabric in any society. A recent statistics revealed that a woman needs to live for 85 years in USA to be subjected to an attempt to rape once. Lets talk of some more figures to justify all that I just said. The number of divorces per 1,000 marriages now stands at a staggering 504 and 19.3% of the women in the age group of 30-34 are unmarried. There are today 15 suicides, 100 drug crimes, 15 road accident deaths per 1,00,000 people in the developed countries. 20% of the children today grow up in single parent homes. Racism is at peak as the gap between the rich and the poor becomes ever expanding. Today 2/3rd of black babies are born out of wed lock, majority (54%) live with their mothers in single parents home and in more than 50% of the cases the mother is not married. While white male life expectancy is at 75.3 years the black male is expected to live only till 68.7 years. While the richest 5% whites have 88% of the private property in the US more than 50% of the black population lives below the poverty line. The competitive do or die system where success is a comparative measure including in colleges like Harvard (where the Comparative Grade Point Average ranking is used) is resulting into people being more unhappy than ever before. The suicide rate in Harvard is more than the average American rate of suicide.
We further need to realise that cross border trade is the worst polluter among all economic activities as it uses more than twice the amount of energy utilised by equivalent local production. Thus even from ecological point of view anything that can be made locally should not be brought into our country through trade with other countries. Unlimited progress in technology has also created ecological dangers of nuclear war etc. Thus we need to realise the concept of limits to growth and aim to grow accordingly. Economic growth therefore has to be well directed. The concept of competition is also wrongly understood. MNCs don’t bring in competition. They come in to out compete us as our domestic competition has always been very weak. The competition between a crippled and a healthy man is not justified. We first need to help our industry to come up to a position where they don’t feel threatened and can enjoy the satisfaction of coming ahead in competition. It is to be understood that a strong domestic competition can also build up high quality products etc. like in Japan. As MNCs come in they buy up smaller organisations and destroy the rest thus they try to have monopoly power which actually is the opposite of what they are expected to bring in i.e. competition. Infact again, larger organisations are also not conducive to an individuals well being in an organisation as he cannot relate any more to the final product. He does not know what his contribution is in an organisation. Very often all he does throughout his life time is screw a nut in a particular production process and without his realisation ends up becoming a nut himself. The top management like monkeys, may like nuts, for nuts don’t question. But ask the man and you will come to know that he has been alienated from the whole work process. Infact as the organisations grow in size the ownership is also alienated from the whole human activity/production process of the organisation as most of the ownership today is restricted to the ownership of papers (shares). Thus the hope of having economic and human well being through Americanisation of the Indian economy might just remain an illusion. Finally a few words on how bothered the west is about our needs. I hope the following comparisons would make it clear that the global village that America today talks about is not about a village full of greenery where people live happily. It is again about a village full of exploitative hierarchies where America wants to be the new Global Zamindar of the Global Village. In Rio De Janerio a couple of years back the developing countries wanted the developed countries to give only 0.2% of their cross border trade as a contribution to eradicate poverty from the developing countries. They refused! While basic education for all in the world would cost annually $6 billion the expenses on cosmetics in USA alone is worth $8 billion, water and sanitation for all costs $9 billion while ice-creams in Europe alone are sold for $11 billion, reproductive health for all women costs $12 billion and at the same time expenses on perfumes in Europe and USA come to $12 billion and lastly while basic health and nutrition for all requires $13 billion, expenses on pet foods in Europe and USA are worth $17 billion, cigarettes and alchoholic drinks in Europe alone are worth $50 billion and $105 billion respectively. To add to the comaprisons may I add that narcotic drugs in the world are worth $400 billion and military spending worth $780 billion annually.
I really wonder what is there which makes us so blind towards the American system. A country with 132 times more drug crimes, 16 times more rapes and 12 times more murder cases compared to Japan. I must admit if nothing else they have been able to atleast market themselves really well.
