Consulting Parlour

1991, among amidst cheers, applaud, huge tapping on table the most historical budget got passed in the highest setting body of Indian paradoxical culture; the parliament. A beaming Finance Minister declared from dias with a thunder “time has come to drink coke, to wear Burlington, to chew Avon, to brunch Pizza. Behold, the dhotiwala marwaris should watch their malpractices, you have looted enough, time to go to Ganges and wash your sin.”

The common Indian rise from rugs started fantasizing the Park Avenue, Salwar Clad wife in Midis, churning away pizza in a lavishing mall. Enough of pakodas and dosas. India is going global; with a size of 1 billion we are going to embark imperial socialism.

Indian beauties in hoardings replaced by foreign nude clad ladies. Our girls happily singing around malls, movie surroundings, guys with flashy bikes, specks. Owo….breathtaking site. Older generation got amused, some embarrassed and some flattened. Country has rolled its dice; Pink Floyd’s dark side of the moon is no more revolving, static from oblivion and straight falling into feldspar of carpets like golden dew drop.

My personal incident in a high profile city called Bangalore-

14th May, 2005- Was busy in something, came out late from office. The cafeteria was closed by that time. Suddenly like a flashback I thought why to worry? Let’s take ride on rising economy. Picked the cell like chauvinist of liberalization, dialed like a King who just got reins from UNITED STATES. Ordered a North Pole delicacy called Pizza, some pasta salad and Uncle Sam’s water supply management a.k.a “coke”. After 45 minutes a face appears on room door. With much hesitant American smile the face echoed a voice good evening!! I watched the time, 11.45 P.M. I was wondering whether I am in different time zone. The next line was Sir your bill, 361 Indian bucks. (This is one of many incidents)

Obvious question, south Indian meal costs roughly 20 rupees. Does it mean our economy has shoots up by 18 times?? I don’t have an answer either. I am not good in economics, yet searching the much inhabitant answer of economic rise.

What we see in this country is that economic liberalization, which began in the mid 1980s, took a major leap in the 1990s. And it continues apace till today, with new rulings being introduced continuously. The first generation of economic reforms gave way to a second generation in the year 2000. There is not a sphere of the Indian economy that has been left untouched by foreign capital. Now, even the water we drink and the air we breathe is being privatized with profits siphoned away by the transnational corporations and their India accomplices.
It is estimated that every year $65 billion, or rupees three lakh crores, are drained out of the country. This amounts to a gigantic 20% of the country’s national income being drained out each and every year. Is it possible for any country, least of all an underdeveloped country like India, to develop with such a huge drain on its resources? This loot takes place from: (i) returns on accumulated FDI in the country, (i) Returns on FIIs and GDRs, (iii) Interest on foreign debt and NRI deposits, (iv) losses through foreign trade, (v) Brain drain, (vi) yearly flow of illegal money abroad, etc.
The main aim of earlier colonial rule in India was to extract its wealth in the interests of the British rulers. The British are now only replaced by the imperialists in general, and more particularly the US imperialists. Earlier the British ran the government directly; now much the same is being done by proxy. Besides, over the passed few years, the US has sought to enmesh the country in a series of military and diplomatic ties, thereby tightening its noose around the Indian administration.
Now if we go on these issues who are die hard betonies of liberalization we might ended up with spoon inside mouth. I wish there won’t be carnival debates.
Here is one of the pragmatic supporters of economic liberalization “India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, India's cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods.”
I believe Burlington, Daks, Louis Philippe are all Indian brands who are set to dethrone the colonial brands!!
As Mckinsey has conducted a survey regarding the retail market in India and it estimates the volume could go up to staggering 300 US billion dollars. Mute question is how much profit is earned out of that? How many players will be in the market?
Let’s have a look at the objective statement by RBI-
India is no longer an economy of scarcity and shortages: food stocks and foreign exchange reserves are plentiful; shortages and rationing of essential goods and materials are memories of the past. In the macroeconomic and financial spheres, inflation has been contained, external debt indicators have improved, exchange rate is flexible and the country is free of financial repression. The trade account is open and India has become much more integrated with the world economy. All this has been reflected in a relatively high rate of economic growth over the decade and a significant reduction in poverty in the country. The economy has also become more resilient to shocks, both domestic and external: the twin shocks of the drought and increasing oil prices in the past year have been absorbed with relative ease.
Now this increased freedom of choice for the ordinary consumer and freedom for many having to kowtow to peons to petty clerks. People in authority seldom appreciate what this freedom from indignity and humiliation means to honest citizens. And yet, despite all these real and substantial achievements, I sense that twelve years on, the reform process has left many people with a sense of unease. I use the word unease advisably; I do not sense dissatisfaction or disenchantment.
There is unease, no doubt what so ever!!
· that microeconomic reform is accompanied by macroeconomic deterioration at least in its fiscal aspect,
· that even in regard to microeconomic reform, there is a long unfinished agenda,
· that some of the reform measures have misfired or not taken hold; and perhaps the most common among economists,
· That there is not yet a decisive impact on growth and employment generation. Personally, I would add :
· that there is no decisive impact on corruption,
· that we have frittered away our rich inheritance in higher education, and
· That we have not enlisted the support of the civil society in the service of reform.
The point about macroeconomic deterioration, at least in the fiscal sphere, is both valid and vital. There are apologists who argue that budget deficits have not had their anticipated effect. Inflation has not risen, interest rates have not gone up, and there is no foreign exchange crisis and no sign of crowding out of private investment. But there has been ruinous, continuing and increasing “crowding out”, so to say, of useful public expenditure on health, education, irrigation, agricultural research, and economic infrastructure. If budget deficits have not crowded out private investment despite hardly any increase in the rate of saving, surely the conclusion is inescapable and worrying that private investment is not buoyant.
Macroeconomic mismanagement, whether internal or external, does repress growth sooner or later. Micro reform and macro health work well together. One of the smartest things done in 1991 was that decontrol of industry and liberalization of foreign trade was accompanied by substantial devaluation. This is not often mentioned now. But it was that macroeconomic adjustment which gave industry time to adjust to more competition and made the capacity then legalized actually usable by opening better opportunities for export. The initial spurt in growth after 1991 is largely attributed to this macroeconomic reform rather than to microeconomic reforms which take time to produce growth. Without macroeconomic health, the efficiency gains of microeconomic reform cannot be large and cannot endure.

