Saturday, October 6, 2012

Fatcat obsession: We need this reform for India

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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