Re: [MTC Global] Fw: Why India’s Economy Is Stumbling

Our development happened totally because of the lack of ignorance of the government in areas of growth. Here are some examples. 

1.  The explosion in IT Exports happened because of a unique coincidence of Y2k and the ability of the work to be done remotely using Indian software factories which require specific skills. the ability to scale was provided through remote connectivity using dedicated lines. Ironically the 1990 crisis lead to focus on exports. With available right talents, scale and competencies using process skills it was possible. The Govt was clueless about this mostly, since there was no customs, or excise officials at the gate and also the STPI provisions kept away the army of Babus away from controls putting their ideas on these innovative companies. 

The booming software industry lead to growth of Housing industry, and related service industry. The trickle down effect can be felt in growth of Auto, Telecom, Hospitality, Insurance and Banking  and related service industry. 

Now services constitute more than 50% of the GDP a huge and radical shift.

 

Look what happened after the Y2k and outsourcing, there were regressive policies on Export processing zones, land use, MAT ( Minimum Altnerative Tax ), Service Tax on almost anything from Hotels, to construction, ( there are hardly a few left now which is not covered ).

Particularly in a country like India where the compliance rate is poor because of poor systemic issues, governance,, transparancy and the ever greedy Govts and Babus who are so obsessed with control and fiefdom resulted in driving any kind of appetite to start and run any kind of commercial profitable enterprises. This leads to a large private economy which runs on cash leading to more black markets and resulting in loss of revenue etc. 

Even the Govt had conceded that lower taxes has lead to better compliance and had resulted in more revenues. But the current issues is one of high taxes and poor governance  which is putting the economy at risk.

Lessons to be learnt :The lesser the Govt in business the better it is for every one. The more the exports better it is for Govt and economy. Unfortunately the policies are not conducive for any of these now. 

2.  Manufacturing Vs Imports 

The flood of cheap imports for various reasons has systematically killed anything usefully to be done or produced in India. The huge taxes on almost everything from Excise,, VAT, profession Tax, land Tax, non existent power and taxes on generating power thru DG are killing Industries. The recent last straw on the back is the Vision of the Govt thru the Land Acquisition Bill - which is going to make financial closure of big projects completely impossible.  

the CAD also clearly points to excessive imports of unwanted goods which needs to be curbed thru taxes and create barriers for their imports. 

Mouli

On Sat, Aug 31, 2013 at 9:51 PM, nagarajan rajagopal <nagaas786@yahoo.com> wrote:

Hi all friends

I totally agree with the statement that  Development takes place only if it was possible to bypass it.

Our Indian Labour Laws are all outdated, not friendly to Employees and Employers.  Time has come to the Government to have a Look at replacing these old provisions of the Labour Laws.

R. Nagarajan, ACS, LLM
Associate Professor
Vels University
Chennai

I

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From: Vijay Kane <vijayakane@gmail.com>
To: join_mtc@googlegroups.com
Sent: Saturday, 31 August 2013, 20:56
Subject: Re: [MTC Global] Fw: Why India's Economy Is Stumbling

Very interesting observations

In retrospect [unfortunately only in retrospect ] some reasons are obvious

Development took place in areas where it was possible to bypass the structural problems.

for example --

1] Our labor law reforms  -- We have a very large pool of low skilled labor. but it is "guarded by archaic laws which presume that labor and management

 are enemies of each other" 

a] IT sector progressed as it was not hampered by these archaic laws.

Imagine  where would be IT sector if  shackled by these   laws

b] Manufacturing sector succeeded partially by using contract labor and partially by mechanizing low skill jobs

2] Another big stumbling block -- Lack of availability   consistent electric power -- To some extent it was bypassed by captive power generation to fill the gaps.,

I was amazed to read that majority of mobile towers - there are literally thousands of them --   use diesel generators [ consuming colossal amount of  diesel] 

Also by extensive use of "third shift " which is supposed to be used for contingencies only 

There are other blocks  --- I am not knowledgeable enough to comment on them  - how ever things might not be much different.

Progress took place in spite of government. Government did its best to squander the generated surplus [ rather than reinvesting for productive purpose]

  for political gains

V A Kane

Associate prof Mech Engg

Marathawada Inst Of Tech

Aurangabad

Maharashtra

 

On Sat, Aug 31, 2013 at 12:08 PM, Satish Oberoi <oberoi50@yahoo.com> wrote:

 

 

From: T.S. Krishnamoorthy

August 30, 2013

Why India's Economy Is Stumbling

By ARVIND SUBRAMANIAN

WASHINGTON — FOR the past three decades, the Indian economy has grown impressively, at an average annual rate of 6.4 percent. From 2002 to 2011, when the average rate was 7.7 percent, India seemed to be closing in on China — unstoppable, and engaged in a second "tryst with destiny," to borrow Jawaharlal Nehru's phrase. The economic potential of its vast population, expected to be the world's largest by the middle of the next decade, appeared to be unleashed as India jettisoned the stifling central planning and economic controls bequeathed it by Mr. Nehru and the nation's other socialist founders.