No one is not sanguine that a decisive impact on fiscal deficits will be made in the near or the medium-term future. So far, reduction in interest rates and privatization are the only routes taken to show token improvements in the financial position of the Government. Both have severe limitations. Without substantial cuts in subsidies and administration and some even in defense, there cannot be reduction in public expenditure. There are limits to better collection of taxes. Reductions in customs duties and in direct taxes do slow down the growth in revenues at least in the short and the medium term. The industrially advanced countries dealt with this problem by a superb confidence trick. They introduced a very substantial and comprehensive Value Added Tax (VAT) which is nothing but a large and proportional income-tax without practically any exemption limit. It’s questionable even the VAT, if and when introduced in India, will be rather modest and shot through with exemptions and will, therefore, invite evasion and avoidance. Without a sea-change in the political climate, the fiscal situation will remain worrisome.
On the other hand, no one share the unease of many persons about the unfinished agenda of microeconomic reform. Part of this agenda is not all that necessary in judgment and considers some suggested reforms unrealistic in a democracy. In a sense, the agenda for reform like the agenda for individual perfection will always be unfinished. We should now stop talking of an agenda of reform as if it is a laundry list. Reform rings a bell for five or ten years. After that, it is likely to ring hollow. That does not mean that we give up the fight on each individual front. By all means let us concentrate on individual tasks. But there is danger not just of creating boredom but even resentment by perfectionist sermons akin to Ten Commandments. What we need now is concentration on individual sectors rather than on some comprehensive conceptual agenda.
The democratic world is always untidy; and while untidiness must always be fought, some of it must be endured. There is much talk these days about plural societies, multicultural or multiracial societies. But all democratic societies are plural by definition as indeed they are secular by definition - even if they are not multiracial or multicultural. They are plural because they respect and recognize the rights of each individual and group. They have several objectives and several conflicting but legitimate interests to reconcile. Any peaceful reconciliation of divergent objectives and interests inevitably involves compromises.
One of the greatest disappointments with the reform process is that it has not made much impression on corruption. Reform is widely advertised as an answer to corruption. To some extent this has happened. But we know now that corruption is a much tougher nut to crack and requires action beyond economics. Much more can be done, e.g., by harnessing new technology. This has been done in respect of railway reservations. It can also be done for land records both rural and urban. But a major feasible attack can only come from a detailed and painstaking review of all laws, regulations, administrative procedures and the like to eliminate much accumulated irrelevance and discretion. A review of all regulatory authorities particularly at the State level is also necessary. Even at the Centre, where decontrol has been followed by new regulatory authorities, there is still much confusion about what is intended and who can and cannot do what. Regulation, like control, also implies some discretion. All this creates fertile ground for corruption. That is why regulatory authorities also need continuous watch and vigilance.
Our achievements may be considerable but what is crux is we shouldn’t be unrealistic. If people’s income has manifolded at the same time their savings has been dented up to a large extent. Reforms are necessary as freedom and justice but in basic sectors like infrastructures, manufacturing, containing corruption rather than fancied about pizzas, Warner Bros., Cable TV so on.
Hopefully we are gonna achieve that, till that time let’s pay another pizza bill!!
Inspired by –The Macroeconomic Reforms by I.G.Patel
RBI Objective Statement 2005-06.