Billionaires versus the Rest: India’s Skewed Market and Wealth Concentration

Photo Source: Business Today

Widening income inequality between the rich and poor in India is an alarming concern of the policy makers. The report of the United Nations Economic and Social Commission for Asia and Pacific (UN - ESCAP) currently has shown that the crude estimation of income inequality - the Gini coefficient has increased in India’s post liberalised phase from 30.8 in 1990s to 33.9 in 2000s. [i] 

Several other studies also reflect similar findings of high income inequality in India, which has gone high in post economic liberalisation phase in 1990s. The idea of liberalisation was to initiate the role of market by ending India’s License Raj system, which can help India to become a competent player in global and open market system. Open market economy then brought a startling growth of about 8% percent for almost a decade in India. Such growth has brought in many changes in the country including successful creation of super-rich club of billionaires. The findings of Gandhi and Walton show that in mid-1990s, India began with two billionaires, worth a combined total of $3.2 billion, and by 2012 there were 46 billionaires with total net worth of $176.3 billion.[ii] The latest newspaper report says that the number of billionaires in India has nearly doubled in 2014 to 109 from 59 in 2013, with total net worth of $ 422 billion. The top 10 of them have wealth worth $ 138.04 billion. Mukesh Ambani is the richest person in India with wealth worth $ 26.89 billion. His wealth has increased by about 37% from last year. Gautam Adani, the 10^th richest person in the raw, whose wealth has increased by about 152% from last year and worth $ 7.17 billion. The average age of Indian billionaire is 62, where six of them are below 40 years.[iii] The ratio of total billionaire wealth to gross domestic product (GDP) has grown from mere 1% in mid-1990s to 6.6% in 2006 to 9.9% in 2012.[iv] In 2014, the ratio between the billionaire wealth and the GDP has triggered up to 22%. Only the top ten billionaires share about 8.09% of India’s GDP. It is also interesting to see the regional concentration of these billionaires within India. Mumbai, the financial capital of the country shares 70 of them followed by Delhi, the administrative capital of India sharing 37, and Bangalore, the IT capital of India sharing 23 of them. It is primarily therefore a metropolitan club of billionaires in India monopolising the asset holding and economic power, which bound have a sharp reflection on inequality with rest of India. The NRIs from two nations UK and UAE have maximum contribution in this club with L. K. Mittal being the richest person from UK with wealth worth Rs 97 K crores.

On the brighter side, such statistics verify the fact that India’s economy has become much vibrant in the liberalisation phase. The rise of such rich class as argued by Gandhi and Walton is both due to business dynamism and business oligarchy. Business dynamism through an active role of corporate sector is significant in India’s economic success story. Thus IT, software industry, biotech, pharmaceuticals, finance and banking, manufacturing have contributed fairly in Indian economy. But India still has a high oligarchic and undemocratic economic and business structure which results such heavy concentration of wealth. Thus ‘rent-thick’ sectors like real estate, infrastructure, construction, mining, telecom etc., still continue to be dominated by India’s traditional merchant classes, Khatris and upper caste communities.[v] ‘Rent-thick’ sectors are those where returns often flow from monopolistic economic power by holding scarce resources and deriving maximum profit. According to Crabtree, about half of India’s billionaires acquired their wealth in such ‘rent-thick’ sectors.[vi]

It is alarming to see that only about few dozens of billionaires (109) in the land of magnanimous 1.25 billion population shares 22% of GDP, and economic rules of the game are still rigged in favour of those handful elites. Such concentration of wealth has been possible due to the functioning of an undemocratic and non-competitive market even in the economic liberalisation phase, which has not worked in favour of vulnerable and poorest section of the society. Fair competition therefore can be a panacea, which refers to a market situation in which each entrepreneur can have an independent bargaining power to achieve the business objectives. Competition according to a Government of India report bound to stimulate innovation and productivity, having optimum allocation of resources in the economy. It guarantees protection of consumer interests, reduces costs and improves quality. This can accelerate growth and development by preserving economic and political democracy.[vii] In practice Indian markets are highly discretionary and weak regulatory environment according to an Oxfam report has set the tune for anti-competitive business practices, and fails miserably to be inclusive in nature. Therefore to create a fair competition, equal opportunity has to be the central tenet, which alone can bring inclusive modern societies, and a socialist structure of the market.[viii] Fair competition can break India’s business oligarchy and economic enclavity, which in turn can provide space for other players to grow. Thus, there arises the need to have a proper regulatory environment which can ensure a healthy competition in the economy so that all business enterprises can grow, expand and stimulate economic development of a country. Competition policy under Competition Act 2002 of India is one such step which attempts to prohibit anti-competition agreements through Competition Commission of India. Well functioning of such policy can ensure competitive outcomes and can prevent concentration of wealth and economic power.

