The path to higher growth lies in promoting manufacturing through transparent governance and better infrastructure, not in increasing foreign investment in retail trade, insurance and other service sectors
Slowdown in the growth of gross domestic product (GDP), a virtual stagnation in industrial production and the risk of losing investment grade rating by international rating agencies like Standard and Poor's has rattled the government, industry and policymakers. The dominant view — as expressed by influential members of the government and other policymakers — favours the introduction of major liberalisation policies aimed at facilitating the entry of foreign direct investment (FDI) in service sectors like retail trade, insurance, legal and other services as a means of reversing the slowdown. In my opinion, such an approach is flawed. Sustained growth is not possible without a healthy and growing manufacturing sector; attracting FDI in the services sector would at best play only a minor role. Indeed, India's overdependence on the service sector and the neglect of its manufacturing sector is partly responsible for the deceleration in growth. Results from most research studies show that for India, the service sector cannot be the engine for a sustained growth of income and employment. Like China, India should also concentrate on the manufacturing sector, for, in the long run, the growth of the service sector would also depend on the manufacturing base.
Real constraints
Research studies, by and large, zero in on two sets of constraints that stand in the way of the development of Indian manufacturing sector: physical and government infrastructure. These two are, in a way, related and could reinforce each other. In the last few years, India has not invested sufficiently in physical infrastructure like electricity, roads, ports and railways. This has resulted in huge shortages in electricity supply relative to demand, leading to long hours of load shedding, power holidays and even closure of several manufacturing units. Some of the large enterprises have opted for captive electricity generating plants, resulting in high costs and making their products globally non-competitive. Small and medium enterprises cannot afford captive power units and they are the main victims of power shortage.
Likewise investments in roads and railways have been inadequate, hampering the development of the manufacturing sector by increasing the cost of transportation. The presence of corruption and bad governance has made the situation worse. It is common knowledge that only a fraction of the investments on roads and other infrastructure projects actually reach the targeted projects as the leakages are large. This leads to the second set of constraints for manufacturing growth, namely, governance infrastructure.
Numerous studies show a strong relationship between good (corruption free) governance and investment climate. In the current globalised investment and trade regime, the same set of variables influences both foreign and domestic investment. At present, faced with 0.1 per cent growth rate in the industrial sector, the government is planning to offer interest rate and fiscal incentives to reduce costs and stimulate investment. In this context, it is important to note that corruption is also like a tax that pushes up the costs — the only difference being the sums collected through bribes do not go to the government but to private individuals. Thus, given the high levels of corruption, merely reducing interest rates might not be effective in making Indian enterprises more competitive.
High levels of corruption, in addition to pushing up costs, also adversely affect the quality of investment. It is now fairly well established that corrupt countries mainly receive investments from other corrupt countries, which does not result in technology transfer leading to global competitiveness. Thus, bad governance affects both the quantity and quality of investment. Moreover, even medium sized Indian enterprises are now investing in other countries and import products from their foreign units into India. Last year, the FDI outflow from India was more than 60 per cent of the FDI inflow into India. Newspaper reports indicate that this year FDI outflows from India could be equal to or even exceed FDI inflows into India. Indian enterprises find it difficult to do business in the current Indian environment and prefer to set up units in other countries and import the products into India. Furthermore, while the manufacturing sector dominates Indian investments abroad, foreign investments in India are mainly in the service sector, construction activities and real estate. This alarming situation cannot be reversed without major reforms that target good governance and removal of corruption.
Scams and reforms
In the last few years, major scams have broken out in resources sectors that are mainly owned by the government — like real estate, mining and ores, and spectrum.
