Scope of Improving Productivity and Employment in India

By: Amit Bhushan Date: January 13th, 2013 Contact: amitbhushan@rediffmail.com

I have previously covered at some length, as to how our Political masters have indulged in bogus debates to hijack public policy agenda and over the years, have delivered little to the common man; whose cause, they claim to champion (see previous articles at scribd.com or management paradise.com). Presently, it has become fashionable to shed crocodile tears over issues such as: economic growth, investments and employment generation. Economists (including those in government), political pundits and businessmen are seen contemplating and agitating over the issue which has emerged as a dominant electoral issue. For once, the kind of reforms seem to be an issue in public rallies & debates. This is unlike previous elections, where the debate was about whether to have reforms or not. This establishes that in principle probably for the first time that the publics largely want to move ahead, instead of remembering the wisdom of our forefathers who where known know alls for all of eternity (so nothing needed to change). This commotion in public mindset has resulted in a sense of consternation amongst the political class and businesses who have relatively larger (monies at) stake in governance as a change may result in a significant loss to this class. So they have been teaming with media to raise issues that are piecemeal reforms designed to pacify certain sections while maintain a situation that is still largely beneficial for their clan. Often such suggestions is about reforms that may even result is significant advantages to such businesses and politicians without any commensurate gains for the common man; however such suggestions are coloured heavily giving bias that these are serious proposals designed to change the destiny of the Aam admi in India. The piecemeal reforms which are propagated in media debates (some of which are mentioned in next para) are targeted pellets towards certain symptoms that may be an eyesore to certain sections of our society, but are hardly a measure that could be called reforms that improve the capability and capacity of the people of the country to raise their standards of living or give any advantage to the common man over what he has currently. So the ladies and gentlemen from politics, businesses and the media are seen agitating over issues such as FDI in Retail, FDI in education, Labour reforms (to give de jure power to hire and fire mandates to businesses), Pension and Insurance reforms/FDI, Creation of Unique identity for the ordinary (and not remodeling product/service delivery), Reducing subsidies in Fuel (to control deficit and thus interest rate on businesses), Financial inclusion (so that poor can borrow to buy from rich) etc. People are aggressively selling their point of view to publics and the governance structure in order to acquire and maintain an advantageous position for themselves. No one really has any focus to raise the capability and capacity of the common man to be able to solve his woes & worries and rise to give shape to the time in which he lives. Often this is because of the fear that the rise of common man would reshape the governance structure in such a manner which may discomfit the interest of the politician and businesses and force upon them some really painful changes, sometimes threatening the very 1

survival of the businesses and the clout of the politicians to govern. Often these feudalist politicians are sucked into such debates by media and commercial chambers to take positions on operational rather than policy issues (frequently on issues that are on the borderline) and on such frivolous issues that do little for the common man but results in significant gain for businesses. The Political bosses frequently enjoy taking operational control of the ministries; as such controls often result into huge spoils and personal gains. Frequently, some of the dumb politicians are also seen gloating in front of cameras to win debates, which sometimes raises distance between them and common man and when they loose elections are found wondering what went wrong. This is how the doom of politician is orchestrated. While there is no denying that the dominant issues of the day is employment generation which requires investments to happen in the country and this would only come by, if India could be seen as clearly delivering economic growth and prosperity for its people as well as investors. However, other important issue is also of plugging leakages in delivery of public services. The public in now clearly fed up of the ruling class making vast financial allocations towards creating benefits which are not delivered measurably and timely. Stupid advertisements and bogus promises are likely to be penalized heavily going forth, given the rising disenchantment of common man with the political class. Then there is the issue of infrastructure also euphemously called bijli, pani & sadak which has been debated in almost every election for last 2 decades. Lastly, there is this problem of abuse of power which has become an explosive issue recently as powerful interest groups are now seeking to create a seemingly permanent unlevel playing field through uncompetitive/unfair methods rather than earlier problem of samantvad or feudalism limited to relatively smaller police or administrative matter. Problems in this area has been vast leakages/corruption in development of such infrastructure, poor planning, poor quality delivery, misplaced priorities in development of such infrastructure, inadequacy of resource mobilization often due to lack of paying capacity of people, lack of techno-commercial expertise within the country (though no one ever talks about it) amongst several others. Of the above issues, the issue of abuse of power, generally through avoidance of free and fair competition is best handled by courts and judges in the country. Under the constitution of India, a citizen is granted some constitutional rights including right to equality and therefore the government of India cannot and should not bring forth any arbitrary measures regarding distribution of resources to selected few, abusing the rights and overlooking interests of the common man. While our administrative structure such as police, investigative agencies and important officials are regularly seen in contravention of such statutes; gross misappropriation of resources under ambiguous policies and administrative conditions were unheard (or were kept under tight wraps) in such proportions as those which have come to light, recently. Since such issues are normally reaching to courts so lets hope the judiciary under the gaze of media will be able to cope up with the challenges and maintain the faith of the people in itself. The issue of infrastructure could be properly debated only by closely examining the policy of the government (or the lacunae in such policies including lack of a clear policy) along with projects that are proposed or being implemented. Then there is the issue of mechanism adopted for implementation of such projects and operational effectiveness of such projects. All these need to be studied closely to decipher any guidance for the public which can be done effectively by those who have access to 2

