Fatcat obsession: We need reform
for India Uninc, not India Inc
by R Vaidyanathan
The author is Professor of Finance, Indian
Institute of Management Bangalore. The views are personal and do not reflect
that of his organization
Fatcat obsession: We need this reform for India
6th Oct
2012
By K Rajaram
IRS
I am an ordinary
person and express my personal view of the article presented by Learned Sri R . Vaidyanathan .I am a retd senior civil
servant of the ministry of finance.
Main focus of Mr Vaidyanathan is ANTI
REFORMATION IN ECONOMICS AS IT IS AGAINST THE NON-CORPORATE SECTOR WHICH IS
ALONE SHOWING THE GROWTH OF THE NATION; THE NON-CORPORATE SECTOR WRIGGLES UNDER
HIGH RATE OF INTEREST AND CORRUPTION; IT IS 60 YEARS OF STUGGLE FOR THEM BUT ARE
THEY THE ONLY HIGH-GROWTH SECTOR OR YET –TO-
GROW SECTOR?; OF COURSE I AM NOT COMPETENT AGAINST AN ECONOMIC PROFESSOR’S
ACUMEN. No doubt adjectives like “. crony capitalists, basic and more path-breaking reforms, “sexy”
enough, sepoy’s sellout, full of glamour and oomph, an “item number, loonies or
even Luddites, fatcats, Yankees and Yankee-minded “ ARE IGNORABLE. May I
express my view THAT IS NEEDED AT THIS JUNCTURE , as a
“recovery-risk-management,’ measure BROUGHT by
‘a competent economist recognized by the world. “ (MANMOHAN SINGH).?
2. The ire of the of the professor of the
finance is understandable, however, after independence ,one shall remember that
at least three score years have passed and no finance wizards could raise up
the standard of this country, including The Prime minister. It’s a matter of
concern for the world economy, when the countries of the world follow inter-dependency
in economic growth and trade. Finance includes borrowal and gold reserve and so
on. Unless there is a country like RAMA RAJYAM described in RAMAYANA, pressure
of the debtor-creditor relations, pressure of trade-exchanges and the pressure
of the balance of payment etc is bound to exist, which is well known to all who
is in Finance. Also from the days of the 3000 BC, wealth of the nation was
accumulated out of pressure only, by various means, by cutting the supply, by
enforcing certain financial transactions so on so forth, which is also known to
the financial management. Also from that date till date, BIG BUSINESS PERSONS
AND HOUSES WERE warmly considered by the rulers, who are pillars of economy.
3.
Silappadikaram will speak high of Masathuvan;Artha- sastra speak about
it; Mourya as well as later Gupta dynasty speak of such persons; rest of the
normal people were respected but the “crony- capitalists’ were a force to
reckon with. As usual, in all times such personality formed only a small
percentage; also powerful countries enforced, the ransom on less economic
nations. This struggle always co-existed in the history and the world was
growing. Ancestral generations of the Reliance and TATAs ,competed with the cronies
pressure and developed. Even today there is an agency(like standards and poor)
watching over the hour glass the progress and downfall of every nation under
debt repayment; in order to safe-guard the interest of the balance of payment,
devaluations are adopted. India is also facing such situations where the
borrowed funds are frittered away on SUBSIDIES; India already faces money-value
decrease and if “standard and poor” evaluate the balance of payment and the
money value, India will be worst hit. This
is very well known to the oppositions and the financial wizards, and they are
expected to educate the illiterates and not frighten them; those who can’t
offer a tested, breaking solutions, I am afraid have no right to present a
discordant picture at all. I am not defending the existing govt but
redemption from drowning is required and it will be hot. No one can criticize
the world economy administrators with whom we have transacted already and
agreed to certain terms and conditions. Why blame the US Business interest and
cronies? Will the professor having lent a big amount to somebody, will be noble
enough, not to hurt the debtor and refrain from collection and lead the
write-off?
4. I
am surprised to find the suppression of facts and presenting the arguments
cleverly. In India under income earning status there are six status viz
INDIVIDUL, HUF, PARTNERSHIP, AOP, BOI, COMPANY, TRUST; in USA there are only
two status; INDIVIDUAL AND COMPANY; THEREFORE, in USA it is 75% while in India
company percentage is lower than the partnership; one shall add all status in
India other than the Individual and then compare with USA. (OUTSIDE THE PURVIEW,
THERE ARE HIGH PERCENTAGE OF TAXPAYERS THAN IN INDIA WHICH IS HARDLY 3% OF THE
POPULATION). It also means that in USA ,there are big corporate as well as very
small corporate,like Indian Partnership of 45%.So, let us not be mislead by the
statement of convenience.
5. Hence
it’s not a surprise that service sector also is included therein being 70% in non-corporate.
Growth of the economy is not determined by 70% or 30%, but on the whole the
business and saving sectors put together. The finance-WIZARDS is even now
floating a theory that the 80% contribute 20% development and the 20%
contributing the growth of the 80%. So it’s a fallacy in deducing that “they (non-corporate
service sector) are the drivers of our economic growth”. If the deduction is
correct here, then the this deduction is true, even in Europe and USA.