Quite a lot of individuals who have obtained government permission to enter and exploit these resource sectors have amassed billions of rupees. In other words, under the existing business environment, the path to amass wealth is not through manufacturing but through exploitation of resources under government ownership. This needs to change. It is alleged that as a result of these scams, decision-making in the government has come to a standstill as bureaucrats are afraid to take decisions. It is strange that officials have been vested with many discretionary powers which they now rightly refuse to exercise. Corruption mainly takes place where important discretionary powers are vested with the decision maker and where rules are not clear-cut and decision making is not transparent. The way out of the mess is to reform the decision-making process by making it transparent and rule-based and by drastically reducing the discretionary powers of officials. So far, despite brave declarations of intent, no serious attempt has been made in this direction of administrative reforms.
In addition to administrative reforms, the government should also introduce rules and laws to drastically discourage cash transactions and cash holdings. Corruption cannot be reduced so long as cash transactions dominate. Newspapers frequently report police and income tax raids and the discovery of huge amounts of cash kept at home, offices and lockers. Subsequently, in many instances, the cases are dropped as the individuals succeed in explaining the source of their cash holdings. In this context, it is vital to introduce laws that discourage cash transactions. Drastic situations need drastic remedies. To discourage cash transactions, the government could place a limit on cash transactions. For example the government could declare that any transaction, say, above Rs. 5000 should be a bank or credit card transaction and not a cash transaction. This will bring huge expenditures on items like consumer durables, hotels and resorts under bank transactions and increase accountability. Likewise, the government could place a limit to cash holdings at homes, offices and lockers. The limit could be as low as one or two lakh rupees.
To conclude, a high growth rate for the Indian economy cannot be sustained without a vibrant and growing manufacturing sector. A policy aimed at GDP growth based mainly on attracting investment in the services sector will not succeed. Moreover, a thriving manufacturing sector is vital for employment generation. Under these circumstances, reforms should be aimed at good governance, transparent and time bound decision-making, reduction of currency transactions and holdings, and the rule of law.
(The author is Honorary Professor of Economics, Madras School of Economics. nssiddharthan@gmail.com)
Keywords: Indian economy, economic reforms, political corruptions, FDI, S&P rating
Excellent Article. Lot of foreign business lobbyists are trying to use indias crisis to push through FDI reforms that will lead to our ruin
An excellent article. The author has correctly pointed out the naivety
in believing that an increased quantum of foreign exchange could bring
about a growth turnaround. India suffers from a plethora of problems
ranging from a dis-functional paralyzed government to an overly
hampered growth of the manufactured sector fueled further by rising
inflation and the dipping value of rupee. In such testing times, an
overall strategy becomes utmost necessary. A revival to the
manufacturing sector along with a boost in the infrastructural
development is the need of the hour. Above all, only an effective and
transparent governance can plug the leakages and exalt our country
once again to the honor of ''India Shining".
Excellent article - should be must read for both Businessmen and
Politicians in India.
Yes, we need electricity, water, better roads and better primary/high
schools - for millions of Indians,
not necessarily increased retail trade - which may end up only
importing goods from China to fill the stores!
very simple, lucid yet authoritative writeup! service sector provided a quick fix solution ,more over with lack of skilled manpower it was uulikely to succeed in long term.service sector iis more prone to external shocks ,thats exactly what is happening now.on the other hand manfucturing sector can be supported by large domestic demand, it also increases employment rate.decade of jobless growth has taken its toll. Infrastructure in india is also big tragedy even economically better states are faltering .absence of coherent policy on public private partnership is holding this important channel for infrastructure development.
Prof. Siddharthan makes a good case for growth of manufacturing, but does not tell us why reforming service sector is not good for economy. It is a feel good article that ignores the huge barriers set up against improving infrastructure by anti-nuclear, anti-coal, anti-hydro, and anti-mining activists, and big barriers erected against improving governance by bureaucrats and our ineffective laws and legal system. The article correctly points out that corruption arises due to discretionary powers of politicians and bureaucrats in allocating government owned resources, but incorrectly points fingers at the private industry. Most disturbing part of the article is the suggestion of draconian laws to reduce cash transactions to control corruption. It is a simple-minded knee-jerk reaction to a complex problem which can do far more harm than good. Any law which takes away (financial) freedoms of citizens will lead to more misery for people.