important information about each of such projects. For any significant debate, each project should be analyzed separately along with policy, risks, funding, development and operations and the role of numerous agencies involved. I do not intend to be the commercial media so would not debate this further. As the country grows in technical sophistication and choices, complexity for orchestration of policy governing planning and implementation of such projects is rising. If the governance capability to manage the issues is not developed simultaneously, we will continue to witness huge scams which will continue to hamper the image of the country. The third issue of leakages in delivery of public services can also be debated only when details of the policy is discussed along with governance structure of each scheme including hows and whys of outflow of funds to identify aspects where controls are ineffective or unmeasurable and bring forth procedures that help in more measurable or credible delivery or promise. Numerous agencies at center, state and local government level may be involved and their incentives and management structure needs to be analyzed for deriving conclusions. Such debates again need more informed people with better access to data regarding each of such scheme and evaluate effectiveness and soundness of the policies/schemes managed by the government. Gaping holes in distribution of Food, Fuel, Electricity, drinking water, sanitation, healthcare, education, fertilizers and even services like passport, driving licenses, public transportation, pollution control, Industrial waste management, building approvals, land record management, management of jungles and parks etc. point to a huge deficit in management of public services at the hands of politicians and bureaucrats. Continuous evolution of governance mechanism to improve delivery processes of goods and services in a burning need which is not appreciated by the bureaucracy or the politicians who believe in status quo since a particular procedure benefits their constituency/ or near & dear ones. The article will hence focus on the issue of Employment generation and the requirements for creation of a better investment climate to achieve the goal. The need is to go back to the basics and address/examine the core issues. In India, strong arm tactics by our businesses and feudal lords have negatively impacted the very basic capability of the government which is to ensure good governance. This is amply proved by the fact that common people find it almost impossible to enforce contract on a counterparty with whom he/she may have a business dealing with (because of long queues in front of courts or archaic judicial procedures of establishing facts). The other problem is that of inadequacy of protection of ownership rights of the common man who lives under constant threat that his ownership and control of his property could be threatened or subverted by various interest groups some of which may be operating outside of judicial limits thriving under a police happily looking other way. We as a nation must know that we are trying to attract domestic and foreign investments without addressing these basic issues. India must know that it needs to adequately address quite a few of such basic issues before it can resolve to bring in investments that are much needed to create jobs. Our problems is different from the west where the problem has arisen because the incentive structure for executives making long term investment was lop sided and such executives made huge gains in short terms while investors were supposed to receive profits over long term. So executives took huge risks to let such investment perform till the time they reaped rewards and subsequently left the investors fend for themselves. The problem let to a credibility problem of the financial intermediaries and government had 3

