My wife and I took a trip to Malaysia in the last weekend. We decided to go the old trading center in the west coast of Malay Peninsula, the State and City of Melaka . The city has a history of being ruled by Hindu kings, Muslim Sultanate, the Dutch, the Portuguese, and may be the British. The trip was about five hours ride in the bus from Singapore . It was nice and comfortable drive. Apart from the sight-seeing, food, and culture, I made some observations regarding my favorite topic, Economics. Throughout the drive, Malaysia looked very green, landscaped and clean. There is a conscious effort to maintain greenery in the non-urban areas and these efforts are boosted by the Palm tree crops in most of the places. (I hope that this cash crop does its fair share to decrease Carbon Dioxide from the environment).
My impressions about cleanliness and hygiene in Malaysia were reinforced in the city as well. Malaysia is sparsely populated about 80 people/sq km compared with nearly 400 in India and 60,000 in Singapore . Melaka was as clean and well maintained as Singapore . I observed that people maintained a distinct civic sense and garbage was not scattered (even though I did not see many trash cans everywhere). Infrastructure in Malaysia left a positive impression in my mind. The roads were better than that of the US . Highways had a posted speed limit of 110 km/hr and cars were doing way more than that. I can imagine the efficiency that it creates for Malaysian economy. In India , such a system will unlock more efficiency and GDP growth. Another striking feature of infrastructure was the uninterrupted supply of electricity. I saw grids and electrical connection everywhere (even in rural landscape), a view that is a rarity in India , which is still struggling to provide basic infrastructure to 50% of its population.
I also experienced certain disappointments. It is bad to generalize, especially on the basis of limited experience. But, I am notorious for making misjudgments and forming biased opinions. I found the population in Malaysia lacked the entrepreneurial energy and drive that is visible in other countries in Asia such as Thailand , India , China , Indonesia , and Singapore . Some displayed a sense of lethargy and indifference towards their jobs and services they provide. Another aspect which was quite vivid was the amount of businesses owned by the Chinese ethnicity Malaysians in China. Many learned economists claim that nations become prosperous not because of the natural resources, but due to a usually neglected resource: its citizens. Therefore, a nation that develops its human resource and invests in its training and education wins the race out of poverty and ignorance.
Anyway back to Malaysia. Overall, I was impressed with the physical infrastructure in Malaysia and the opulence of the general population. My investigations further confirmed that the heavy investments in the infrastructure happened in the early to mid 90s (just before the Asian Financial Crisis). While, Malaysia suffered during the crisis, it can take some comfort from the fact that at least investments in the infrastructure have been a positive outcome of the wild ride.
The failure of the Government of India to develop robust infrastructure in the last 60 years has hindered the economic growth of the country. Rural areas are still disconnected from the trade centers. The fast track displacement of the population to the urban areas, which are already overburdened, is a disaster waiting to happen.
It is sometimes very disheartening to realize that the poorest nation I have ever been to is my own country! I hope that situation improves in future with more responsible and honest political leaders taking the reigns from the bureaucratic Congress Party.
Sunday, February 28, 2010
Life has been crazy in the last three weeks. I heard the stories about the consulting jobs being hard on personal life and being very stressful. I can validate these horror stories with my experience at my new job. Life is always on “emergency” mode. Any mistakes in the project can crucify the firm. Negligence is not an option.
I think two skills are the most important for success in Business Consulting:
• Attention to detail
• Stamina (to work 14-16 hours a day without losing concentration)
America and its history of wealth
Not to mention, my new job has tremendously slowed my reading and has adversely affected my contributions to the blog. In the last ten days, I finished a rather detailed economic history of America. The book is titled “An Empire of Wealth” written by Mr John Steele Gordon. Mr Gordon, who reminds me of a cheap Vodka Brand sold in the US, is a very well respected American Historian. He has an uncanny ability to write in a simple language and to tell a story in an appealing manner.
American history of wealth is a detailed tale that starts with the colonialisation of the North American continent by the Englishmen and other Europeans. The initial attempts to settle were quite unsuccessful due to unpleasant weather, lack of resources to sustain life, and disease. Slowly, the settlers adapted and the real boom in the agriculture started with the introduction of a cash crop called Tobacco in Virginia. America for its initial 125 years of history was a net importer, most of the exports were agricultural commodities and the imports consisted of processed metals, machinery etc.