The Great Indian Dream
India Can Beat USA
Till now as you all would quite rightly have observed, my talk has been concentrating on what all has gone wrong. From this point of time onwards I would like to talk about the current scenario, accept the reality as it is and try to give alternatives on how to make required changes in order to alter current realities in our favour. As things stand today the fact of the matter is that whatever we say it is the US economy which receives the maximum amount of FDI in the world. China does receive ten times more FDI than India but it stands far below the US. The reasons are simple. The American economy with all its economic might and military might generated stability gives world wide investors from Europe to Japan even to India a feeling of safety. Thus, today world over people invest their dollars in the USA making the American economy flushed with the same. Thus today inspite of the fact that the Americans have a huge trade deficit with the Asian countries, specially with China, they still have no problem. Today infact they thrive on deficit. They give away dollars and get products. A majority of the $ 200 billion worth American bonds which are taken up by foreigners come from the Japanese due to almost negligeble returns their country is able to give them. Thus, the rest of the world is happy collecting paper dollars while the Americans enjoy the products or should I call the trade deficit. This phenomena can be called the dollarisation of the world where the world takes dollars for their apparent worth and give the Americans commodities in exchange and later on reinvest back the dollars in America. This enables the American economy to remain flushed with dollars forever. They have become so strong today that last year they were able to ward off a big crisis which could have emerged out of the much hyped Long-Term Capital Management firm started by the two noble laureates in economics of 1997 on the basis of their efficient market hypothesis. The Federal Reserve prevented the systemic failure through a $100 billion slow and steady bail out of LTCM.
If we are to compete with Americans today then what we require is to make our economy very attractive to have a larger flow of FDI into our economy. This is a tough task specially keeping in mind that even in China 90% of the FDI comes from non resident Chinese due to reasons of patriotism and comfort etc. However the fact is money around the world moves towards safer and stable economies with higher returns. In order to reach such a stage we have to increase the purchasing power in our country to a respectable level at a rapid speed. For this we cannot take another 50 to 100 years. If we are to achieve it in another 25 to 35 years we need to grow at around 12% per capita per annum. This ofcourse is not possible with the current resource allocation process. However, will and committed leadership with perfect economic understanding can definitely makes it possible. Thankfully due to capital controls in our economy we did not go through what South East economies went through. The secret of Chinese success has been through state planning of human resources and their well being along with state run PSUs, Town and village industries and state trading corporations. In India, sadly, as they used to say “everything was in the hands of the public sector but the public sector itself was in private hands”. If SAIL was efficient, it would start giving steel at subsidised prices to TISCO while TISCO would sell the end products in the market at market prices. Thus, the subsidies would never flow to the public and the profits or the profit making potential of the public sector could be found in the profits reflected in the balancesheets of the private sector companies. We have to accept the reality that the PSUs now have been made to have no future. Thus to grow rapidly we perhaps need to do something like the Japanese and Koreans did by backing up their large industrial houses through Keiretsu and Chebols. We need to give large business houses the adequate facilities to grow big. Now that globalisation and opening up are a fact of life we need to face it strongly without fears. Rather we need to use the FDIs to catch up with the rest of the world. Simultaneously, we ofcourse, need to mobilise public resources for uplift of the purchasing power situation in the country. If we do the two things together I don’t see any reason why in the near future countries like India and, ofcourse, China will not be in a position to become as strong as the US today. For, it is a fact that as markets in US, Europe and Japan get saturated we are the countries who hold the future.
Now lets come to the Great Indian Dream and the steps we need to take to have a 10% to 12% growth rate of our GDP to reach the American living standards. This would be best explained with the following alternative plan of resource allocation and mobilisation that we have dared to work out. It takes care of all basic problems like unemployment, education, health, housing, judicial system and works out a strategy of 12% growth rate of GDP after taking care of the marginalised sector of our economy. The rest would follow because if the US keeps growing at the current pace for the next 25 years and we grow at the projected pace we would have overtaken them on the basis of life style parity* by 2025 and purchasing power parity by 2035. A synopsis of Planman’s alternative resource mobilisation and allocation plan Resource mobilisation can't be planned in vacuum, it has to be in a concrete situation. So, to mobilise resources in India we first need to understand the situation in India.
Planman & IIPM’s National Economic Planning Committee visualises an annual growth of Gross Domestic Product exceeding 12% and per capita income of more than 10% (doubling it every 7th year). This way India can overtake USA/Europe by 2025. Adequate additional resources can be mobilised and the same can be deployed to eradicate existing massive unemployment. What is needed is commitment to the bottom 80% of the population, who live around poverty line (Poverty Line’s definition is so inconsistent with civilised norms and human dignity that it is better to call it Destitution Line as we have already mentioned earlier). While we plan various ways of mobilisation of resources we also need to know where to invest them. We know that incremental capital output ratio (according to ILO report) in forestry and fishing is 0.43, in agriculture is 2.92, in construction is 2.52 and in small scale industries is 1.68 i.e. these are the amounts needed in each sector to generate an employment of Rs. 1 in each sector. Therefore, the investment required to create each job in rural India and urban India would be different as rural India would depend upon agriculture, forestry, fishery etc. while urban India would depend upon sectors like railways, communications and banking etc. In the following analysis I have taken the help of the research conducted by us at Planman & IIPM to find out an alternative budget. The strategy outlined here will raise per capita income from PPP $1230 (“92) (UNDP’s Human Development Report ‘95) to PPP $25000 (25628) by 2025.