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Karen Barbour

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• Rupee Drops, and Outlook Grows Darker for India (August 31, 2013)

But India's self-confidence has been shaken. Growth has slowed to 4.4 percent a year; the rupee is in free fall, resulting in higher prices for imported goods; and the specter of a potential crisis, brought on by rising inflation and crippling budget deficits, looms.

To some extent, India has been just another victim of the ebb and flow of global finance, which it embraced too enthusiastically. The threat (or promise) of tighter monetary policies at the Federal Reserve and a resurgent American economy threaten to suck capital, and economic dynamism, out of many emerging-market economies.

But India's problems have deep and stubborn origins of the country's own making.

The current government, which took office in 2004, has made two fundamental errors. First, it assumed that growth was on autopilot and failed to address serious structural problems. Second, flush with revenues, it began major redistribution programs, neglecting their consequences: higher fiscal and trade deficits.

Structural problems were inherent in India's unusual model of economic development, which relied on a limited pool of skilled labor rather than an abundant supply of cheap, unskilled, semiliterate labor. This meant that India specialized in call centers, writing software for European companies and providing back-office services for American health insurers and law firms and the like, rather than in a manufacturing model. Other economies that have developed successfully — Taiwan, Singapore, South Korea and China — relied in their early years on manufacturing, which provided more jobs for the poor.

Two decades of double-digit growth in pay for skilled labor have caused wages to rise and have chipped away at India's competitive advantage. Countries like the Philippines have emerged as attractive alternatives for outsourcing. India's higher-education system is not generating enough talent to meet the demand for higher skills. Worst of all, India is failing to make full use of the estimated one million low-skilled workers who enter the job market every month.

Manufacturing requires transparent rules and reliable infrastructure. India is deficient in both. High-profile scandals over the allocation of mobile broadband spectrum, coal and land have undermined confidence in the government. If land cannot be easily acquired and coal supplies easily guaranteed, the private sector will shy away from investing in the power grid. Irregular electricity holds back investments in factories.

India's panoply of regulations, including inflexible labor laws, discourages companies from expanding. As they grow, large Indian businesses prefer to substitute machines for unskilled labor. During China's three-decade boom (1978-2010), manufacturing accounted for about 34 percent of China's economy. In India, this number peaked at 17 percent in 1995 and is now around 14 percent.

In fairness, poverty has sharply declined over the last three decades, to about 20 percent from around 50 percent. But since the greatest beneficiaries were the highly skilled and talented, the Indian public has demanded that growth be more inclusive. Democratic and competitive politics have compelled politicians to address this challenge, and revenues from buoyant growth provided the means to do so.

Thus, India provided guarantees of rural employment and kept up subsidies to the poor for food, power, fuel and fertilizer. The subsidies consume as much as 2.7 percent of gross domestic product, but corruption and inefficient administration have meant that the most needy often don't reap the benefits.

Meanwhile, rural subsidies have pushed up wages, contributing to double-digit inflation. India's fiscal deficit amounts to about 9 percent of gross domestic product (compared with structural deficits of around 2.5 percent in the United States and 1.9 percent in the European Union). To hedge against inflation and general uncertainty, consumers have furiously acquired gold, rendering the country reliant on foreign capital to finance its trade deficit.

Economic stability can be restored through major reforms to cut inefficient spending and raise taxes, thereby pruning the deficit and taming inflation. The economist Raghuram G. Rajan, who just left the University of Chicago to run India's central bank, has his work cut out for him. So do Prime Minister Manmohan Singh, also an economist, and the governing party, the Indian National Congress. These steps need not come at the expense of the poor. For example, India is implementing an ambitious biometric identification scheme that will allow targeted cash transfers to replace inefficient welfare programs.

India can still become a manufacturing powerhouse, if it makes major upgrades to its roads, ports and power systems and reforms its labor laws and business regulations. But the country is in pre-election mode until early next year. Elections increase pressures to spend and delay reform. So India's weakness and turbulence may persist for some time yet.

Arvind Subramanian, a senior fellow at both the Peterson Institute for International Economics and the Center for Global Development, is the author of "Eclipse: Living in the Shadow of China's Economic Dominance."

 

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Mouli

Mob 91 5888 5250

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