American industrialization developed on the foundation of stolen intellectual property from Europe. Most of the machinery for the industrialization such as clothing mills, weapon designs, smelting and steel furnaces etc. were copied from the European designs without paying any royalties towards these inventions.
US and other western countries never flinch to criticize corruption or inefficiencies in ruling associated with democracies. The book accounts the widespread corruption and crony democracy that infested in the US in the second half of the nineteenth century. Slowly but steadily, the system of governance improved and led to the current powerful (though not without corruption) institution of democracy and freedom. This book provides some hope and optimism to the sustainability of the democracy, especially for countries like India.
Another key aspect of the US’s development into a strong nation was its trade policy. For a significant duration of the US history, the trade policy was extremely protectionist, guarding the US’s domestic industries from the European industries that enjoyed large economies of scale. The distinction between the North and the South of the US becomes very clear in the discussion of the trade related policies. The North, which was highly industrialized, demanded tariffs and barriers on the foreign goods. The South, an agrarian economy, relied on the export of the commodities to other countries. Therefore, the Southern states were opposed to any tariffs on the trade. These dichotomynexits till date, the South being more conservative (read Republican) that the North (Liberal).
The story of the US economy is far from perfect. It was a system that took several iterations and painful series of failures to come to the current form. The main theme of the story always was pursuing self interest. The success of the US sometimes overlooks the high volatility of its economy and its vulnerability to producing bubbles and busts.
A good lesson from this book is regarding the role any Government should play in running the economic affairs of a nation. Trusting the direction of the economy on the “invisible hand” is not the best way to drive. The US history attests this theory with its endless cycles of continuous booms and busts that came to existence only because of the US’s policy of supporting Wild West style of capitalism.
America became an industrial and economic power first. The innovation and ingenuity that we associate with the US is a new phenomenon (post WWII). The achievement of large scale industrialization sows the seeds of invention and creativity. I think the next wave of large scale innovation and invention will come from Chine, which has been reaching industrialization scales once reached by the US in the nineteenth century.
Monday, February 15, 2010
I just finished reading the book India Unbound by Mr Gurucharan Das.
I began the book on a skeptical note after reading numerous books and articles projecting an overly optimistic future of India and its citizens. I must say the book did complete justice to the time and energy that I invested in reading over 350 pages in it. The author came across as a knowledgeable person equipped with keen observation skills. Now, some observations can lead to theories. Mr Das is very liberal to put forward his own theories. I believe that’s where the problems can arise. But, as far as the book in terms of original ideas and analysis is concerned, it is an inspiring work. The author utilizes various references to judge the state of Indian politics, economics, and society. For example, he compares India with China, Japan, the US, and sometimes India of the past. He nails the issues related to the lack of development of the capital markets in India and the way the Government and bureaucracy sabotaged the entrepreneurial spirit of Indians. I found his analysis related to the lack of progress and development in India quite intriguing and accurate.
My criticism is the sense of entitlement that he affords to claim through the access to politicians, his educated class upbringing, and knowledge through his business experience that the author claims in various parts of the book. It starts to rub on the readers face after a few references to his Harvahd education and exploits at P&G. To be fair, he does provide a good amount of original analysis to walk the talk.
The tone of the book can be described as politically neutral, socially liberal, capitalist by economic inclinations. The book has a lot of in depth analysis of the social order, politics and the economics in India. The author narrates with great faith and conviction the benefits associated with capitalism, liberalization, and equality. He has laced the book with rhetoric of the inefficiencies associated with the Government bureaucracy and the legacy of Indira Gandhi and Nehru. He has rejected the Nehruvian model of mixed economy as disastrous at best. His acerbity towards Indira Gandhi is very entertaining and enlightening.
Contradictions are inherent in the book and the author has failed to address several other models such as US, UK, Japan that grew and became industrial under the Government umbrella. These economies were protectionist and the Government bureaucrats played a significant role in the initial stages of the economic development in these countries. He ignores these facts and does not detail on why some models do so well and some did not. He also ignores the extreme capitalist versions implemented in Argentina that led to the bankruptcy of a nation and abject poverty of its innocent citizens.