PPP $ (Purchasing Power Parity $) compares real cost of Standard of Living more realistically across nations. Central Bank of Parity (Official Exchange Rate) of US$ with national currencies distorts comparison of Living Standard. Weighted average per capita income of U.S.A. Europe (U.K., Germany, France, Spain, Italy, Poland, Czechoslovakia) has been PPP $17000 in ‘92. Assuming per capita income in these countries grows at 1.6% per annum (growth rate of USA of last 100 years) it will exceed PPP $25000 (PPP $25386) by 2025. This would be less than India’s GDP of $25628 by around 1%. According to one estimate of World Bank, India’s per capita income exceeds PPP $2000 by now. IIPM’s Think Tanks are developing LSP $. It takes into account culture and geography related consumer preference, Indians may need less warm clothing, my prefer orange juice to liquor, paneer to meat etc. Preliminary findings indicate India’s [e.g. capita income measured by LSP $ by far exceeds even PPP $2000 when per capita income of U.S.A./Europe is LSP $17000. It means India may overtake U.S.A./Europe much earlier than 2025.
To achieve all these the following pro-poor strategy of Alternative 9th five year plan supported by Alternative budget may be pursued. Though, IIPM is not in agreement with the programmes of industrial development (called 5 year Plans) since independence, we have based our projection of growth accepting Dandavate Panel’s 9th five year plan’s projections (7% p.a. growth of G.D.P.) and added to the same, growth generated by additional allocation of resources made possible by additional mobilisation of resources.
Mobilisation of Resources for The Great Indian Dream
1. Collect Rs. 2,50,000 crore in 5 year by increasing price of diesel by Rs. 10 per litre. This will bring diesel price to around 80 to 90% of petrol price, the same as prevailing in developed countries. This may increase cost of goods transported from Calcutta to Delhi by around 25 paise only per kg but there will be no appreciable inflationary impact on general Price Level. Because change in relative price structure induced by it will be absorbed after one or two product cycles, all other factors remaining the same. Since the money thus mobilised will be deployed in raising commodity production, resulting increase in supply of commodities will exert downward pressure on prices.
2. Collect Rs. 2,35,000 crore in 5 years by increasing rate of electricity per unit by Rs. 1 (cost of generation by S.E.B.s is 186.2 paise realised rate per unit is 147 paise now. Domestic rate varies from 178 paise per unit in Calcutta to 526 paise in Bombay. World Bank’s recommendation is Rs. 3 for farm sector and Rs. 5 for all others. Besides the following sums may be collected in 5 years.
3. Rs. 1,66,000 crore in 5 years from excise and other taxes at prevailing rates from additional production.
4. Rs. 90,000 crore doubling excise duty on liquor.
5. Rs. 30,000 crore by abolishing fertiliser subsidy over 5 years.
6. Rs. 30,000 crore by imposing 10% tax on average value of car/jeep (non govt.).
7. Rs. 24,000 crore from cigarettes by doubling excise duty.
8. Rs. 22,000 crore may be saved from replacement of Kerosene by diesel generated electricity (till proper electricity is available) in villages and slums. This also creates electricity driven production opportunity during daytime.
9. Rs. 16,000 crore imposing registration fee on market related price of property and not on price shown on documents.
10. Rs. 12,000 crore from rent of 2-roomed 225 sq feet dwelling units replacing slums.
Thus, total amount collected from these sources is Rs. 8,75,000 crore.
The Great Indian Dream and the resource allocation process to realise it.