 Rakhee Bhattacharya

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Notes

 

[i]‘Poor-rich gap growing in India, Asia Pacific:UN-ESCAP, at

http://www.asianage.com/business/poor-and-rich-gap-growing-india-says-report-200

[ii] Aditi Gandhi and Michael Walton, ‘Where Do India’s Billionaires Get their Wealth?’, EPW, Vol XLVII, No 40, 2012

[iii]  Piyush Pandey, ‘Adani breaks into top 1- rich club as wealth jumps 152%’, TheTimes of India, September 17, 2014, New Delhi

[iv] Aditi Gandhi and Michael Walton, ‘Where Do India’s Billionaires Get their Wealth?’, EPW, Vol XLVII, No 40, 2012

[v] ibid

[vi] J. Crabtree, ‘India’s Billionaires Club’, Financial Times, 16 November, 2012

[vii] ‘Competition Protection’, Report by Government of India

  at, http://business.gov.in/growing_business/competition_pro.php

[viii] Working for the Few: Political Capture and Economic Inequality’,  178 Oxfam Briefing paper, January 20, 2014

Financial Sector in India

Financial sector plays a vital role in any economy particularly emerging economies like India which

Photo source: IMARTICUS

needs to harness its full potential. Indian financial sector is in early stage of evolving on an inclusive financial system keeping in view of the aspirations of the billion plus people in the country. Banking sector is an indispensable organ of the financial sector for servicing various intermediations. The efficient intermediation of financial system among people enables to achieve higher economic and social development.

Since the economic reforms process which began in 1991, the nature of financial intermediation has undergone several transformation with other intermediaries such as the Non-Banking Financial Companies (NBFCs), insurance, pension funds and mutual funds emerging as the new mechanisms for channelizing savings to investments in the country. Besides, there are other forms of financial intermediation which emerged during in the process of systemic reforms including equity and debt markets, financial products like forwards, futures and other derivatives instruments which have the capacity of reallocating capital to more efficient use in the economy.

Over the years in the process, Indian financial system has also become more integrated with the global economy as well as global financial systems. Keeping this in view, India’s growing integration of financial services in terms of vertical as well as horizontal linkages both in domestic and globally need to be backed up with effective regulatory mechanism which keeps track and addresses the vulnerabilities of external and internal in nature. One of the major modes of financial transactions is banking as financial intermediaries that collect deposits from savers and lend them to investors and others. The deposits of banks form the basis of their lending operations. Banks also use the deposits for advancing credit or for making investment in government and other securities.

The prospect’s of growth of an economy depends on the foundation of the financial sector’s soundness and resilience. One of the core indicators of the financial soundness is the status and magnitude of the non-performing assets (NPAs) in the banking system. The NPA is also an important indicator for assessment of an economy’s financial prudence and creditability for future investments.

According to the latest Economic Survey 2013-2014:

·        Overall NPAs of the banking sector increased to 3.90% of total credit advanced in March 2014 (provisional) from 2.36% of total credit advanced in March 2011. While there has been an across-the-board increase in NPAs, the increase has been particularly sharp for the infrastructure sector, with NPAs as a percentage of credit advanced increased to 8.22% as in March 2014 (provisional) from 3.23% in March 2011. Because of the slowdown and high levels of leverage, some industry and infrastructure sectors, namely textiles, chemicals, iron and steel, food processing, construction, and telecommunication are experiencing a rise in NPAs.

·        Further, during 2012-13, the deteriorating asset quality of the banking sector emerged as a major concern, with gross NPAs of banks registering a sharp increase. The gross NPAs to gross advances ratio shot up to 3.6% in 2012-13 from 3.1% during the corresponding period of the previous year. The deterioration in asset quality was most perceptible for the State Bank of India (SBI) Group with its NPA ratio reaching a high of 5% at end March 2013. With their gross non-performing assets (GNPA) ratio reaching about 3.6% by end March 2013, the nationalized banks were positioned next to the SBI group.

·        The Gross NPAs (GNPAs) of public-sector banks (PSBs) have shown a rising trend, increasing by almost four times from March 2010 (Rs.59,972 crore) to March 2014 (Rs.2,04,249 crore) (provisional). As a percentage of credit advanced, NPAs were at 4.4% in March 2014 (provisional) compared to 2.09% in 2008-09.

However, it is striking to note that the former Deputy Governor of RBI, Shri  K.C.Chakrabarty, who had pointed out that “Economic slowdown and global meltdown are not the primary reason for creation of stressed assets but the state of credit and recovery administration in the system involving banks, borrowers, policy makers, regulators and legal system have contributed significantly to the present state of affairs”.

