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Innovative Minds: FOR A HAPPIER INDIA, By Shivaji Sarkar, 16 July, 2012 Print E-mail

Economic Highlights

New Delhi ,16 July 2012

Innovative Minds


By Shivaji Sarkar


India is in a dilemma. Can it grow without foreign direct investment (FDI)? How is the country sailing through despite slowdown, lack of organised jobs and falling industrial production?


Indeed, this is a mystery. But, India’s story is complex. Some regions are growing faster than the national economy. Gujarat is growing at 10.28 per cent annually, Bihar and Orissa nearly match it in percentage terms. Uttar Pradesh is a laggard.


Interestingly, the rural sector is an island of happiness though not in terms of prosperity. It is marketing innovations and parallel power supply system. Surprisingly, the UP hinterlands have cash flows wherein the State’s magic for sustenance is the high volume food grain and vegetable trade. The supplies reach Maharashtra, Gujarat, West Bengal and in some cases even Tamil Nadu.


True, UP does not have Gujarat’s grandeur which is flush with funds from indigenous as well as foreign sources. Industrialists shun the State due to its lack of official culture notwithstanding young Chief Minister Akhilesh Yadav. Even industries in Noida and Ghaziabad are moving out to safer pastures, where they would not be exploited by goons and not suffer power shortage.


Yet States like UP and Chhattisgarh, riven with Naxal menace, have a penchant for survival. The magic? Cash flow, naturally. Ditto Punjab, which again is not lacking in cash flow.


Questionably, is this black money? Yes and no, as all cash flow might not be black money which poor States like Bihar, Assam and other North Eastern States can attest to.  Besides, the economy survives on fast cash transactions and in some cases, credit by private sources at high interest rates. Also, default in these economies is rare.


Pertinently, bank transactions are not unknown. Many dealings take place directly as small businesses want to avoid the hassle of banking procedures and the high costs imposed on them. So a central UP potato trader is delivered money immediately through different channels by a Maharashtra trader or any other State. As this is a foolproof system.


Do the traders pay tax? Yes, but not at the official ‘extortionist’ level. Needless to say the transaction procedures need to be simplified and taxes decreased from the current oppressively high rates and at multiple points to ensure more small traders trading inter-State.


Arguably, if the traders have to pay tax at all the levels, they would be left with little money to operate. Thus, various State Governments need to devise an honest method and simplify the tax system to ensure traders comply with it. This would avoid double, triple or quadruple taxes which is a disincentive for trading and would help keep prices at an affordable level for consumers.


But this has a flip side. The present system compromises on wages. Certainly, MNREGA has made some difference whereby rural wages have increased. But so have the costs of the rural entrepreneur which has resulted in increased prices of goods and commodities. Clearly, the high vegetable prices are a result of this increase.


Also, policies decided at the Central level without considering its implications could cause an adverse impact on the economy. The recent economic reforms proposals, mostly targeted for corporate intrusion into hinterlands have under-estimated the capacity of small traders, entrepreneurs and businessmen. Whereby, our policy makers need to realise that howsoever they might have contempt for rural entrepreneurs, the economy cannot grow without their active participation. It does not require large infusion of funds, least of all foreign funds.

Leading to another question. How can an economy grow without funding? Small States show the way as they have enough money flow. Provided, unrealistic rules and penchant for taxing every activity does not come in their way and stall progress the Indian economy could grow faster and in a much robust manner.


Moreover, the globalised economy, propagated by the large corporate under the aegis of World Bank-IMF, is keen on creating economic monopolies. They do not allow free growth or free functioning of individual enterprises. In such monopolies, the individual unorganised enterprises are disliked as they cut into profits of large corporate.


The global economy also has a tendency of routing transactions through a more expensive banking system and makes individual operations uncompetitive. In short, it aims at weakening the foundation of UP, Bihar, North-East, Punjab, Himachal and Jammu and Kashmir. Today, if these areas are not in distress, it is thanks to the cash transactions taking place at different levels.


Furthermore, if India has survived the Lehman crisis, it is because of its strength in transacting in cash without credit. Large economies are crashing owing to over-concentration of activities and offering credits beyond the capacity of the system. Remember, the Lehman Brothers and other financial institutions collapsed for this reason.


Undoubtedly, the strength and success of our system needs to be made more powerful. This potency comes from decentralised operations which the country needs to protect it at all costs. This should be considered a safety valve. The recent efforts of the Reserve Bank and bureaucracy at centralising all such activities are fraught with greater risks.


It also needs to be understood that these are not black money operations. Given that the definition of black money itself is convoluted. It needs to be made clear that any money out of centralised banking operation is not always black money.


Additionally, the tendency to tax all operations is also a risk as it makes transactions difficult and expensive. This can also result in putting an end to the way smaller economies sustain themselves. If people are sustaining themselves today they might have a happy tomorrow. The different dynamics shown by innovative entrepreneurs should best be left unhindered.


Today, India ranks second in the Global Innovation Efficiency Index of World Trade Organisation (WTO). It is for the enterprises of the unsung individuals. The Planning Commission, Central and State Governments have offered little to create this innovation.


In sum, if people are finding ways for a better tomorrow, they need to be encouraged and protected. The State needs to stop stifling such innovative functioning in the name of regulations. It should realise human civilisation has evolved through freedom of innovative activities. If some Indians have it let them thrive because in their success lies the future of India! ---INFA


(Copyright, India News and Feature Alliance)


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