6.
Theoretically savings do
contribute to investment and growth. But does it hold well in India? If there
are 70% domestic savings, why not the GDP increase? Savings must be encouraged
for the wealth of the Individual and the nation. However, here, savings are
forced for tax evasions and tax avoidance. There is savings on one side and
borrowal on that savings on the other side, keeping net savings, highly lower down
the expectations for growth. Also savings are frittered away on subsidies
and so many gifts etc , bringing the country to this level. What were the
financial wizards and economists were doing, when the current PM, as erstwhile
FM, curtailed the level of savings of public, for the sake of paltry increase
in inflated tax targets?( 80 c was conditioned in MM singh period). All the
learned were sitting over the fence and now make a hue and cry, under the present situation
of the crisis management.
7. The
“twin devils” credit crunch and corruption is rhetoric but not applicable only
to the non-corporate sector alone. Both apply to the whole nation including the
NRIs. CREDIT FREEDOM IS NOT CARRIED OUT BY ONLY THE STANDARD RULES, TO BE ONLY IMPLEMENTED
BY THE BANKERS BOTH PRIVATE AND PUBLIC, UNIFORMLY FOR APPLICATIONS ON UNIVERSAL
NEEDS, AS THE EXCLUSIVE PRIVILEGE OF THE LENDERS. There are differentiations,
discretions, disorderly system, in the credit issues and the effect of
diminishing utility is foreclosed. There
are suckers and the implementers, unconnected to the issue. Where the controls
lie outside, where there are discretions, where the standards rules do not
govern, there will exist the CORRUPTION. They are inseparables. WHAT WAS THE
ECONOMIST AND THE FINANCIAL WIZARDS WERE DOING THEN, SO AS TO POO -POO ,THE
CRISIS MANAGEMENT NOW?
8. Even
in these circumstances, the approach by the non-corporate sector for borrowal, towards the
private money lenders, is not because of
the credit crunch and the corruption at all. Who will pay 5-6% per month and
do business unless there is a factor of Greed and the fact of secrecy? The
banks do need certain credit worthiness papers, projection of profit, input capital,
proportionate loan against the capacity to repay and governance of the
activities of the borrowers.(EVEN HERE WE HAVE THE STANDARDS AND POOR
MONITORING). Majority of the so called non-corporate sectors, either remain a
non-tax payer or pay lesser tax then they earn, suppressing their income and
the assets totally or in value; these factors increase more corruptions and
more credit-crunch-in -appearance. Had
there been genuine civilian conduct of the tax payments, why they have to go
to private money lenders? If they have the capacity to be lent by the
private, who never writes off, won’t they have the capacity to file those
papers before the bank? Had they made proper taxes, there is not that difficult
for the loan as well as there is no need to pay bribe; had there been
violations out of the discretion, there would have been the right attitude to
break it; when the three fingers are pointing towards the non-corporate, why
would one stretch the index finger? Is it a fact that these non-corporate (as
well the corporate) develop the real growth of the nation? As a matter of fact,
the present crisis management was forced by the attitudes of the non-corporate
for the past 60 years and they have to face the brunt.
9. Therefore
the cause of the decrease in bank credit of the Non-Corporate sector, between 90s and now, is the increase
in the tax evasions and accumulations of non-proportionate assets, preventing
the developments of the nation and none else. I remember a story: The king
wanted milk to be poured in a vessel by the public and in order to hide the
discriminations in quantum, made it in a dark room; when in the morning when
the king saw the tub, it was full of water only; everyone knows why? Non
corporate created the havoc with the vested interest, showing the gate on
others, making themselves “FAT CAT”. Therefore, unexplained assets cannot get required
loan and the private can lend because of the sure point of collections and no
need to question the source; they(NC) were selfish then and now they don’t want
to lose the power they enjoyed. ALL THE MALAIS POINTED OUT DO EXIST BUT THOSE
WHO ENJOYED THE FRUITION ONCE HAVE TO FACE THE CONSEQUENCE NOW. There is a
difference between the last year USA and the current year USA progressively,
but do we have any such? We pay from Rs 48 to 58 per dollar. This is not
just because of the failure of the administrations, credit squeeze, and
corruption alone; economists, finance-wizards, traders with the vested interests,
politicians inclusive of the oppositions, I am safe Service, routine
beauracrats, parliamentarians, media inclusive of news papers etc; even public
at large is not spared because everyone had their share of loot and voted
without the application of the mind in so many assembly and parliament elections.
No one did their job for public and who did it was ostracized under some
stamps. Hence who is the FAT CAT? Yankees are doing better but the copy-cats
who were yawning are to be blamed.
10.