He recommends that Venture Capitalists and entrepreneurs will revive India. He also glorifies the role of MNCs’s participation in the Indian economy. But, he again does not acknowledge the power of big corporations to wipe out the small entrepreneurs. The monopolies and inefficiencies associated with the capital markets do not make even the slightest mention in the book. I feel that just describing the benefits of capitalism is not sufficient to develop a strong economy in India. We need active participation of Government to bring out half of our population still stuck in the mud of dearth, poverty, and ignorance.
I think this is one of the better books written about India from a very broad perspective. This book has not only influenced mere mortals like myself, but powerful CEOs such as Mr Narayana Murthy of Infosys to write a whole book by developing some of the ideas mentioned in the book. On the whole, a very good book and a must read for young Indians.
Saturday, January 30, 2010
Just look (Click here) at the nerve of the Human Resource (HR) of P&G to submit a job description that only a code breaker can decipher. God have mercy on the soul who gets invited for the interview. If a smart person was chosen as the goat for this interview, the conversation may develop into something like this:
HR: Do you have experience with POB and SPOA?
Smart Interviewee (SI): (SI is perplexed and has rejected any prospects of getting the job. At least she tries to extract some humour out of the situation) Yes, of course! Is it similar to the PORP system currently utilized by your competitor?
HR: (baffled) err...yeah. So how many MCS/LCS projects did you undertake in your previous job? What were the key KPIs?
SI: I succeed to implement the CBS platform in five MCS/LCS projects. They key KPIs were PI, PBT, EBIT, and NOPAT.
HR: Aha! Great, seems like you will be perfect for this challenging role of MRM in the CBD-TIR department.
SI: (SI thinks, “What in the world is wrong with this HR lady?” But slowly growing in confidence that she might actually get the job, SI decides to play along.) Well, thanks. It is really nice of you to say that.
This can go on for a while, but some interviewees are not as smart as our Smart Interviewee. The following interview is a 100% real story. The victim: yours truly. In this recent interview that I attended, the interviewer was the COO of a mid-size company. I prefer to call him: Jackass. Here are some of the excerpts from the gory meeting:
Jackass: We need someone with reasonable work experience for this role. How many years do you have?
Me: As you can see in my resume (which Jackass should have), I have four years of work experience and two years of research experience as a graduate student.
Jackass: Ah, you seem to be overqualified for this position. I am not sure if this experience is relevant at all.
Me: uh, OK.
Jackass: Tell me how you make your decisions?
Me: Being a scientist and an engineer, I am naturally data centric in my decision making process. But, in business environments, where lack of data is not uncommon, I believe my pattern recognition, methodical approach, and logical frameworks will be quite useful to make superior decisions.
Jackass: I don’t think so. You see, you are too analytical. We need someone who is intuitive for this position. Decisions must be made without data.
Me: Sounds like gambling to me. Anyway, do you have any more questions about my experience?
Jackass: Tell me about your leadership experience.
Me: (After going through a well rehearsed script) As you can see, I have demonstrated leadership and teamwork skills through my participation and accomplishments at both work and outside the job.
Jackass: This is all good. But, I feel there is something missing. You see, we are not looking for the “best qualified” person for this role. What we are looking for is the “best fit”.
Me: What are looking for in the “best fit”?
Jackass: This definition is pretty liquid right now. It is subjected to alteration based on case by case basis.
Me: (Exhausted by this tomfoolery) Well, please let me know about the outcome of this interview then. I appreciate your time and interest. (What I actually wanted to say was this “Why don’t you shove the chair up your backend as I can barely differentiate between your front and the backside”)
This is an insane environment for anyone to find a job. First, employers seek for relevant experience. Then cometh the skills set, especially the soft skills. Last but not the least, “fit” is the nightmare word for any interviewee. An evil word that can dash any hopes of getting a/the job. I hope the bloodbath in the job market is over soon. It is plainly ridiculous when HR of employers utilize arbitrary parameters to judge a candidate as described in the above narrative.