An excellent article. The author has correctly pointed out the naivety
in believing that an increased quantum of foreign exchange could bring
about a growth turnaround. India suffers from a plethora of problems
ranging from a dis-functional paralyzed government to an overly
hampered growth of the manufactured sector fueled further by rising
inflation and the dipping value of rupee. In such testing times, an
overall strategy becomes utmost necessary. A revival to the
manufacturing sector along with a boost in the infrastructural
development is the need of the hour. Above all, only an effective and
transparent governance can plug the leakages and exalt our country
once again to the honor of ''India Shining".
The author makes a valid point. For meaningful sustainable GDP growth
a vibrant manufacturing sector is a pre-requisite. India's economy
suffers as a result of the jump from an agrarian economy to a services
economy. The latter by definition requires highly trained manpower and
thus its employment potential is limited to those appropriately
qualified. In any case the numbers it can employ are puny, compared to
the size of our population. Only manufacturing can provide employment
to the vast masses. Manufacturing will have an interesting fall-out:
it imposes a certain disciplined way of working which this society
lacks but badly needs. A vibrant manufacturing sector will remain a
dream unless we are able to create the necessary workforce through
appropriate training, which means a huge educational effort. The
government does not even seem to be thinking along these lines and
prefers to daydream and make quick fixes like merely making the
markets happy.
An excellent article..I agree with all the views presented here. And
just want to add 1, that for all this we need a strong leader who
does'nt act like a puppet and take some serious austere measures to
curb all the problems but the root cause corruption first. We are fed up of daily new scams, poverty, unemployment, corruption, etc. etc. We need change.
Distinctly analytical and informative. Suggestions worthy and
possible of enforcement given the determination of the Government,
if real, to improve the lot of the Aam Admi. A slogan nearly four
decades old, never seriously attempted. OK, Let us pray that Good
tidings are in the offing, soon rather than later. The limit of
Rs.5000/- for all cash transactions appears to be too low, in the
context of the present escalation of cost of living. The Bank
Branches should be opened in many rural areas. Will the much sought
after Private banksdo this? I am afraid not.
Dear sir, Never has a truer word been written on the Indian economy.The writer knows the soul of India.The recent discoveries at Kodumanal prooves his points.I salute him and the Hindu for its bold approach.Ganeshh
Government should seriously work on the various shortcomings which are
so rightly highlighted by the author. The reforms need to be
implemented soon as India is loosing its image of fastest growing
economy. Speculations, that past Indian growth was not substantial as
it was not planned and resulted only due to some huge investment from
some handful corporates. Corruption is a key factor in the downfall of
Indian economy. Stringent steps like strong lokpal bill and reforms
such as restricted cash transaction as suggested by author need to be
implemented soon. Bureaucracy should be removed of some so called
democratic powers which actually are the source of leakages. Major
national projects should be scrutinise by dedicated agencies at each
and every step & the process should be transparent. To encourage
manufacturing sector, hindrances such as infrastructure & licensing
policies should be improved. If these steps are avoided now, then it
will be hard for India to recover.
High infrastructure spending entails high expenditure. Where is the
government to get this money up from? We need foreign capital to do
a lot of things for us. It props up the Rupee, it filters down into
the economy, it improves our forex position, reduces governmental debt
costs...I could go on. Ultimately it improves our fiscal position.
Next point; it is criminal, absolutely criminal how a combination of
waste and greedy middlemen have made food so expensive in our country.
Foreign capital will bring in investment in cold storage and
transportation, logistics IT etc and reduce food costs, whilst cutting
out the middlemen. It will ensure a fairer deal for farmers too.
Finally; its all about jobs. If every penny of foreign investment
profit is taken out of the country that is still worth it, because of
the capital investment that foreign retailers will make and the
salaries they pay will end up here. And trickle down into the economy.