The rising of NPAs across different segments of banking system is not at all welcome trends and thus requires adequate continuous assessment and monitoring system has to be put in place to keep the financial system vibrantly free from adverse risks. Therefore, the need of the hour is to reform the existing regulatory machinery including Corporate Debt Restructuring (CDR) mechanism, Debt Recovery Tribunals (DRTs) & other legal provisions, Asset Reconstruction Companies (ARCs) and Credit Information Companies (CICs).

B.Chandrasekaran

Why India Needs an Alternative Development Policy Frame?

Beyond GDP

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As Indian economic policy experiments have passed through the phases of Nationalisation to liberalisation to inclusion across the timeline of more than sixty years since independence, the citizens of the country have shared the fruits and have bore the brunt in various ways. India has made enormous economic progress with conventional indicator like Gross Domestic Product (GDP), but has failed to improve the quality of life en mass. Such progress has created enclaves of opportunities but neglected the masses. Inequality and its complex proliferation is the foremost challenge in India now, which constantly provokes the idea of an alternative development instrument.

 GDP the most widely followed metric assesses the performance of an economy, simply by measuring the market value of all final goods and services produced within a country in a given period. It takes into account the growth of commercial and economic activities but cannot capture the pertinent issues of assessing overall well-being of a country. Attempts are therefore increasingly being made across the world to look beyond GDP for an alternative measure to assess the well-being of a nation through a multi-dimensional approach like creating access to resources; reducing hunger, poverty and inequality, and imbibing distributive justice. These can change the lives of millions by ensuring opportunities, economic freedom and social harmony.

 Alternative Approaches

Reducing inequalities and subsequent conflicts amongst people is one of the major challenges in the world today. Way back in 1972, the small Asian nation, Bhutan had introduced Gross National Happiness (GNH), an alternative to GDP with four pillars of good governance, sustainable socio-economic development, cultural preservation and environmental conservation. In 1990, another alternative to GDP that is Human Development Index (HDI) was pioneered by two Asian thinkers Mahbu bul Haq and Amartya Sen, which incorporates health and education along with income. In the year 2008, when French president Nicholas Sarzoky looked for next alternative to GDP, a revolutionary report was brought out with emphasis on social progress.The report emphasizes on quality of life and sustainability along with classical GDP. In the following year in 2009 another study made by a group of scholars from World Bank on ‘Measuring Inequality of Opportunity in Latin America and Caribbean’, emphasises Human Opportunity Index to measure inequality in opportunities in basic services. The idea was inspired by the social welfare function proposed by Sen in 1976 and holds that in development process, society needs an equitable supply of basic opportunities and people need access to these opportunities, with a target of universalism. Sen’s powerful idea of Capability Approach in 1980s also has widened the scope of development theory with emphasis on quality of life and removing the obstacles to achieve more freedom to choose.

 

To evolve development policies with such ideas of progressive economy with centrality on human wellbeing, a country needs fair political democracy, which was realized by the visionaries of newly born India and was reflected in the constitution of India in 1950 emphasising the three core values of justice, freedom and equality for citizens in India. Democracy, which is synonymous with individual sovereignty and equality, has a causal relationship with progressive economic development. It is being empirically tested that democratic institutes have net positive effect on progressive economic development, the later is perceived as a process of transition for a better living taking place along a continuum of ever-changing ideas and ethos in the life of a nation or society.But in many practicing democracy like India, economic elites mostly manage to retain disproportionate influence, and preserve the profit-seeking anti-poor biases and distort the idea of democracy. This denies social justice, tends to deprive many and excludes the voices of the marginalized. This is primarily because the practicing development policiesis mostly a conventional post war western idea and premised on rational individual, capital formation and inequality. Such economic development which necessarily influences political discourse tends to create chaos and denies egalitarian frame, and thus democracy tends to function non-optimally. To attend a causal relationship between economic development and democracy, the existing development model needs a revisit incorporating voice, representation and rights.

Way Forward

With the recent change in political regime in 16^thLokSabha election, India is expected to see some major policy shifts towards stronger market-oriented and liberal frame to push GDP growth rates. This may boost the economy, making the rich richer, but also has probability of increasing marginalization of small voiceless communities. The erstwhile govt. has made tremendous attempt to protect many such communities through path-breaking right based policies, as rights are the channels of resistance. To ensure long term sustainable development, such emphasis on policies with an institutional frame is crucial, which alone can bring social change in India. The policy instruments of new political representation needs to continue to evolve within such inclusive frame, which alone can ensure redistribution, enhance social justice and enable economic autonomy and well-being of every section of the society. Political democracy therefore needs to create space through debates and dialogues for alternative development policy initiatives, which can make ways for every individual to live with dignity and freedom, and can encounter divides and disparities in the society.