Tuesday, January 26, 2010
In the late 60s and early 70s, big corporations in the western, developed economies accosted a new problem: increasing operational costs. Labour costs in the US and other economies rendered the profits of businesses very thin. These developments motivated the management of such organizations to seek some viable alternatives. Enter the second wave or model of Asian miracle!
Hong Kong was a trading hub for decades after Britain attained its operating lease from the Chinese. Now, there was an abundance of budding entrepreneurs such as Li Ka-Shing, Lee and Fung etc , who were ready to jump on this opportunity to help MNCs cut their operating costs by offering them a manufacturing outsourcing option. China had always rendered a source for cheap labour. But, there were structural problems within the economy: lack of infrastructure, lack of skilled workers, and a communist Government. Some entrepreneurs from Hong Kong decided to overcome these hurdles and established manufacturing plants in the province close to Hong Kong. Soon, many companies followed this course and profited from the trade with Hong Kong and China. Hong Kong initially evolved into a manufacturing outsource center for large MNCs. Hong Kong and later China started to attract significant amount of foreign direct investments (FDI) and new factories opened up in Hong Kong. After the liberalization of Chinese economy by Deng Xiaoping in 1978-1979, China also started to benefit from the foreign capital and technology.
Hong Kong was operated on the free market capitalist fundamentals. In the 70s and 80s after China became the global manufacturing hub, Hong Kong became an international financial center. China, after the economic liberalization, allowed entrepreneurs and multinational corporations to open significant manufacturing establishments in China. Poor farmers from rural areas were lured to the highly paid manufacturing jobs. Government promoted further FDIs by allocating Economic Zones (EZs) for exports. Companies were encouraged to export goods and were offered subsidized land and electricity for such ventures. The export oriented approach combined with the FDI and technology transfer via MNCs enabled China to become a magnificent economic powerhouse in a time of two decades.
After separation from Malaysia, Singapore inherited a wetland devoid of any natural resource. But, Singapore’s leaders were not deprived of visionary ideas and ingenuity. They put forward a plan to develop Singapore into a manufacturing and trading hub. MNCs were attracted and were presented with a superior infrastructure, un-unionized work force, and business friendly Government, which understood economics very well. These factors enabled Singapore to take initial steps to slay poverty. In the next wave of modernization, Singapore’s leaders realized that China’s emergence as a manufacturing hub would threaten Singapore’s competitive advantage. In the 90s, the Government visionaries shifted to transform Singapore into a services and technology center. Singapore currently hosts multitude of research centers for Biotech and Pharmaceutical companies. It also is slowly becoming a regional center for Information and Communication Technologies (ICT). Education is the new growth industry and Singapore has positioned its quality educational institutions and infrastructure to benefit from the increasing demand of quality education in other part of Asia such as India, China, and Indonesia.
Well, I tried my best to summarize the contents of the book “The Miracle”. Each Asian miracle economy has its unique features and story. Japan and Korea developed as more introvert and protectionist economies. Their focus on manufacturing created brands such as Honda, Toyota, LG, Sony, Samsung etc. But, they have not achieved global integration in the services sector as achieved by Singapore and Hong Kong. Singapore, Hong Kong, and China developed in a different path by attracting FDIs and MNCs. Steadily these economies diversified and developed a local ecosystem of entrepreneurs and businesses.
There are some lessons for India and other countries from these stories.
1. Government must play a significant role, at least in the initial stages.
2. Global integration of economy is a necessary condition. To manufacture products/services that are competitive in global markets should be an attainable goal for all the companies (public/private) in an economy.
3. Economy needs technology transfer and training of personnel, MNCs may play a critical role in garnering these pragmatic skills at a job.
4. Government needs to be create a business friendly environment: render good infrastructure, less red tape/bureaucracy, if possible low taxation, lower import and export taxes etc.
5. Government must develop strong law enforcement organization and a culture of respecting contracts.
I cannot refrain from the temptation of stating the obvious with a sense of discovery. In the current environment, there are certain natural advantages for the Indian economy. Large domestic market, growing purchase power, access to natural resources, entrepreneurial spirit among citizens are a few that come to my puny mind. The Government of India must employ a more economy friendly policy to harness these sources of development and growth. Indian citizens must also develop a culture of voting for the right economic policy, not for petty affairs such as state separation or menace to our culture by globalization. I think the change in a pseudo-democratic society like ours needs to come from the smallest unit of the structure: us!
