Aug 19, 2013

India's economic crisis: Bottom of the pyramid has the answers

At a time when the Indian economy is in doldrums, Prime Minister Manmohan Singh has time and again reassured investors that there will be no going back on economic reforms. As usual, he has blamed the external factors for the slump. The internationally respected weekly The Economist has gone a step ahead. To ensure that the Prime Minister does not retract from the promise of delivering more reforms, it has tried to create a fear psychosis among the policy makers so that they don't budge an inch from the faulty economic track the country has been made to follow for the 9-year period of the UPA Government.

Like the cover story in the Time magazine sometimes back that called Manmohan Singh an 'underachiever' (the underlying idea was to provoke him to open up to FDI in retail and other sectors), The Economist has in a frightening analysis titled "Made outside India" (Aug 10, 2013. econ.st/164nUNE ) tried bravely to build up the argument that if India does not accelerate the growth pace, what ever remains in India (in terms of industrial base) will also move out. It was not only amusing to read the biased argument (biased is a soft expression, it is actually a flawed analysis) but makes me wonder how can a reputed magazine support the frauds in trade and business in the name of economic growth. I am shocked that it sings praises for tax havens like Mauritius, and is also praising the decision by Finance Minister P Chidambaram to defer the General Anti-Avoidance Rules (GAAR) which could have brought curbs on the flow of black money and corruption. (Read my earlier blog: Celebrating the induction of black money: http://devinder-sharma.blogspot.in/2013/01/gaar-deferred-investors-stock-markets.html).

It is true that gambling is illegal in India, except a few places. If Sri Lanka is planning to develop a casino industry to attract weekend travelers (like Nepal has done), does it mean that India should also allow gambling to be developed as an industry? This is like saying that India should allow sex tourism to develop on the lines of Bangkok under the proposed India-Thailand Free Trade Agreement that is being renegotiated. I think there can be nothing more stupid as well as dangerous than this argument.

What is amusing of course is the example of Bollywood films that are being shot abroad. The Economist says: "In 1985 Yash Chopra, an Indian film-maker, led a trend of shooting Bollywood "dream sequences" -- in which the hero and heroine sing amidst meadows and snowy crags -- in Switzerland. The Alps were easier, safer than the more familiar location of Kashmir." This is true. But what is wrong in this? Doesn't the Hollywood industry do the same? It has for late done many a films in India or with Indian participation. Does it mean that the Hollywood industry is moving offshore? In any case what the magazine does not perhaps know is that even that trend of filming abroad has come down lately. Film goers love the films that are shot in countryside locales in India. The latest release Chennai Express shot within the country's lesser known locales has been a record earner.

In essence, The Economist is indirectly trying to tell India to strengthen its service industry, cut down on red tape, and allow dirty and corrupt practices to prevail. This is exactly what India has been trying to focus on since 2004-05, and look at where the economy has plummeted to? I will not try to go into the finer details, but I would surely like to draw the attention of The Economist to an excellent analysis by S Gurumurthy that has been published in the New Indian Express. Titled: Reckless imports put Rupee on a ventilator, Aug 19, 2013. http://www.readwhere.com/read/c/1505436 ). The article brings out how a flood of imports because of the deliberate destruction of the domestic manufacturing sector has put the Indian Rupee in a crisis. "The 9-year UPA period saw manufactured goods import of $ 50 billion against just $2.3 billion during the NDA regime." 

It was primarily because of destruction of the domestic manufacturing sector that some of the Indian industry has moved out. It is not because of red tape and bureaucratic hurdles but because the Reserve Bank of India changed the rules that allowed companies to take out money to invest abroad. I see no merit in this. If foreign companies bringing Foreign Direct Investment (FDI) in India can do business and still make profits (despite the hurdles), how come the Indians companies are not? Again, it is The Economist all these years that has been drumming up the need to open up the economy to foreign investors. More the FDI more has been the imports of manufactured goods. More the signing of unreasonable FTAs, more has been the deluge of unwanted imports that further destroyed the domestic manufacturing sector.

It didn't only end up with massive imports but also destroyed jobs. A Planning Commission sponsored study says that between 2004-05, when Indian economy grew anything between 8.5 to 9.3 per cent, manufacturing sector witnessed a massive job loss. More than 5.3 million people lost jobs in manufacturing. Wrong advise by economists (and also The Economist) had forced the government to bypass manufacturing and follow services in its quest for growth. Remove all the hurdles, and let the markets operate freely is what we have been repeatedly told. But when markets crash, the same set of corporate media advises the government to step in and provide bailout packages.

Markets are always manipulated. There is no such thing as free markets. Whether it is the World Trade organisation (WTO) or the Wall Street, manipulation is the core ability of free trade as well as open markets. So don't get unnecessarily alarmed when the stocks tumble. Just wait and watch. Heavens are not going to fall if the Wall Street crashes completely. This is gambling. Let the gambling rules prevail for those who have willingly put their surplus money in.

I am not sure whether The Economist will ever take my advice. But it will good if they step down from their high pedestal and look at the ground realities more carefully. All that it has been suggesting so far is aimed at creating more wealth. Whether it is through the unhindered capital flows, hedge funds, stock markets, farm land grab,  foreign direct investments etc etc the basic premise is to create more high-net worth individuals. The poor will get the advantage of trickle down. Knowing the economic, environmental and social crisis the world has been pushed into, it is high time to move away from this terribly flawed economic approach. Take the simple case of Hiware bazar village in Maharashtra. Without indulging in all the spoils that neoliberal economists have been tirelessly suggesting and manipulating, this village alone has created 60 millionaires. Imagine if each of the 6.5 lakh villages in India can produce 10 (and not 60 millionaires to begin with), wouldn't the face of India change for ever? And what if the same principle of self-reliance is applied everywhere else in the world?

The solution to the economic ills can be provided by the bottom of the pyramid. Read this: One village, 60 Millionaires. The miracle of Hiware Bazarbit.ly/15NdWMU 

5 comments:

Anonymous said...

A treasure trove - thank you!

Barbara Panvel
UK

Anonymous said...

Sir, you are absolutely right about the flawed policies since the U.P.A regime which has killed the domestic manufacturing industry . But are you in any way suggesting to go back to protectionist policies. Is it possible in the globalised world. What should be India's strategy in the wake of sub prime crisis, failure of doha round and currently too much dependence on the Fdi and fii. Whats the way forward.

Devinder Sharma said...

Whenever I point to the exploitative market economy, the question that invariably crops up is that are you taking us back to the protectionist economy days. When did I say that?

The Hiware Bazar example shows that self-reliance is what should be the hallmark of any economic model. That is what I suggest.

Adil Hossain said...

I have closely followed your articles and TV debates and in no doubt that if people listen to your words, India will lead the way in terms of sustainable development. As a student of Development and Rights at Goldsmiths, University of London I am shocked at the constant apathy shown to this lower strata by the political class of my nation. BJP, Congress, Left, Right all have to eschew emotive issues and work together for farmers, for domestic workers. - Adil Hossain, London

Rasmi Jena said...

Dear Devinder ji
I heard you speaking at Bhubaneswar on 31st August evening.
I have no words to express my feelings. i have hardly got such a clarity on issues. this is really commendable.