Expect better from an Economics professor.
Truly pointed out by the auther that we do need reforms but of right type. Reforms should address the ground reality of our antion and requirement, it should not be fodder for greedy people. Also we need to understand that unless our manufacture sector grow we can not hope for sustainable growth. Over all you must give a conducive environment so that right kind of people will also wish to invest.
Well said, sir. Apart from the rather unrealistic suggestion of all transactions above 5,000 being non-cash, I agree with everything that the author has highlighted, especially the need to invest in infrastructure and the effects of corruption and lack of good governance on a failure to do this. Infrastructure -> Manufacturing -> Jobs -> Consumer Demand & Tax Income -> Growth -> Investment -> Infrastructure ... positive cycle. Currently we're in the reverse of this positive cycle.
One of the best articles from Hindu and obviously all credit goes to Siddharthan. It’s hard denying that fact that inspite of being overwhelmed with everything which are must for a nation to always move forward, we are forced to confine ourselves towards patching the grave which we have dug. We here basically means the politician. Now basic theory to hold such strategic position is to acquire wealth by hook or crook. These politicians are playing with resources of our nation and these resources include us also. These people create grave for entire nation and they enjoy a very fruitful life even found guilty they are rest assured the case will not end by the time their life tenure ends. Now there is corruption in every place. I am not opposing Anna’s movement but many people are have joined that movement only because they don’t hold a share of money which the very big corruption, which they are opposing openly. The destiny of India was doomed from beginning it was just that an elephant
Excellent article sir!Its high time now that, there should be major reforms with respect to three key area Manufacturing, Power and Infrastructure or you can say three pillars of indian economy. But given the pace how our goverment works it would take another 10 or 20 or may be 50 years to implement these reforms.But as an immediate step FDI is not at all a bad option.Atleast we would be moving in some direction rather than standing still and doing nothing!
This is a well-written and unbiased article with a wealth of insight
and information. Thanks to The Hindu and the author for the article.
Brilliant article.
If growth is based on services such as insurance and retail it will make India bankrupt like the USA and its vassal states of Europe
Excellent article . I hope if our politicians read , at least they can appreciate the depth to which the author has percolated. "Drastic situations need drastic remedies" is what we should look at. Having so many problems internally and promoting FDI is not a good idea. India is rich in resource. We have enough to sustain as one of the major economies. Unless we take some brave decisions, reforms are not possible. Even sincere offices are not able to perform this duty because of corrupt businessmen, politicians etc., Either they are transformed or threatened, in some cases even killed. Transparency is of very much essence in this context to stop corruption.
A very good analysis on present economic situation of india. Author has rightly anlysed our manufacturing process...presently even very common industrial instrument are not being manufactured in india...its only serves as a assembly platform for another country. Govt should encourage the entrepreneurship in india and giving the corruption free environment.
The learned article points out the key areas needing attention. But one are is missing - labour reforms. Many of the consumer products available in India are imported, made in South Eastern countries. This is because of the archaic labour laws in India which does not allow labour flexibility. The left parties and labour unions stall any measures to reform labour laws. Unless this problem is also corrected, the benefit of the other reforms cannot be fully exploited.
Our country is sufferring from policy crisis.Some of our ministers are busy in doing scams while others are busy in chasing the for presidential chair.Nobody in our government has time to frame strong economic policies.As the days are passing, situation is becoming more worse.Our governemnt is blindly following the west by implementing "austerity'.Will that change anything drasticallly.The bell has been already rung for India. It's now a wake up call from the west and other rating agenies like standard and poor.Our leaders needs to take stern action lest our country will be in economic dearth.
A very good analysis,full with understanding power. views about transaction process
and corruption really good work. article is also simple and easily understandable.