“Its always economics, stupid!” – Bill Clinton(during his election campaign in the 90s)
Sunday, January 24, 2010
Last week, I had an inspirational discussion with my wife, sister, and brother-in-law regarding the criticism of public policy recommendations prescribed by Mr. Narayan Murthy of Infosys Technologies. These conversations or I must say, messages/comments, motivated me to stretch myself to read more about policy related ideas in the Asian development. Here is an article authored by my South Korean friend Bin Kim Young, who is an amateur economist and an avid reader of the issues related to development and public policy. He outlines the architecture of these “miracle” economies.
Some background first. South South Korea, Taiwan, Singapore, and Hong Kong had per capita GDP equal to or less than that of India in the 50s and 60s. After posting unprecedented growth rates of over 10% for next two-three decades, these economies shattered the label of “developing economies” or “third world economies” and joined the prestigious and powerful group of OECD countries. Please find the illustration of to support the poverty obliteration in the chart below:
The story of this remarkable economic development and poverty eradication has been well documented in the landmark book “The Miracle” authored by Mr Michael Schuman. This book is a magnanimous endeavour to identify the mechanics of success of Japan, South Korea, Singapore, Honk Kong, Taiwan, China, and more recently India and Indonesia. This book is a must read for souls interested in the development and growth of economies. I will try to summarize the key points of this book in the next two blogs. I will primarily focus on the central features of each country’s economic policy and execution of these ideas. A detailed understanding of the success story of these economies shall pave a path towards forming a coherent economic development policy for our nation.
Japanese economy was in doldrums after the World War II. Most of the industries were paralyzed, Japanese Government was severely constrained with cash, and unemployment was running upwards along with poverty. In these situations, aid from the US and the vision of a few Japanese intellectuals became the turning point of the economic revival. The Japanese marvel was fundamentally based on strong Government intervention and a strategic vision of the Economic Development Board (EBD). Ministry of International Trade and Industry (MITI) was conceived and it dictated the growth policy of the nation for next half of the twentieth century. MITI selected companies and industries which were “winners” and subsidized their capital, input resources, and other requirements. Some of these industries were protected by high import taxes and trade barriers. In the next stage, export orientation to the US and other western economies became the mantra of MITI. Many infrastructure related industries such as steel, heavy machinery, and manufacturing were encouraged by the Japanese Government.
A dedicated team of bureaucrats at MITI guaranteed that most of these policies were successful. Japanese industries overcame lack of natural resources via discipline, efficiency, and competitiveness. In the later stages of development, entrepreneurs such as Mr Morita (of Sony) and Mr Honda defeated the MITI’s guidelines to develop innovative products and became pioneers of the electronics and car industry. The ecosystem developed by MITI led to the industrial wonder that we now know as Japan.
One place where Japanese fell behind was the integration of Japanese economy with the world economies. Service sector was not fully developed, at least in a comparison with the other developed economies in areas such as finance, IT, technology etc. The structural problem of Japanese economy of isolation and cultural protection discouraged immigration. Moreover, its success bred arrogance. With aging population and stagnated economy, Japan is considered a dog when compared with the China and India.
Park Chung Hee, a dictator who ceased power from the South Korean democratic Government in May 1961, envisioned turning South Korea into an economic behemoth. His vision was very similar to that of Japanese bureaucrats. Immediately, South Korean junta and the economic bureaucrats copied the successful Japanese “model” of MITI and the state supported industrialization. Heavy industries and infrastructure were subsidized and developed at a rapid pace.
South Korea rejected the popular idea (at that time) of import substitution and adopted export orientation as the future direction for their economic growth. South Korean conglomerates, Chaebols, were at the heart of the South Korean miracle. Chaebols were required to compete in the international markets. This policy compelled them to become efficient and quality oriented. The vision and will of the benevolent dictator ensured that all the policies were implemented with utmost urgency and rigor. Smartly, South Korea did not bother to reinvent the wheel; it just copied the “proven” Japanese model. Now we hear about LG, Samsung, Hyundai, Kia, and many other South Korean brands. We better get used to these brands and Koreans as they are here to stay.
What can we learn from these two models?