 

Rakhee Bhattacharya

 

 

Railways in Northeast India: Local Resistance to Policy Initiatives

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Northeast India’s connectivity to rest of the country and to its five neighbouring countries has remained a most challenging policy concern in post-colonial India. The scanty connectivity network has heavily constrained the inflow of India’s development outcomes in the region, has denied the entry of many modern institutions, and thus kept the region at the periphery of India’s modernity. Railway for example which was established in this far flung region by the colonial rulers solely for their own economic interest has hardly seen any further expansion in post-colonial period. For almost four decades after independence, the issues of internal conflicts and security have largely dominated Northeast policy frame. The reshaping of such policy domain catering to the needs of development started only in 1990s with India’s Look East Policy. Thus at policy level building and improving all kinds of connectivity became the most important agenda for establishing intra-state, inter-state and cross-border accessibilities. This policy initiative later found a concrete base in the year 2008, when India’s outgoing Prime Minister Dr. Manmohan Singh had visited the region and promised development with extensive infrastructure base. In the same year the historic vision document of North Eastern Region 2020 was formulated by incorporating the voices of mammoth 40,000 people of the region to bring a policy roadmap for region’s development. Connectivity was placed as foremost policy issue, and expansion of railway net was promised by the government to facilitate economic boost through the movement and mobility of people and product.

Three key railway projects were identified by UPA II as ‘critical’ for the region. Such projects also include the first rail connectivity in two most remote Northeastern states, Meghalaya and Arunachal Pradesh with new broad gauge lines in Dudhnoi-Mendipathar and Harmuti-Naharlagun. Both these projects were actually initiated long ago in 1990s with emergence of Look East Policy, but were heavily disrupted for various issues like law and order problems and more importantly for strong local resistance. Dudhnoi-Mendipathar and Harmati-Naharlagun, each 20-km lines in the Garo Hills of Meghalaya and in Arunachal Pradesh initiated with the costs of about Rs 180 crore and Rs 407 crores respectively, which were later revised.

Finally one such visionary project has been completed and with Harmati-Naharlagun rail line being open, far eastern landlocked Arunachal Pradesh is placed in the railway map of India. Such railway line at last makes Arunachal accessible to rest of India and opens up multiple avenues and opportunities for the state, primarily in terms of economic development. The people of Arunachal so far have been struggling to survive through various dangerous means and through both legal and illegal cross-border economic activities, as it was cut-off from rest of India. But before all such expectations are being met, the local youths of the state have resisted vehemently to stop this railway service. It is interesting that at macro level, people of Northeast deeply feel that connectivity is seential to make the region vibrant and self-reliant, and the voices of 40,000 people reflecting in the vision document endorse it firmly. But when such vision is translated into reality, the local xenophobia resurfaces with all forces and vehement protests by the youth population not to make such connectivity functional. The youths are apprehensive of large scale infiltration and influx from rest of India and illegal immigration from neighbouring nations. Thus they demand for proper implementation of Inner Line Pass. The same is the situation in Meghalaya. The issue of Inner Line Pass has also created internal conflicts and violence, and destabilized Meghalaya once again in the year 2013. Such reaction and resistance to such positive policy initiative show that the region is still stuck to the dual issues of identity and migration.

Does such inward looking mindset reiterate that people of Northeast are not yet ready for embracing the idea of development? Can issue of xenophobia any longer delay the solution for of human poverty, livelihood opportunities and economic growth in the region? Even if the region has to tap its unexplored potentials for indigenous growth of economy, the support of modern institutions are essential as economy cannot grow in isolation. Unless its regional economy becomes prosperous enough to provide opportunities to its youths, they would continue to migrate to rest of India and the irony of the situation continues. At regional level Northeasterns are intolerant against the outsiders and migrants, and at national level, many of the innocent Northeasterns become victims of violence and racism.

Connectivity and people-to-people contacts can bridge such cultural gaps, lack of understanding and intolerance. An open Northeast frontier through such policy ventures will allow to create space for interaction and tolerance and will be beneficial for all the stakeholders in the long run for peace and stability. In today’s global inter-connected world, no place can grow in pristine isolation, rather a cooperative and integrated development is need of the hour. Let North-East Frontier Railway and state governments have dialogues with local youths to find solution and make such huge investment on railway connectivity justifiable both economically and strategically.   

 
Rakhee Bhattacharya

 

Finance Gap Affecting Growth of Women-Owned Enterprises: IFC study

 

Financial inclusion is considered to be instrumental in empowering women as advancing credit to women, who own businesses, improves their economic stature and independence across the globe. In the Indian context, encouraging greater access to financial services becomes more relevant given the various degrees of socio-economic discrimination  women are subjected to in their daily lives. The following article discusses the findings of a report titled ‘Micro, Small, and Medium Enterprise Finance: Improving Access to Finance for Women-owned Businesses in India’ (Report) published on March 11, 2014 by the International Finance Corporation. The research report focuses on the opportunities, challenges, and way forward to improving access to finance for women-owned businesses in India.