Very correctly the problem has been highlighted in this Article. This has been my concern regarding the Indian economony since long that India can't ride smoothly over the boom in service industry and it have to have a strong manfacturing industry as it can been seen on the other side of the border that chinese ecomony is growing taller and taller like its Wall because of its formidable manufacturing industry. Its really pathetic even if we can't learn the lesson from our neighbour.
Really a very good article on reviving the economy.Its very much true that our economy is getting dependent on FDI and FIIs , and ignoring our self sustained growth.We only look for the options to get more money in our country by liberalising our economy but have forgotten that only making policy and laws to liberalize the economy will not work untill we have good governance to implement the things at ground level.Secondly we are being depending on the Service sector for our growth and ignoring the manufacturing and agriculture sector which needs a good infrastucture but we are not spending much on infrastructure,and out of this only fraction part is reached to the infrastructure projects due to the leakages.
FDI in retail may help to bring in some dollars initially but in the
long term, it will kill the domestic industry. We should not allow
wal-martization of Indian economy. As Mr. Siddharthan said, reviving the
manufacturing sector is the only way to revive the economy.
I believe that anything is possible if there is a will; especially at the top . If our leaders at the helm decide to weed it out completely , they can do it. However, in the current scenario it is quite evident that this government is there to protect the corrupts. Such maniacal , clumsy and shady approach has further added to the woes of the industries and the common man. My projection is that things are not going to improve till next general elections(i am not sure about what will happen after that). And i am not a cynic ; i am a pragmatist
I agree to the author in some ways, that we need a growing
manufacturing sector for sustainable grwoth. But let me redefine
Growing , and I would say we need an innovative manufacturing sector
that can lead the world not just merely following the world, and secondly the major crisis for big countries like India and China will be energy and we need to start investing right now for our future energy needs. When i say investment it also would mean research and development to use alternative energy sources including solar or Wind power and also in additional strategic capabilities including ways of storing power from individual grids making these option viable. We need to find solutions for our problems and we need to think out of the box. And may be we need government to invest on these issues rather than bailing out Air India.
The author has clearly explained whats causing us to behind the growth in the manufacturing sector. Hope the article should read by some of our leaders and there will be a change in the investment policies. Root cause for the growth in any sector is "corrpution", we should get such a policy where people has to fear to take the bribe and ofcourse as author mentioned every thing should be in the form of DD/Cheques so where we can see the flow of money. Hats off to the idea as there wont be no chance of having a black money.
A very good article by Hindu.
The author has hit the nail on the head when he talks about the
neglect of the manufacturing sector. This is glaringly obvious even to
a layman travelling through any major city. The better off regions,
with wide well-lit roads and relatively smooth traffic is to be found
in areas dominated by the service sector while the parts of the city
which have huge trucks frequently plying through to reach the
factories that drive the city's growth have to make do with pot-holed,
singled-lane roads. It would do well for the government to concentrate
on equitable investment in infrastructure and push for more inclusive
growth
Excellent Points raised by author. This article is very relevant to our nation's problems. The solution lies in proper governance, transparency as well as rule of law and better infrastructure. But is the Congress government listening?
Indian economists and policy makers have to give up looking for quick fix solutions for accelerating the growth of the Indian economy. As suggested by Dr. Amartya Sen , a higher GDP is meaningless unless the benefits flow to the lowest strata of society.
India has to evolve a sustainable model of economic development based on its local conditions. India has a large youthful work-force which needs to be gainfully employed. If these youth are given vocational training, they could be a major factor in taking India on a higher growth path.
Tourism could be another sector which could be a major source of foreign exchange and employment if we can provide the necessary infrastructure to attract foreign tourists in a large number.
Dis-investment by the Government in PSUs and nationalised banks could generate resources for government. These resources could be channelized into infrastructure, education and health activities.
The Government should seriously consider reducing the size of the gove
One of the best,enlightening articles which has enriched the depth of
understanding about the current economic situation.
One observation is that all these measures are essential in the long run
and FDI in retail is the best short term alternative in the prevailing
scenario to revive the economy.