1. Government must support basic industries, at least in the early stages
2. Industries must be coerced to compete in the international markets
3. Continuous improvement and advancement of technology is critical for sustainability
4. Execution is the most significant feature of any policy. Success of a policy desires conviction and commitment from the rulers towards the cause.
In the next blog, I will try to address the remaining economies: Singapore, Hong Kong, and China. These economies are deeply integrated with the global economy and propose a mutant of the Japanese model discussed in this article.
My MBA colleague Mr. Bin Kim Young comments on the Asian business models:
“Four Asian Tigers” or “Asian Four Little Dragons” means the newly developed Asian economies of Hong Kong, South Korea, Singapore, and Taiwan. These countries had become famous for their high economic growth and rapid industrialization between the early 1960s and 1990s. The growth rate of real gross domestic product per capita from 1960 to 1995 was around 6% per year. Even though attention has increasingly shifted to other faster growing economies, such as China, Indian, and Vietnam, all of these tigers have successfully transformed into high-income economies. All four Asian Tigers have a highly educated workforce and good infrastructures, but have specialized in areas where they have a competitive advantage. In other words, each of them has a different model.
For example, the economy of South Korea relies heavily on exports from a few conglomerates and it is among the world's top exporters. It is home of well known global conglomerates such as Samsung, Hyundai-Kia, and LG. The Hyundai-Kia Automotive Group is Asia's second largest car company and one of the top five automakers in the world. Samsung is world second largest cell phone maker. And South Korea makes half of heavy ships in a world.
On the other hand, small and medium-sized businesses make up a large proportion of businesses in Taiwan. Most of the development was thanks to the flexibility of familiar companies which is relatively small, but produced for foreign partners like IBM, DEC, and HP. But the importance of the State must not be forgotten. It was the central government which coordinated the industrialization process, created the infrastructures, decided the strategic priorities and, when necessary, recurred to impose its conditions.
Hong Kong is the gateway of Mainland China, thanks to favorable geographical position and trading opportunities to and from China. Under British administration, it soon became a thriving legitimate international port. By the late 20th century, Hong Kong had become the seventh largest port in the world and second only to New York and Rotterdam in terms of container throughput. The Kwai Chung container complex is the largest in Asia. Moreover, Hong Kong shipping owners are second only to those of Greece in terms of total tonnage holdings.
The economy of Singapore is a highly developed state-driven capitalism. Although the government intervention in the market is kept at a minimum, the state controls and owns firms that comprise at least 60% of the GDP through government-related companies, such as Temasek, and GIC. It has a business-friendly environment, relatively corruption-free government, and stable inflation. Exports from multinational companies provide the main source of revenue for the economy. Thus Singapore could be an extended concept of entrepot, which is a trading post where merchandise can be imported and exported without import duties.
Tuesday, January 19, 2010
As the title suggests, this book discusses a controversial topic that brings the relationship between materialism and happiness into question. The authors have composed their creative effort by relying on results such as below. What we see below is a weak correlation between the income equality and longevity of citizens.
What I find remarkable in the book and related blogs is the assumption that the argument has been framed around: longevity of life can be an indicator of equality. The causation linking equality of income to happiness and to a longer life is not very convincing. The factors that may be quite important in determining the longevity of life or happiness may be plenty. Not to make a comprehensive list by staining my few working neurons, I will propose the following as other important parameters that need to be controlled for developing a comprehensive argument: Spiritual inclination, genetic predisposition, family harmony, societal structure, weather, availability of leisure, access to medical care, economy's fiscal position etc.
I find it hard to comprehend these arguments is when I find the four “social democratic” economies of Sweden, Norway, Finland, and Denmark scattered all over the range of the age distribution covered in this study. Well, as far as I understand, these countries are quite similar in the economy, weather, race, culture, and some other factors. The dispersion needs a valid explanation. Moreover, the income distribution disparity between Singapore and US may be quite comparable. But to compare Singapore’s older population, which achieved its independence quite recently, to US’s older generation is not an admirable argument. Singaporean elders faced severe malnutrition, multitude of tropical diseases, and dismal medical facilities till about last two and half decades.