In India, there are around 3.01 million women-owned businesses which account for about 10 percent of the total micro, small and medium enterprises (MSME). They collectively contribute around 3.09 percent of the total industrial output and employ over 8 million people.

As data reveals, 97.2 percent of women-owned businesses fall under the micro industries category. This concentration of industries indicates reduced growth capacities and opportunities these companies caused due to the huge gap in the demand and supply of financial services to the same.

According to the report, the financing gap for women-owned businesses amounts to Rs. 6.37 trillion in 2012. This accounts for 73 per cent of the total requirements by MSMEs in the country.

Currently, the various funding sources for women-owned business include formal, semi-formal and informal sources. Out of these available sources, women-run enterprises, much like the general trend in the MSME sector, largely depend on informal lending sources that constitute 92 per cent of the total share of funds provided in 2012. There are 3 million women entrepreneurs in India, but only 3 per cent have access to finance from formal financial institutions.

Barriers to financial inclusion of women

The major factors that impeded financial inclusion of women entrepreneurs are as follows:

Lack of adequate collateral: Due to persisting social restrictions around inheritance and land ownership, women in India do not have ownership of property or enough assets to use them as collateral for availing loans at low interests from formal funding sources. Even when women do own legal rights to properties, the male members either get them legally transferred to themselves or exercise control over them even without legal rights or title deeds.  Therefore, poor financial literacy amongst women and lack of agency of women in terms of title deeds restricts their capacity to ensure collateral for credit.

Lack of formal loans to women:   As the report mentioned above points out that approximately 90 percent of women-owned enterprises are in the informal sector and 78 percent of them belong to the services sector. Banks traditionally identify the informal and service sectors as high risk group as interest returns remain uncertain. This is mainly because of the following reasons:

a)      lack documents and papers essential for banking services, and

b)      increased number of smaller loans shoots up the cost for the banks to administer and provide equal financial services to all.

Absence of women employees in bank: Women employees, who are believed to act as mediators enabling more women to come up to banks to avail banking services, constitute less than 20 percent of the bank’s workforce.

Apart from the afore mentioned factors, lack of financial awareness, absence of support from the male members of the family and lack of confidence to approach financial institutions act as the major barriers.

Government Response

The MSME ministry launched the government’s only financing scheme for women entrepreneurs- Trade Related Entrepreneurship Assistance and Development (TREAD)-in 2008. This is the only targeted approach on the part of the government to provide finances focusing on the MSMEs. However, as against the target of Rs. 38 million only Rs. 7.7 million were disbursed as loan amount in 2012.

The central schemes like the Prime Minister’s Rozgar Yojana, the Swarna Jayanti Shahari Rozgar Yojana and the Swarna Jayanti Gram Swarozgar Yojana currently provide funds to MSMEs. But the net contribution of these schemes is a mere 7 per cent of the total share of funds supplied to women-owned MSMEs.

Lastly, by establishing more branches of Bharatiya Mahila Banks, the government aims at catering to the banking requirements of women and promote their economic empowerment.

Conclusion

Although microfinance plays a key role in encouraging individual women belonging to the low income group, who require loans to run tiny enterprises, its mono-product environment, singular delivery model, lack of flexibility, and shorter-tenure loans with limited amount of credit restrict their scope to low-income women or micro entrepreneurs rather than women-owned MSMEs.

Considering the gradual rise in the number of women entrepreneurs in India, there is an urgent need to encourage banks to step up formal funding of women entrepreneurs.

Pallavi Ghosh

Status of Reforms in APMC Act

Photo Source: The Indian Express

Over the years Indian economy has changed both in terms of its structure and outlook. The sectoral changes have become broader and continue to expand in terms of output generations. More than half of India’s population still relies on agriculture as its main source of income for their living. During the last decade, there has been a record production of foodgrains in the country.

In the so called reform era, the outlook of industry and services sector have been seen with considerable attention to re-structure or to move away from traditional way of governing them. At the same time, the agriculture sector is continued to be seen from outside of any attempt to initiate or unleash the potential structural reforms. More than a decade ago, Dr.Y.V.Reddy said that “There is some merit in the argument that the reform process has bypassed agriculture so far and that this is best illustrated by the co-existence of segmented and overregulated domestic markets with liberalised export–import regime in agricultural commodities.” This he said in 2001 and we are now in 2014. More than a decade has been bypassed yet again and this situation still continues.