1. Employment for all.
Failing this the state should be forced to provide a state failure allowance to all the unemployed people of the country. For this the following resources could be allocated. a. Create 150 million jobs i.e. a job for one member of each family of rural India at Rs. 18,000 per person producing Rs. 24,000 worth of output annually. After paying them Rs. 12,000 annual wage, Rs. 12,000 per person may be saved for new investment. It would require Rs. 2,70,000 crore. (Estimated on the basis of National Account Statistics during 1992-93. Incremental Capital Output Ratio-ICOR is 0.79 for agriculture, forestry, fishery, poultry, live stock breeding, construction, village and cottage industries. ICOR indicates additional investment required for one unit of additional output). b. Create 25 million urban employment (assuming one year lag for organising production) at Rs. 80,000 per person producing Rs. 24,000 worth of goods annually. Paying Rs. 12000/- per annum as wages Rs. 12000/- may be saved for future investment. It will require Rs. 2,00,000 crore (Weighted average ICOR for manufacturing, hotels and restaurants, trade transport other than railways, communication and banking is 3.31). Since 50% of the total population needs employment (Percentage of Working Age (15-60) population is around 60% of total population) and not around 40% as assumed by Planning Commission (on the basis that in 1951, 40% of the population was working) it is estimated that 21 crore people need to be employed during 1998-2003 to achieve full employment. We have assumed that 9th Five Year Plan, as outlined by Dandavate Panel, may create 3.5 crore employment. c. Rs. 90,000 crore towards unemployment benefit at Rs. 250/- p.m. for rural unemployment and Rs. 400/- p.m. for urban unemployment till they are provided with jobs. d. Payment of Rs. 200/- p.m. to parents of 50 million child labour will require Rs. 20,000 crore. Payment will stop when an additional adult member finds employment. Family members of these children will be offered employment as early as possible.
2. Health, Housing and Sanitation for all. Today, more than twice the number of people killed in the second world war die of curable diseases in developing countries and 1/3rd of them happen to be Indians. Instead of survival of the fittest we now need to start believing in survival of the weakest as the guiding force in a new and more human, civilized millenium. Research points out that people of Kalahandi in Orissa are better off during famines than during other times due to the fact that emergency food is supplied at such times. For this the resources need to be allocated in the following manner. a. Rs. 101,000 crore for replacing urban slums by 225 sq.ft 2 roomed flats. 15 million such flats are to be built in multi-storied buildings at Rs. 300/- in five years. Tenants of such dwellings will pay Rs. 333/- as monthly rent. b. One 6 bed rural hospital for free medical treatment for every 10 villages in India will cost another Rs. 2500 crore. c. Sulabh Sauchalay units in all rural houses will cost Rs. 30,000 crore. Organic manure will preserve soil and will increase agricultural production much faster. d. Rs. 10,000 crore may be provided to begin a new life style of living by constructing about 10 simple yet beautiful bungalows around village hospitals. Doctor may be provided with one such bungalow.
3. Education and equal education opportunities for all. Compulsory primary education laws must be enacted and strictly enforced. Spending less than an additional 1% of South Asia’s combined GNP can ensure universal primary education in the region. According to studies by Denison and Solow 2/3rds of the American output growth during 1941-81 is to be attributed to education, innovation and scientific advances. As the knowledge economy approaches this should be our first priority. According to Loh one years increase in the average number of years in the primary schooling of the work force would raise output in India by as much as 23%. And most importantly every man has the right to the full development of his abilities and society wrongs individuals twice over when it makes ignorance a necessary consequence of poverty. Isn’t it obvious that the society gains more from educated than from ignorant. In any case history proves that income poverty is no barrier to the spread of basic education. Kerala with less than 1/2 of Punjabs per capita income has almost double the rate of literacy and Vietnam with per capita income of $1208 which is less than Indias has 94% literacy compared to India’s 52%. Education also makes women equal in the society and makes men give them the due respect. All states in the world with educated women have less population growth rate as well as less maternal mortality and child mortality rates. This is one of the reasons why population problem as you would have observed finds no place in my speech. It is a fact that population and its density has no connection with prosperity. Rich European countries like Netherlands and Beligium are more densely populated than India and Pakistan, Australia and Mauritania have only 2 people per sq. km yet one is rich and the other poor. Rich Japan and poor India have the same density. In India, Nehru and Indira first forced us into economic stagnation through bad policies and then Sanjay Gandhi sought to blame it all on excess population. What a family! Population is not a problem, poverty and illiteracy are. To solve this problem we need to allocate : Rs. 6,500 crore for universal primary education and to make medical and engineering studies totally free so that search for merit is not confined to the top 20% of population. Medical graduates now will have to serve in villages for a minimum period of 5 years before they are offered registration. This will mean one qualified doctor for every 10 villages.