to bail them out. Now the problem is to kick start investments again with focus on growing local jobs in the West, but there is huge amount of investor skepticism and the credibility of government to develop a sustainable market has ebbed since the governments are heavily indebted. Our politicians and economists in the government are happily blaming the West for a falling economy in India with all businesses joining in Chorus, instead of trying to attract investments by focusing on correcting flaws in the domestic arena. The proposals discussed are not fundamentals but the cosmetic ones which continue to be biased in favour of existing businesses and in fact may lead to an increase in such bias in the name of liberalization and growth. The politicians and businesses are happy to share such biased approach with foreign investors rather than Aam Admi. This may actually result in a very complex situation later when foreign investors muscle up and start resisting a correction in biases in which they would have significant stakes in times to come. In such a situation common man is leading a very public revolt with growth in violence and a tendency to take the laws in ones own hands. It is high time that the government focuses on giving the common man his due by giving him ability to seek judicial remedies (and not compromises or compromise mechanisms) to exercise his rights, proper laws and legal framework that works, ability to get protection as a small investor in industry, his services that have been promised to him by government in a fair manner. Some of the issues that afflict India is that even the goods for which there is massive demand in the country such as mineral extraction and processing, telecom gear, power generation, heavy construction equipment, defence equipment, railway equipment, aircrafts & components etc. cannot be produce in the country efficiently owning to very high perceived political risks and due to which financial institutions and technology providers do not want to undertake such manufacturing projects in India. Indias own public sector undertaking has not been able to keep up with technology or our user groups and industry have not cared to evolve technical-commercial legal specifications which creates some sort of enabling atmosphere for such industries to flourish. The client industry feel happy if any type of equipment is available on the back of cheap finance from Exim banks of host countries of suppliers. This also suits our political godfathers who undertake a variety of gimmicks to pocket hefty facilitation gratitude leading to Coalgate. The reason for India not been able to attract domestic and foreign players in these sectors is not being explored e.g. what can be done to make such production within the country, competitive. Instead we are happy by relying on foreign imports alongwith so called long term cheap loans without paying any heed to our Balance of payments or domestic jobs or long term competitiveness of domestic economy. The political structure we have evolved is extractive on us. It would extract high costs to create infrastructure for our competitive services exports businesses and personals and due to this a lot of outsourcing jobs are moving away from our shores. Our services exports are often hindered by our poor infrastructure, lack of clarity of regulations and lack of understanding from our government and politicians on issues afflicting the sector, about what politico-economic options are available to the country to compete globally and how to exercise such options in a strategic manner. The lack of strategic intent to set a direction for growth is evident event at the highest level who are easily swayed to deliver opportunistic growth model, with feel good factor rather than any real capability ramp up in the country with some strategic intent and towards some end which is globally valuable and relevant. 4

Our services sector are also more tuned to domestic audience. While they create jobs but they tend to drive up consumption of imported stuff which is becoming unsustainable and government is under pressure to keep thinking of new ideas for financing the Current Account Deficit, currently being financed largely through FII investments apart from NRI remittance and service exports. It also given rise to humungous malpractices in governance as most of the corrupt bureaucrats and politicians want to capitalize on opportunitism set in the very core of our economy. The political masters of the country have repeated exploited the collective vulnerabilities of our lower and middle classes by promises of dollops of unearned subsidies as legitimate transfers of booty of loot, from rich and upper middle classes who are painted as the oppressors and exploiters of the poor. This booty trickles down very little in practice much of the gains are cornered by vote brokers who in the political constituencies who in guise of social and religious leaders canvass for politicians who can deliver maximum gains for them or their kin. We repeatedly find the politicians weaving traps that seems to underline their Robinhood character and image but in practice failing to deliver any real rise in living standards of the poor and middle classes. A divided society which continues to maintain its caste and language character barriers as well as high power distance wherein a person slightly higher in rank would not want to listen or be lectured by lower ranks continues to maintain their myopic view. They tend to fall easily as preys in the hands of political class who bring out the differing mindsets and goals within the subgroups and thus perch themselves on the top by collating structure of a probable majority (attained by diving the rest of the society into a relatively smaller and therefore less potent forces). They social forces need to collude together for a real rise in capabilities of the society for a collective improvement in the status. Till that happens, the politicians will continue to finds ways to trap susceptible voters and siphon off revenues which should be used to raise the status and capabilities of the common masses. As far as the businesses are concerned, in order to survive in a hyper competitive globalizing economy, they will continue to seek whatever political protection they can get from the political masters where in they can shave off a nice profit without having to compete honestly for the market space. The politicians know these vulnerabilities and therefore pay little heed to their opinions and continue to be glued to the project of keeping themselves perched on the top of the power structure.