The solutions are with the intelligentsia
of this country to put forth workable short range and long range plans and to
STAND AND DELIVER. No one needs to monitor private liberties of business. When
rules are framed impartially, and executed with watch-dog mechanism, by
favoring good ones automatically the other will get eradicated. Implement
punishments for the encourager of the corruption and make economic offenses 50
years imprisonment with no appeal further. This is the country where offenders
can procrastinate and even become the leader to abolish the hand-cuffs. LEAVE
THE EXECUTIVES TO FUNCTION AND JUST IMPLEMENT THE LAW, THEY WILL DELIVER; but
you frame rules against law, to tell them how to walk. Allow Judiciary to
function independently with the power to throw of unnecessary litigations
wasting the court time by the power-centre. Let people elect good governance
and stand firm. In 90s village people were very straight forward but now we
made them beggars because of our self-centered ambitions.
11. As per the author just imagine if the
small and medium businesses do their business with the austerity and good
product profit, without greed, just imagine that “annual rate of 80%” comes
into their business pool only. In my fathers’ days, people became lakhier after
three decades but today, HUT becomes a LAND GRABBER in three years, where the malaise
lies?
12.
“Wal-Mart, in its search for new
markets, needs us more than we need it.”-----yes it’s absolutely true, but one
shall compete to prove it. We are smart business people. We do business without
capital and will it be difficult to compete? When “small and medium” do their
business, right in front of “fat cats” RELIANCE AND TATAs, can Wal-Mart and
others worry us? When the whole streets of Usman Rd Chennai and Mumbai are
flooded with the Jewellery shops of small and big, and the small shops do
exists besides the big one , will they perish before Wal Mart and others? NO,
BUT THE SECRETS AND TRICKS WILL EXPLODE FOR EXPLORERS AND THAT IS WHAT THE
ROUCOUS SHOUTINGS.
13. ‘The reforms we really need are in the
areas of commercial taxes, road taxes, entertainment tax, excise duty on
liquor, urban land ceiling regulations, the Shops and Establishments Act, laws
governing educational and medical institutions, money lending regulations,
stamp duty, food and adulteration laws (involving municipalities), water and
drainage regulation, and the registration and contract laws.”—-----yes absolutely
but every reform brings new evasions in the minds of businesses and who
will bring the reform in them? FIRST BECAUSE OF THIS SHOCK CREATED BY THE GOVT
REFORMS LET THERE BE LIGHT AND MAY BE PEOPLE WILL KNOW AND SUGGEST WHAT IS THE
GENUINE REFORM REQUIRED. MERE LAWS WONT BRING DOWN UTOPIA. The taxation was
brought down from 90% to 30% during the course of 4 decades, but who abides by
the taxation? The increase in the collection percentage of taxes are,
statistics, inflation and from the salary class and the known -incomewallahs.
The Rat is still only in the den.
14.
“Need to have an inter-state
council meet only to focus on reforms in all the above mentioned areas instead
of just being obsessed with FDI and FII and pink paper concerns.”--- No sir. THIS CURRENT REFORM IS
INEVITABLE. THANK GOD THAT THE METHOD ADOPTED BY THE GERMAN CHANCELLERY AFTER
the 2nd world WAR(when prices were increasing by every hour ) ,OF
PEGGING THE PRICE LINE WAS NOT BROUGHT IN, LEST THERE WOULD HAVE BEEN, CRORES
OF INSOLVENTS.
15. “Do not appeal to the audiences of the
business TV channels and the chambers of commerce”--- sure sir because they are inside the
ring and may be the cause of the problem center also.
16. “Actually,
FII and FDI sources have always contributed less than 10 percent of our
investments, which are largely driven by domestic savings. Yet we think giving
more incentives to foreign investors will solve all problems. That is not a
sign of free market thinking, …..”----
Sir, if its contributions are only 10%, why worry about it and
make such a cry? I remember a story: when someone was to be executed, King
asked him his last wish; he replied ,”I know the technique of making the horse
fly’; He wanted 6 months time; king agreed; when his friend asked about this
impossibility, he replied, “who knows ,something may happen in the meantime ,
why even the horse may fly”. SO WHEN CORNERED TO THE WALL, WHATS WRONG WITH THIS
FII AND FDI?
17. “‘Sectors that really create jobs and
growth. Our corporate sector is only an “item number” in our economy, “ ---Even
NRIs create jobs of value and quantum of what the 1000 small business create,
hence this may not be serving the purpose for gainsaying.
18. “We as a nation have the uncanny
ability to focus on the inconsequential and immaterial and waste lots of time
and effort on them. We even have the gall to criticize those who point out
these home truths as Swadeshi……..”
-------sure sir, then why again worry about “immaterial and wasteful”
imagination factors? We have crossed the pride of being the “swadesi’ and who knows,
by these measures we may get back it, as it happened, during “GARGIL WAR”.
19.
“ Delhi-centric reforms can only benefit fat cats and not the most
productive sectors and engines of our economic growth’”“ (central point) They
are struggling to get adequate credit at reasonable rates of interest and have
to deal with corruption at the lower, and less controllable, levels in our
system. What India needs is to reform our reform process itself to focus on the
real India and not the India which the Yankees and Yankee-minded reformers are
imagining!” ---- ALL
THESE ARE SUPERFLOUS TO GO BACK AGAIN. LET US HAVE A GOOD SUN SHINE WITHOUT
FEAR.
THANK YOU
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