Tuesday, September 8, 2015

The 'cosmetic growth'

Let me start with a disclaimer, this blog has nothing to do with cosmetic products and yeah its a long post!

Cosmetics help in improving a person’s beauty. It can make you beautiful and more attractive but if you are not confident then, you will not be able to survive your presumed stature. To gain confidence you need to first develop skill in which ever domain you tend to work, be it acting, engineering or even HR. Your outlook/cosmetic make up will only enhance your personality but WILL NOT MAKE YOUR PERSONALITY. Having said that lets move towards ‘growth’. Growth has different connotations, if doctor says about the growth of a child then certainly he means physical growth. The requirement for growth in different age group is not same. A one year old child requires breast feeding while a 12 year old child needs balanced diet. And yeah, this blog is not even about the biological or physical growth of a child. Keep this paragraph in mind while reading on economic growth of India further in this blog.

India is a diverse country and it needs different doses of development in different parts of India. During British era, regions around Kolkatta and Chennai were relatively developed. There were lots of colleges in that region. Similarly, parts of erstwhile western India like Mumbai, Karachi, Sindh, Punjab were good in business. You can feel this even today, if you enquire with your friends then you will find a lot of Bengali friends will say that their grandparents were Indian railways living in different parts of India. Similarly you will find a lot of Tamilians in better positions in different government organisations. You will a large number of Sindhi and Punjabi (specially those who migrated during partition) entrepreneurs. Till 1937 Burma was also part of India and for a long time even after 1947 Kolkatta continued to be the education hub for Burmese. If you travel throughout India you will find how different cities have different biasness towards development ‘x’ may be good in something while ‘y’ may be in other. After independence we saw growth in number cities. But many of them were historically important or had colonial bias. We will come back to discuss about cities latter while discussing smart cities.

Now consider a farmer of 1950s who had a son who studied hard and went to get his engineering degree. He went out of village and ensured a better lifestyle for next generation. Now that person (son) had his friend who in spite of getting an engg degree couldn’t secure job as a result he continued to live in village. Now this is the job scenario of 70s and 80s when there were very few private firms. Job meant only government jobs. So even a group D staff of government office had the opportunity to send his kid to KV and ensure a better education on the other hand a person living in village of India will continue to deprive his kid due to lack of such facilities. Now compare that with todays India, lakhs of people are employed in IT companies which continues to grow without much assistance from Govt on the other hand there are temples of modern India aka PSUs which continues to thrive despite making losses and sucking tax collected (both direct and in direst tax) from the remotest village of hinterland of India. Had there been no economic reform in 1991 India would have been on the brink of civil war. Today the engineers need not live in village and deprive his child from education he can very well move to cities and earn his living. This has increased competition in various sectors. These IT companies created a huge demand in housing, automobile, pharma, insurance, banking and many other sectors. As a result from steel to meal (packaged food) every sector had a growth trajectory.

Finance ministry is too serious ministry to be left to the political populism. In fact if we need to grow at higher rate then, every party should seriously ponder on economic issues with leading economists. Just like a child needs different nutrition at different age group, India too needs different policies after every few years. In India for eg, certain domestic industries are protected from foreign companies, but it is the duty of domestic industry to rise upto the international level or perish. So which ever government will try to tighten the screw our corporate world will protest! This is one of the many cases.

Unfortunately, we are not revising our policies very frequently. When there was IT boom we were so much awed by its success that we forgot to look after the manufacturing sector. We had 7%+ growth but we forgot to do structural changes while enjoying the COSMETIC GROWTH. This cosmetic growth leads to boom in housing sector which lead to boom in steel industry. People started investing in housing sector and this lead to huge speculative market. Even in IT sector we relied more on the low cost service that we provided to our foreign clients due to cheap labour. Subsequently, people started gaining experience and the low cost party was finally losing its lustre. This vacuum was filled by new tech startups which promised better solution. Anyways, the key take away here is COSMETIC GROWTH lead to huge surge in real estate and it is due to this reason that we are having millions of empty apartments in Bangaluru, Delhi NCR and in Mumbai. The whole growth was inflated without producing any actual work.

The government has promised smart cities which is a welcome step. Remember the first para when I said about growth and I explained how since colonial era we had selective growth of few regions. India will continue to have cosmetic growth if we don’t develop eastern UP, Bihar, Odisha and NE (cities Dimapur). Sadly many regions from these areas are neglected in smart cities. Some more cities need to be included in it. These cities should be clubbed under different groups based on population, area and the kind of industries that it can cater. The requirement of Visakhapatnam is not same as that of Patna or Varanasi. Fund should be allocated according to its need not by fancy thinking.

Millions of young people are every year added in the work force. These smart cities will provide job to them, but aren’t we again looking for cosmetic growth? People have already started speculating land values in respective cities and it has already created a buzz in real estate sector. So what is the solution? Solution is to reduce red tapism let the country grow at its real potential, break shackles let people innovate and work easily. In UP if you happen to open a shop then you will have to get it registered in sales tax department, that’s fine. The problem is govt needs three guarantors who are already tax payers! Now even if you have a brilliant idea and say you want to open shop in Varanasi and you are new to that are you wont be able to open it! This is red tapism. If you want to open bank account in PNB you need ‘’introducer’’ i.e. someone who knows you and has bank account in that branch! Yes despite all fancy slogans such things exists. It is still a nightmare to start manufacturing in certain parts of India. If you dare to do so you will be bombarded with so many red tapism that you will prefer to go into the business of buying and selling land! I hope you remember NOIDA’s chief engineer case, if not then google it. Even the industrial land has been used for making money without producing anything. Without dismantling such red tapism you may see growth and may be even awed by it but mind it, these cosmetic growth is not sustainable. Sooner or latter we will face the heat.

By the way, who are the biggest losers in it? Its you and me. We continue to pay high prices for real estate with shabby infrastructure. Rajan sahab said that even a family earning 2 lacs per month cant afford a nice flat in metros. In spite of millions of empty apartments, builders are not willing to sell it at low cost. It’s a vicious cycle. Builders are now sitting at huge debt! Banks NPA is increasing. Mind it, by 2017 for Basel III norms our bank need more than INR 2 lac crore. In spite of this certain PSBs continue to have ‘’introducer’’ column! India can have double digit growth for a least a decade provided we reform our Babus!

Our growth story today is lead by only few metro cities. Imagine with hundreds of cities what miracle we can do!