4. Justice for all. I hope I have elobarated the problem well enough. To solve this problem we need to allocate : Rs. 36,000 crore for employing on emergency services, practicing lawyers with 5 years experience to act as judges (90,000 additional judges on the basis of Rs. 8,00,000 lakhs per judge with supporting staff etc.) to clear backlog in the next five years. Later as the backlog comes down, these judges would be crucial in keeping up the fast pace of the judicial system. This will reduce criminalization of civil Life enormously.
Rs. 1,43,000 crore are still left as reserve (Readers may suggest schemes such as drinking water in villages, special rehabilitation programme for victims of flesh trade, anti-aid programme etc. All these increases in taxes etc. might be hurting the interests of the rich sector a little so to see to it that even they play a supportive we can remove the Income Taxes levied on them leading to a cut of Rs. 25000 cr. in resources.
If there is nothing called income tax the concept of black money will also be removed to a large extent. (The goods produced by evading indirect taxes are not black money but black commodities moreover they create employment and production in the country so are not that harmful) This abolition of taxes will lead only to many new entrepreneurial innovations and creative thinking from the holders of black money , for now they will think of investing it in productive activities and not in unproductive investments like land, gold etc. as in the Hindi blockbuster movies.
One should remember that Indians have excelled in creative thinking abroad .Then why not in India? Lastly I will say if all these hurt some vested interest groups then one just need not plan, for planning does not mean continuous reproduction of present equilibrium of interests ( as in India today). Ways are many it’s only the will that is needed. We all know the 'Hè-Ram' is written on Mahatma Gandhi's grave stone but there's also another thought written on the Gandhi Talisman which says “ Recall the face of the poorest and the most helpless man whom you have seen an ask yourself if the step you contemplate is going to be of any use to him, will he be able to gain anything from it? in other words will it lead to swaraj or self rule for the hungry and also spiritually starved millions of our country men? then you will find your doubts itself melting away”.
If one remembers this instead of 'Hè-Ram' it might help a lot more. Apart from the above there are a few more things which will help to support the cause of the Great Indian Dream and they are as follows:
1. Entrepreneurship should be encouraged specially in the not for profit or the social sector. The Grameen Bank in Bangladesh provides credit to over two million poor residing in 36,000 out of the 68,000 villages of Bangladesh. It gives 94% of its loans to women and has given till date more than $2 billion of cumulative loans of an average $160. Yes that’s what the power of the social sector is and that is how little a loan on an average is required to make the poor self sufficient. It has a record of more than 98% recovery mainly due to the fact that the beneficiaries are women. Large business houses should be given due respect and helped with liberal loans and lower corporate taxation rates at par with countries like Singapore in order to enable them produce internationally competitive brands and mark the start of made in India as a brand.
2. Greater corporate participation through organizations like FICCI, CII etc. pressurizing the Government to eliminate poverty if not for the sake of humanity, then for the sake of their own selfish gains. No amount of management and marketing techniques can enable corporates to have a more than 10 to 15% growth in their market but the market can be expanded by more than 1000% by increasing the purchasing power of the people. Then, instead of the middle class being an approximate 50 million would become more than 550 million.
3. Taxes on advertisements to promote restraint in consumption level and promotion of activities which result into increasing marginal utility like playing piano etc. Various laws also to check that the advertisements are not targeted at children or take advantage of obscenity, superstion or absurdity like they do in Sweden and China. A typical American today spends more than 1000 hours in his life time watching some 1,50,000 advertisements! If this is what future holds in store for us we need to understand that advertising will become a key guiding factor in deciding human behavior in a society. Thus this need for taxation.
4. Leading the cause for the underdeveloped & African countries in an effort to remove human poverty from the world. Working towards global equality and not global leadership for fight for global leadership is the root cause of all conflicts.
5. Committed leadership with a belief that India can do all the above instead of the current breed of
leaders that we have who wait for a good drought or a big calamity for that is when they can make
Finally, friends may we dream of a country where poor are not just merely reduced to statistics but
where there are no poor. Let there be a day when small children are taken to a poverty museum like
science museum where they shiver at the plight of the way people used to live in the last millennium.
Let this dream take the form of a revolution and as long as our dreams keep outweighing our memories,
India would remain a young and dynamic nation on its path to global equality.