The time has come now that some of the extremely crucial aspects of the agriculture sector have to be recognized and need to be addressed systemically. Dr. Reddy stressed that “the agenda for reforms virtually encompasses a thorough change in mindset and overhaul of legal and institutional mechanisms to enable a growing, healthy and efficient agriculture sector.” The issues and challenges faced by the Indian agriculture marketing are enormous and needs changes through institutional reforms. The domestic market regulations in agriculture is an important one such issue which merits for structural reforms. To be more specific, there is an urgency to re-boot the State’s institutional delivery mechanism for completing the reforms already initiated in the Model Agriculture Produce Marketing Committee (Development and Regulation) (APMC) Act, 2003. The APMC Act was designed to focus on protecting farmers from the vagaries of the market, mainly to ensure remunerative prices for the farmers.

The present agriculture marketing regulatory mechanism involves licensing and control on marketing, storage; creation of facilitating centres in the form of regulated markets; encouraging co-operative marketing; etc. The key issues are information asymmetry, lack of transparency in price discovery and collusive behaviour among distribution agents are common problems in our agricultural markets which have prevented competition to existing licensees. One of the main issues is that there is a large difference between the prices at retail level and those at wholesale level due to multiple intermediaries and high taxes ranging from 13% to 15.5% advalorem apart from other Market Charges which need to be rationalized.

In fact, there is a classic case, the delisting of some of the essential (perishable) commodities which are at present part of the APMC Act needs to be removed. The Act makes it mandatory for farmers to sell their produce only to licensed merchants at mandis set up by state agriculture marketing boards. According to a recent report by ICRIER on the food processing industry, about 15% to 25% of the total agriculture produce sold through the APMC route gets wasted due to multiple intermediaries and poor quality of mandi infrastructure.

In order to bring structural and institutional reforms in the agriculture sector the model Agricultural Produce Marketing (Development and Regulation) (APMC) Act was passed in the Parliament in 2003; the Act’s Rule has been implemented since 2007. The Model Act, inter-alia, provides for direct marketing, contract farming, establishment of markets in private and cooperative sectors, etc. Agriculture market reforms at the State level essentially provide farmers an alternative competitive marketing channel for transaction of their agricultural produce at remunerative prices.

Hence, all the State/UT governments have been urged to bring amendments/reforms in their own APMC Acts. The process of market reforms has been initiated by several states through either amendments or completely repealing the Act. So far, 16 States (Andhra Pradesh, Arunachal Pradesh, Assam, Goa, Gujarat, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Mizoram, Nagaland, Odisha, Rajasthan, Sikkim, Tripura and Uttarakhand) have amended their respective APMC Acts. Bihar has repealed its APMC Act in 2006. Other States have either done reforms partially (MP, Chhattisgarh, Haryana, Punjab & Delhi) or initiated administrative actions (UP, J&K, and WB. etc.). So far, 9 States have amended their APMC Rules in line with the Union government.

Seven Congress-ruled States have amended their respective APMC Act in line with the model Act of the Union government. On 27^th December, 2013, the Vice-President of Congress Party had discussed the possibility of bringing urgent reforms in the APMC Act with the 12 Congress-ruled States including Manipur, Mizoram, Assam, Karnataka, Andhra Pradesh, Haryana, Himachal Pradesh, Uttarakhand, Maharashtra, Arunachal Pradesh, Kerala and Mizoram. The specific reforms- it seems- they all agreed was delisting of fruits and vegetables from the APMC Act. By January 15, 2014, 5 Congress-ruled States (Uttarakhand, Assam, Arunachal Pradesh, Meghalaya and Haryana) have delisted the two items (fruits and vegetables) from the APMC Act. According to Vice-President the delisting will eliminate these licensed merchants or middlemen who raise the prices for profits.

According to ICRIER Professor Arpita Mukerjee, the “Delisting of fruit and vegetables from the APMC Act is a positive step as only 7 per cent of the total fruit and vegetables sold are through the mandis. Even though organised retailers could buy directly from the farmers, yet they had to pay the mandi charge. The delisting will benefit organised retailers as also food processing firms.”

However, even after all the initiatives being taken, there have been various issues which have been quite persistent in the history. It is only hoped that the issues get addressed in coming years.

B.Chandrasekaran and Shruti Issar

Wake-up Call for Indian Economy: Policy Initiatives in Manufacturing Sector

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The interim budget of 2014 has made a series of significant policy announcements for India’s manufacturing sector, which would act as wake-up calls for its existing sluggish economy. It would wave all export related taxes on manufacturing sector and has announced 8 National Investment and Manufacturing Zones (NIMZ) along with Delhi-Mumbai Corridor. Three more additional industrial corridors like Bangalore-Chennai, Bangalore-Mumbai and Kolkata-Amritsar will be taken up along with the clearance of 296 projects worth of Rs 6,60,000 crores. It has reduced exercise duties in automobile sector to give a boost in production. Such positive policy steps are certainly encouraging to revive India’s investment ambience, especially in its manufacturing sector, which has seen a mere 1 percent growth in 2012-13 (as against 9.2% in service sector) having cascading effects on jobs, income, export and overall economic security of the country.