What we require is establishment of proper storage facility for perishable items- not big size malls.As I see in Delhi,the malls are products of black money from the deals by unscrupulous people from contracts from governments.These are only stop gap arrangements by such people in collaboration with builders towards hotel and entertainment business.See malls like Pacific,EDM etc,all malls are made in such a way that conversion to such utilities will not take much money.Also these encourage encashment of various coupons like Sodexho for purposes other than these are meant for!
well written. laudatory. SONIYA JI, PM ,MR MONTEK,CAN U READ THIS.
Very comprehensive and enlightening Op-Ed. The author has rightly
pointed out the various steps that need to be taken in order to
have a sustained growth. Merely investing in services sector won't
take the nation anywhere in the global market. I completely agree
with the constraints highlighted and the reforms needed. It would
be better if someone from the government reads this Op-Ed and think
about it.
This is an eye open article for the Government which has brought the
vibrant and growing economy to a downgrading phase.The agricultural
growth became stagnant ,which supports the livelihood of more than 60
percent of population,needs serious analysis.Hope the environment of
uncertainty in Governance will soon be evaporated.
An excellent read and a great guideline as to how to revive
governance. The UPA government has clearly lost control of the
situation and are quite busy trying to save their party from an
inevitable slide, at the expense of national interest. Clearly, steps
need to be taken quickly. Might sound as a silly suggestion, but if
the entire governance could be handled through computers, where
software can keep track of pending decisions and malpractice.
Bottlenecks in decisions making and corruption could be easily
identified and accounted for. The current way of governance is
obviously not giving the desired result and hence calls for a change
in the structure of working. Else right now, the only option for us is
to HOPE for good politicians !!
What an important article in the present context where we have seen vested interest taking advantage of the policy parlysis trying to push for policy changes that would only benifit a few on top. This scenario looks frighteningly similar to Europe where all the right wing interest have come together to slash welfare budgets and calling for austerity when it is common sense to see that it will be a disaster. These self-declared prophets of free market should show us how bringing FDI into insurance is going to help the economy? We will have more companies who will try to push up the cost of medical insurance like in the US and impoverish common man. Every crisis is an oppurtunity for vested interest to push their neo-liberal agenda claiming without basis that it will help indian economy.
The corruption prevailing in India is well-documented and well-articulated by the learned author. In fact corruption in its various formulations as obtaining in India is nothing less than economic terrorism. Added to this the neglect of core-sector Industry as rightly pointed out by the professor is apt to ruin the economy in not too distant future. The criminal indifference that is being shown by the helmsmen towards the issues of jobs and poverty alleviation through creative means is nothing but structural or systemic violation of human rights. Some kind of Indian spring is therefore long overdue.
Brilliant piece of analysis. I am particularly impressed by his idea of lowering down cash transactions. Good work.
Cautionary voices such as this have to be heard seriously. It is not
that every foreign aid helps us. A serious study of foreign aid and
developmet in several countries over a period of three decades
covering as many as lakhs of projects has brought out the
classification of foreign aid into categories such as *good, *bad and
*neutral and that recipient countries too have begun to be choosy of
accepting such aid and projects as would help their country and people
for a better way of life. It is sickening to find western nations
overharping on their demands for opening up our retail trade. That may
perhaps elevate their business prospects with Walmarts and others
doing brisk busienss but such projects are not in our interests, at
any rate we are not yet convinced about it. You will be shocked to
know that while Dow and its predecessor Union Carbide poisoned out
the Bhopal people to death, our government and its ministers even
after 27 years gifted to the very same Dow another gift!