My observations merely question the confidence and the legitimacy with which the book has been authored by utilizing data collected in the developed countries. I am sure this data has been shown to be “statistically significant”, but most of us who understand the statistical analysis would acknowledge that it may not mean much from a pragmatic outlook.
Someone needs to take a close look at the data and find better explanations than to resort to oversimplifications and grand generalizations. I must say that there is some truth in the statement that societies that refrain from discovering bliss in materialism and that do not contend in relative pleasure, will be happier compared with others. But, to claim this via an incomplete scientific study and to author a grand book requires some disconnection from the obvious reality.
Tuesday, January 12, 2010
In my recent trip to India, I couldn’t keep my mind off the vivid disparity in the purchase power of people in India. I must entertain the shouts of “cliché again” by the readers at the opening line itself. But if the readers may persist for a few more minutes, I may be onto something. So, what I saw was a clear case of what some economists call increasing Gini Coefficient, an indicator of income disparity/polarity in a society. On the one hand, I observed a lot of Indian eking out a meagre living by what some call a respectable profession while others call begging. On the other hand, I could not take my eyes off the over fed, over paid, and obviously overweight Indians, who had no embarrassment in exhibiting their newly acquired wealth.
These disparities were made even more vivid in my visits to the rural and inner most parts of India, Chattisgarh. Lack of proper infrastructure such as roads, electricity, drinking water, and even clean air has become a national problem. Of course, rich people cannot remain unaffected by these inconveniences. But they can minimize their discomfort by buying expensive cars, electric generators, and living in better houses (equipped with all the comforts of the world). Poor people are the ones who face music everyday and need to put up a fight for the essential resources. If you have kept up with the story so far, I must introduce my point of the narrative.
The Government of India needs to fill the gap to improve the sorry state of affairs in our infrastructure. Why doesn’t that happen? Now, I am not tempted to follow the approach taken by others to oversimplify the issue at hand. But, I am not going to delve in this rather short piece about the details of inefficiencies in the Indian Governance. I will concentrate of one of the causes of Government’s failure to address these burning issues and that is: TAXES. Government implements the entire social and community programs through taxes or by borrowing, which is also known as budget deficit. India has been running deficits of the order of 7-10% of the GDP in the last few years. It cannot afford to borrow further (will be discussed in the upcoming blogs). Therefore, Government has resorted to the only tool available at hand to increase its revenue: Taxes.
Government of India has decided to levy a Goods and Services Tax (GST) on its citizens starting April 2010. Before I overlay my opinions on this topic, let me give a small background on why world’s fourth largest economy fails to generate enough taxes. First, due to lax law enforcement and corruption, the Government of India gets its tax revenues from only 50-60 million tax payers. Rest of the some 1.15 billion individuals do not show up in any tax records. Second, the corporations and high net worth individuals hire tax consultants and partake creative accounting to evade taxes. Last, most transactions in India are never recorded and/or done through underground routes, decreasing the tax revenue quite significantly for the Government.
Government of India’s decision to introduce GST is seen as positive towards improvement of infrastructure and development of India. But three issues call for our attention to ensure the success of this proposition.
1. Poor Indians can hardly afford any more taxes. Over 400 million people in India subsist with less than Rs 100 a day. To tax 10% of their income will be denying them a stomach-full meal.
2. GST can be collected if the transactions are recorded. There is no guarantee that the transactions will be documented effectively. Given our citizens’ creativity (in the detrimental methods), one has to be a sceptic in the proper extraction of the taxes.
3. Will the appropriated taxes be allocated properly? Another billion dollar question that I do not even desire to attempt!
Being a mere mortal and of limited capacity of the grey matter, I will leave at the description of the problem here. What I believe is that a carpenter may change his tools as much as he wants, but the final outcome of his effort will also be dependent on the quality of the wood he utilizes. Similarly, Government of India can change the methods of tax collection, but inefficiency and corruption will not yield the desirable outcome of such policy.
I recently ran through the book “A better India, A better World “by Mr. Narayana Murthy of Infosys. This book is a collection of numerous speeches made by Mr Murthy in his career as an entrepreneur and his recent role as an advisor to the Ministry of Education. This blog is not intended to provide a critical review of Mr. Murthy’s query on the paucity of everything in India. But, I cannot resist the temptation to point out some of my observations, some praise and some criticism.