Manufacturing sector was not in forefront during India’s economic policy reforms in 1991. Rather India’s immense growth of 9 percent was largely driven by its service sector (sharing 58% of GDP). IT and ITES popularly known as ‘sunshine sector’ has made enormous contribution to India’s GDP growth and its skilled human capital has received world-wise acclamation. It has truly transformed India’s economic image, helping to reshape its conventional, traditional economy into a market driven, competitive ‘knowledge economy’. This high-skill sector provides 25 lakhs jobs with multiplier effect on future generation and has created a Nouveau riche Class in India with very high purchasing power. But such economic boom has neglected and sometimes marginalized many more lakhs in semi-skill, low-skill and no-skill category, creating huge economic disparity and a scenario of ‘jobless growth’. It is being argued by many scholars that such a situation has emerged because India has almost skipped its second stage of development, which ought to happen through industrialization and manufacturing, and which alone could create mass employment to this large section of population and could check such unmanageable disparity in the economy. Country therefore with 61 percent of working population of 15-59 years, and with additional about 200 million to enter job market in next 15 years necessarily needs to create opportunities for employment and entrepreneurship, mostly for semi-skilled and less-skilled workers. Sheer neglect of manufacturing sector also has affected India’s merchandise trade balance, and China whose manufacturing shares 34 percent of its GDP could easily grab this space in the world market. India’s share of manufacturing sector in GDP was stagnated at around 16 percent for last two decades.

Such rising challenges have forced India to revisit its policy initiative for manufacturing sector. The government has been  stressing the needs to increase manufacturing output on a number of occasions and in 2004, UPA I has set up a National Manufacturing Competitiveness Council (NMCC) with the objective to suggest ways to increase manufacturing competitiveness and to improve its share in GDP. Finally in 2011, UPA II has managed to implement country’s much needed National Manufacturing Policy. The policy vigorously envisages 25 percent share in national GDP and creation of additional 100 million jobs by 2022. It was initiated with an idea of having a robust manufacturing sector that can help to create jobs in mass scale and be one of strong pillars for economic growth in a sustainable way. The existing manufacturing capacity in India is not optimum and is heavily dependent on Micro Small and Medium Enterprises (MSME) which employs over 100 million people in around 4 million units across the country and contributes 45 percent to the total manufacturing output with 40 percent of country’s export. The current interim budget 2014 has notified Public Procurement Policy to establish technology and common facility centers and to launch Khadi-Mark, which is again a policy step to promote further the MSME in India.    

For expanding manufacturing sector per se, India needs to increase its supply chain through diversification, infrastructure management, flexible labour law, transparency in land acquisition and collaborations at various levels extending to multinationals. It is being argued that there exists ample scope for the manufacturing sector to return to high growth trajectory. The sharp depreciation of currency coupled with pick-up in growth revival of global economies in recent months has beckoned optimism to Indian manufacturing exporters. Thus sector like textile, petrochemicals can find more space now. But most importantly the roadmap for manufacturing sector needs cautious policy planning for a balanced growth with emphasis on various regions of the country. Multiple manufacturing sectors along with diversity, more cross-regional industrial corridors and region-specific endowments and interests needs to be promoted, as the potentials of mountainous Northeast India cannot be the same as coastal West of India. This can enhance productivity with more growth poles in laggard region and can restrain undue concentration of industrial expansion in advance regions, preventing another fresh challenge of core-periphery landscape in Indian economy.

Notes

1.      Economy Matter, Volume 19, No. 1, 2014, CII

2.      Economic Survey, 2012-13, GOI   

3.      India’s Continuing Manufacturing Drought, The Wall Street Journal, February 2014

Rakhee Bhattacharya

Economic Diplomacy in India: Changing Contours in Policy Agenda

The idea of globalisation has radically altered the contours of international economic relationships and economic diplomacy between countries, throwing up new set of challenges and complexities in the spheres of economy, society, politics and culture. With rising global connectivity, dependency and market integration an increasing number of players strive to influence the outcome of economic relationships; and economic diplomacy therefore has assumed immense significance and posed new challenges to diplomats around the world and for the emerging economic power like India. This transformation encompasses an evolution of modus operandi with widening and deepening dimensions of diplomacy. In today’s outward-looking, liberal, macro-economic framework, terms like non-state diplomacy, corporate diplomacy, business diplomacy, NGO diplomacy and track two diplomacy have found their place in the lexicon of economic diplomacy. Economic diplomacy thus has risen to the top of international policy agenda, driven by a mix of political and economic factors. Economic diplomacy includes the promotion of trade and investments, management of aid and other financial flows, tourism promotion and the management of all the regulatory issues that affect a country’s external economic policy; it is handled by the foreign and the economic ministries, and involves contributions by non-state actors.