Service sectors in India today accounts for more than 50% of GDP. The service sector's main constituents viz. transports, real estate, telecom hardware, personal services, hotels & restaurants etc. are the products of manufacturing sectors. So if the manufacturing sector boosts up the up-rise is translated into betterment of service sectors. The very fact that services sector's contribution in our economy is robust brings us closer to a developing economy. Manufacturing, the secondary sector, creates raw materials for service, the tertiary sector. But the lack of political will and infrastructure have hit all the sectors hard. Talking of corruption and policy paralysis now seem hoary and cliched. I just pray may the govt. get their acts together and fix any leakage that has been draining out our growth story. Minding every one that economic activities are circular and at this time we are in vicious circle we've to forge into virtuous circle.
Very well said and I fully endorse the argument that the country depending on FDI on retails etc will not provide long term economic cure. Back bone of the country need strengthened by encouraging the core manufacturing sector with the attendant improvement in infrastructure. Country is paying a dear price for the distorted policy of promoting service sector at the expense of manufacturing. Unidirectional service sector growth has introduced a great imbalance. Few engineers coming out of the colleges have the inclination to learn hands on in factory shop floor. Most wants to be "software professionals" work in air conditioned white collar comforts with occasional trip overseas. Concentrated in urban centers the service sectors have wrecked the balance of economy and worse still with no creative intelligent original work done. Few getting astounding salary packages at the cost huge mass of poverty stricken mass and dirt poor existing cheek by jowl with ultra-rich does not bode well.
"discourage cash transactions and cash holdings"... This is an Encouraging Thought. Government Should really bring in reforms like these.
Abolishing cash transactions means complete lack of privacy for citizens. All your transactions will be exposed to banks and govt. This will give absolute powers to govt to tax tall of us into oblivion. The country is already over taxed and under served.
Good article but silent on Agriculture supply constraints and reforms needed for good governance.Its a mere criticism of government programmes without solution.
I respect the view point of the writer as he has very aptly analyses the factors responsible for slow growth of Indian Economy. Manufacturing contributes about 17% to Indian GDP whereas in China its contribution is more than 35%. China has registered more sustainable growth and attracted higher FDI inflow than India due to its investor friendly policy for manufacturing.Though licensing in bulk of industries other than explosive,drug, tobacco has been abolished long since to promote industrial growth but regulatory hurdles, bureaucratism and redtapeism discourage the Indian industrialist.
So much of importance to 10% India and zero coverage on 90% of this land!
A very interesting article - I disagree on just one point though.
First the good: very aptly put, there cannot be economic growth without industrial growth. The government has to boost industrial growth by shrugging off its 'license raj' and 'Nehruvian political' mentality. The government must be a facilitator (and enforcer of rules), ensure a level playing field, and has to be invisible otherwise.
The bad: Letting in FDI in retail and insurance is not as bad really. Is it? Is it OK if Reliance, Star Bazaar, and the likes (Indian companies) crush small traders? Why is it not OK if Walmart does it?
In short, protectionism of any kind is unnatural and is bound to fail. In biology, it is paraphrased as "survival of the fittest".
Not just in manufacturing, but FDI should be encouraged in every sector - including education.
sir, it is really an excellent article which is crystal clear and forthright.Nothing else the Indian government has to do to bring our economy to the topmost level than to simply respond to what is truly accentuated in this article. .All our planning and thinking should be to improve our infra structure,electricity,health,education and make all financial transactions through papers , minimizing the currency holdings, to the level suggested in this article.Even all our foreign investments should be allied to our manufacturing sectors, while manufacturing should be focused towards our raw products, which we can produce on large scale ,oriented to our natural resources,,climate,and manpower.containing inflation is vital for any economy to thrive,and encouraging local savings is much more important for the onward marching of economy.. Will the politicians, and the bureaucracy will have the will-power and conscience to implement all said and reflected in this GOLDEN ARTICLE?
