Event ReportsPublished on Feb 16, 2014
In the beginning of the 90's, Argentina was the second richest country in the world, but now the country is in a shambles. India should be careful not to fall into such a situation, cautions former Union Revenue Secretary M.R. Sivaraman.
India should be careful not to fall into Argentina-like situation
In the beginning of the 90's, Argentina was the second richest country in the world, but now the country is in a shambles. And India should be careful not to fall into such a situation due to serious mismanagement of the economy, cautioned M R Sivaraman, former Revenue Secretary to the Government of India.

Sivaraman was initiating a discussion titled 'Agenda for India-2014: Economy & Industry', at the Chennai Chapter of Observer Research Foundation on 16 February.

He said post-poll 2014 India must be an outward-looking economy. With elections round the corner, Sivaraman, while elaborating on the current economic status of the country, also pointed to the various issues that the new government will have to face in terms of in these sectors. Prior to dwelling deep on the topic, he gave an outline on the current status of economy and the contributions to the GDP from various sectors. He observed that a bulk for the GDP comes from the services sector while the contribution of the agriculture sector remained the lowest at 13.7 percent.

Sivaraman put this in comparison with other economies like the US and China, to give a better understanding of the relative strengths and weaknesses. While doing so, he also compared the rates of inflation in India with that of China over a period of nearly 20 years. He pointed out that measures adopted by Reserve Bank of India (RBI) to control inflation have made little difference.

Significantly, the rate of inflation has stayed around six percent, excepting in one or two years, Sivaraman said. He placed this to argue that managing the interest rates has been of little help to the economy in controlling inflation. India has the second highest inflation just behind Argentina. However, he pointed out that the interest rates in other countries has been less than two percent, but there too inflation and economic reversals occurred.

Sivaraman said that the Government has failed to pay up bills to its contractors merely to show a reduction in fiscal deficit. As a result of this, many contractors to the Government of India have not been paid. Tax refunds have also not been made. Sivaraman asserted that political interests have trumped larger economic interests of the nation.

Listing out statistics, Sivaraman noted that Tamil Nadu had the lowest growth rate of 4.8 percent. Odisha, invariably dubbed a 'backward State', surprisingly had almost zero-deficit. He expressed grief over the fact that such news go unreported in the media. Of all the States, Madhya Pradesh had the highest growth rate of over 10 percent.

Sivaraman also laid emphasis on the extent of money in the hands of the unorganised sector. He put forth the case of small-scale traders such as vegetable and fruit vendors who are usually turned away by banks and approach unorganised money-lenders. These lenders charge exorbitant rates of interest. This network is very widespread.

Tangential to this unorganised sector, Sivaraman also made mention about black money when a question came up from the floor. He said that the black money stashed in overseas accounts has been estimated to be 40 percent of the nation's GDP.

'Behavioral economics'

While discussing the suggestions and advice of economists, he said humans when asked to take certain decisions, do not behave rationally and hence it made way to a new field in economics called behavioral economics. He also noted that prescriptions of even great economists have been wrong and cited the examples of how firms managed even by Nobel laureates have gone bankrupt.

Sivaraman also discussed the new manufacturing zones planned by the government to create 100 million jobs and also to increase the contribution of the manufacturing sector to the GDP. The Delhi-Mumbai industrial corridor and many other industrial regions are set up with some of them partly funded by the Japanese Government.

The discussion also ned aspects of labour laws. Sivaraman noted that there were as many as 52 pieces of labour legislation laid down by the Centre apart from scores of others by the State Governments. He put this in comparison with China, which had merely eight laws which covered all aspects of the hundreds of laws in India.

Sivaraman recalled how economist Jagdish Bhagwati had argued in a paper that it was time for India to consider consolidating all these laws. He pointed out how these laws covered only units with more than seven workers. First often tended to sub-divide units in order to avoid labour laws. Also, he opined that labour laws in India are so stringent and they do not favour industries in hiring more number of workers, as doing so would bring them under the ambit of much more serious laws attracting tougher punishments for possible violations.


Starting an industry in India is also difficult, Sivaraman said while listing out the various conditions one has to comply with before an industrial unit is cleared. The normal period taken to approve a project is 28 days in India which is longer than even Afghanistan. Also, one must have a minimum of 149 percent per capita as capital investment before going operational whereas in many countries it was just 14 percent. He noted that despite such stringent norms, many industries run out of business because they do not have technology-forecasting and continue with outdated knowhow.

Following the talk, there was a question-answer session. There was a question regarding giving favourable treatment to the SME sector. Sivaraman was in agreement with the suggestion, pointing out that the sector was now crumbling under interest rate hikes. He said it is also time to introspect and study the entire agricultural system in India. There was also a question on storage facilities in the country. Sivaraman said lots of agricultural produce are going waste due to lack of storage facilities and stressed the need for cold storages. Though a few cold storage facilities have come up in some States, he said there is a pressing need for such facilities in larger numbers to help ensure better incomes for farmers.

The discussion also found its way onto Government projects. Sivaraman noted that Rs 2.9 lakh crores worth of project are in the PPP (Public Private Partnership) with a bulk of it in road projects. He expressed his anguish as nearly Rs 9,000-crore worth of projects have been put on hold in States like Tamil Nadu, owing to delays in approvals from the State Governments.

Sivaraman also cited examples where the State Government had declined to sanction blue metal to some projects in Tamil Nadu. Such unwarranted delays cost a lot to the Government, he said. He also discussed how the Food Security Act will cost a lot to the Centre. He said the new law requires the Centre to fund the entire project though most States already had a food distribution programme and were anyway incurring subsidies on the respective schemes.

(This report is prepared by Ramalingam Va, Second Year BA (Journalism & Mass Communication), S R M University, Chennai)

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