The policy on India’s economic diplomacy has undergone paradigm shifts from sheer trade diplomacy, which was initiated in the post-independent period to networking in 1980s and then to country promotion and engagement in post-liberalized period. Thus during 1947 to 1984, India witnessed a phenomenon in government-industry relations guided by regulation and control. The year 1985 was the beginning of the U-turn and change, when Rajiv Gandhi, the then Prime Minister, took a decision that a delegation from Confederation of Indian Industry should accompany him on his first-ever State visit to Soviet Union. Such evolution of relationship between government and industry was a process which really never looked back. Later in the five years of P V Narasimha Rao’s Prime Ministership, CII accompanied him on several occasions, most prominently to Singapore and Vietnam in September 1994, heralding the start of the Look East Policy of India and initiated strategic dialogues or ‘Track II Diplomacy’ mechanisms, which CII continues even today in a much larger scale with many more nations.The year 1991 was crucial, as India’s most aliened post-independent partner, Soviet Union collapsed and disintegrated, Indian economic diplomacy made strategic shift with focus on regional partnership. ‘Look East Policy’ was initiated to re-build her relations with fast growing Southeast Asian Nations that was lost during colonial period. India urgently felt the necessity of having new regional and sub-regional partners beyond the SAARC zone. Today, as Look East policy has entered into its third phase, India’s economic diplomacy remained remarkable by becoming a full dialogue partner with ASEAN and by raising trade, tourism and FDI shares significantly. 

Along strategic shifts, the conduct of economic diplomacy within government also has become increasingly dispersed with various departments interfacing with their foreign counterparts and seeking facilitation and support of country’s Missions. Among the non-state actors, multinational corporations are now powerful pressure groups with profound penetration into systems of international economic policy formulation. Apart from this, research institutions, media, environmental groups and other non-governmental organisations also influence the shape of the international economic agenda. Such endeavours have given impressive growth rate, high foreign exchange reserves, increasing exports, rising foreign investment. India has established itself as a major global player in information technology, biotechnology, pharmaceuticals, telecom and other areas and negotiated for greater market access for her products under the Doha Development Round in the WTO and pursued strategy of forging trade and commercial alliances in the form of bilateral and regional free trade agreements and comprehensive economic partnership agreements. India’s contribution to the world economic and financial architecture through various groupings like the G-20, IBSA, SAARC, World Bank and IMF among others is well known. In this scenario, the role of diplomats in facilitating and supporting the efforts of the business community has become more pronounced.Through dialogue, they need to actively reach out to investors and partner with other organs of the government and the private sector to promote trade, foreign investment and technology flows. There are many instances where the strategic dialogue has been extraordinarily helpful in building and shaping mutual appreciation, especially in Iran, Iraq, Bangladesh, Myanmar, China and ASEAN. As the perceptions about Indian policy are very often rooted in history of isolationist, inflexible, low growth, anti-private sector, over-regulated, protectionist, such dialogues enable these old perceptions to be addressed. India’s policy attempt to facilitate economic diplomacy by expanding its role beyond diplomatic services continues towards relevant areas like industry through innovative methods by which people can come on deputation. Indian existing diplomatic service is relatively small in size with 700 IFS cadre officials, which needs to grow given the rising demand of economic diplomacy. On the public diplomacy initiative of the ministry of External Affairs, Mr. Salman Khurshid mentions that, ‘It is essentially an outreach to add to capital diplomatic instruments and diplomatic exercise we take. It is to show what we are doing and making it more effective and add different dimension as greater public participation takes place.’

The journey towards such policy endeavours needs to continue more vigorously amidst contemporary global economic crises, so that India can sustain her domestic economy. Economic diplomacy also needs be a powerful instrument to end age-old conflicts of cross-border terrorism, illegal trade, trafficking, border and political disputes with her neighbouring nations; and should usher hope for a new horizon with regional and sub-regional cooperation. As two of her eastern neighbours Bangladesh and Myanmar are transitioning, it is time for India to explore her economic diplomacy deeply within its Look East Policy frame to outmanoeuvre China, resolve Northeast geopolitical issue, and turn this entire security-sensitive region to a vibrant economic hub with space for people to move without fear and with hope for future. As ‘Hope cannot be said to exist, nor can it be said not to exist. It is just like roads across the earth. For actually the earth has no roads to begin with….but when many people pass one way, a road is made.’

Rakhee Bhattacharya