Excellent path breaking article with hitherto un-discussed ideas. I think the author is spot on regarding the unusually high discretionary power of Indian beaurocrats along with the vague laws. I work for a government department in a western country and I can clearly see the difference. Here laws are always clear-cut and clearly spelt out all likely scenarios and action need to be taken in all scenarios (even unlikely scenarios) So when a beaurocrat it faced with a file he can simply refer the rule book and take a decision. He/she doesn’t have the chance to use 'discretionary powers'. And laws/rules are always updated year to year basis. Indian goverment offices are designed during early British era and still follow the same customs/rules. We must go through a massive modernisation (not just physical infrastructure) and redisgn the way our government offices work.
Excellent article. Its just takes a signature to increase FDI from 25% to 49% and claim it as government success. Indian media is so intelligently biased to spread the propaganda that 9% growth is all we need.
India toady needs......................
1.efefctive justice delivery system,
2.Good education,
3.medical system to address common day to day medical needs
4.good drinking water.
All the above four gives every one a fair chance to fulfil his/her full potential.It takes a real political will to provide them. Hope our good karma comes along and provide a good leader to who can provide age old indian way fwd.
Ravi
A very good analysis. Hope the Government and Political leaders see the
writing on the wall and act in the interest of the nation and common
man.
I hope the author is supportive of Govt's measures to increase
electricity generation. Nuclear power; lets not forget Fukushima. Hydro
electric ; let's not kill our rivers. Thermal power is anyway costly and
polluting. We need all the benefits, but never ready to bear the costs.
good article and It makes the obvious point that infrastructure is the key to development and not just reliance on FDI and signing of MoU,s.But work in these areas requires very hard work and relying more on internal expertise as in the years after Independence when people from top to bottom worked to build the steel mills, heavy equipment units railway factories, BHEL and the Atomic energy establishment. As pointed out Electric power holds the key. while transmission is in good shape both distribution and generation requires immediate and sustained attention. Can distribution be handled like the PGCIL?
Of all the articles I have read, the author has clearly portrayed the crux of the
problem. I'm now a PhD student. When I was in India as Software Engineer (CTS &
TCS), I was worried about the economic scenario where manufacturing is not paid
attention to, which was one of my reasons to seek other pastures. However, I was
rebuffed and ridiculed by my colleagues with their hopes that like petrol for Arab
countries the services sector could be a boon to India. After 5 Yrs, my calculations
have come true. Another point made by the author is note worthy - to monitor and
control cash transactions. In one of my earlier comments to one of the articles I had
suggested a stoppage to cash and to make all transactions through bank, which is
traceable and easily accountable...
As the author has said, drastic situations require drastic measures - But does the
will ?!
A very good, timely and helpful analysis. But will the government wake up? I am afraid not. It is more interested in protecting individuals who loot people and pay the parties, let the devil take care of the economy. An effective tool would be to scrap the Official Secrets Act, but then how can the COPs who run the economy benefit? (Contractors, Officials and Politicians). The most urgent need is manufacture, transport and power, driven by absolute transparency. But sadly the government has not even thought about them. It thinks making subsidies and making quotas will lift up the economy! Is there no worthwhile economist in the government to stand up for a total change in its working in the interests of the country?
This is probably one of the best opeds I have found in recent times. Global investors rank India as the most difficult business environment possessing cuntries among the bigger economies. Same is true for trade wherein a lot of imports and exports are not realised for the no-tariff bureaucratic barriers. One things that also can boost the manufacturing sector is labour reforms along with good governance. Moreover there would be no political debates on implementation of these reforms like cutting black money by making all transactions bank rooted and thus accountable. The problem is that such legislations would not be proposed in the cabinet at all.
When we talk about industrial growth, we wrongly talk about only investment. An industry produces goods and services and therefore there has to be continuously increasing purchasing power in the country and demand for these abroad for the industrial sector to grow. Has anyone heard or read any discussion on anything other than investment and connected credit policies in regard to the industrial sector? We talk a lot about GDP growth. But do we ever bother to find out whether the job and income growth trends are commensurate with GDP growth? We falsely believe that more big and fancy retail outlets, cheap bank loans and credit cards will continuously increase demand. May our false beliefs save us!
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