Let’s start with the good stuff first. Mr Murthy is a keen observer of the dynamics of the Indian society. His western experience and interaction was utilized quite effectively to portray the inadequacies of the Indian society. His approach to recommend policy is quite scientific: description, diagnosis, and prescription. The book covers a coterie of topics such as education, corruption, infrastructure, population, poverty etc. In his analysis, he comes across as a passionate and genuine individual. In most of the issues with India, he presents an excellent case in the departments of description and diagnosis. But the plot goes awfully bad after this.
His prescription can be described as shallow and generic. His speeches, which are intended to be grand and motivational, come across as a boring repetition of stale ideas that have existed for a while in the journalistic publications. What went missing was a fresh set of ideas beyond the usual fixes of corruption such as better law enforcement, accountability, and IT!
If he displayed lack of creativity in the policy prescription, then he continued this trend by offering the policy prescription without dwelling into the actual mechanics. For example, his three prong solution to corruption has been described in the last paragraph. But, he does not go into the necessary details on how to implement these changes in the system. He admonishes average Indian as everyone wants to be a thinker not a doer. Not sure if it such a bad idea to think or have a thinking process in our society compared with some other nations who want their citizens to be mere order processors.
Regarding his speeches, I must say they bloat with clichés and quotations. The quotations are sometimes inserted without much appreciation to the context or necessity. Just browsing through the quotations, one might be tempted to compare Mr Murthy with raging intellectuals such as Pandit Nehru. I am not susceptible to such a pitfall as I am aware a good quotations book can become an ample substitute to reading an entire array of grey matter stimulating books. Lastly, I cannot get rid of the arrogant pomp and self entitlement that is vivid in the book due to his success as an entrepreneur. His success is not only due to his intelligence and diligence but also due to being at the right place at the right time or what simple men call “LUCK”. Mr. Murthy shows amnesia to the above observation or rule.
In all, he is a living reflection of the contradictions that mar the Indian society in a grand scale. I have read and heard about his rants on him being humble. Mr. Murthy may be repulsive to apply the words such as “humble” or “unassuming” in practice, but does not hesitate to utilize the same words in describing his personality. But, after hearing the stories regarding the money spending orgy at his daughter’s wedding at the Leela Palace in Bangalore, I am not going to buy his claims on the face value. I believe his analysis on India is an educated one. But, there is no need to done him as the latest social scientist or visionary. I bet the following Hebrew saying is apt in this context:
“After a man is rich and successful, he is not only handsome and wise, but he also possesses an excellent sense of humour.”
Barabar Crossette’s article is one of the many that have been written during the smear campaign against India in the name of journalism. Due to the inherent biases, contradictions, and superficial analysis, Barbara Crossette’s article is laughable at the best!
Barbara Crossette (Courtesy: Authorsguild.net)
If India is labeled adolescent in the article, then the award for childish flip-flop must definitely go to Uncle Sam. A few points where the author’s “educated" analysis is not quite right:
1. On nuclear proliferation, what moral and legal authority do the "developed" nations have to dictate India's stand on its nuclear program? Questions about the safety of our program are quite invalid considering we haven't yet bombed anyone or did not have even one nuclear accident (Barbara may not be aware of the Hiroshima and Three Mile Island incidents or does she conveniently ignore them before preaching India a lesson on nuclear restraint/safety).
2. On the matter of trade also our "expert" author maintains her consistent ignorance on the facts underlying the denial of Indian Government to succumb to the big corporations that are called "farmers" in the US. These "farmers" get huge subsidies in the order of GDP of some of the developing nations. Indian and developing countries' farmers can never compete against such companies. Entry of these subsidized commodities into India will lead to end of livelihood of over 60% Indians. Therefore, Indian Government prefers life of its people over capitalist efficiency. This should explain the defensive trade policy of India and other nations. Before Barbara preaches India on the trade policy, she should consider taking a course on Macroeconomics 101 and should educate herself on the century old predatory economic policy of her nation (and other EU members).
3. It doesn't sound right for Barbara to propose a Carbon Cutting program to India when she and her compatriots are and have been the #1 polluter of the world for at least three generations. Barbara again maintains her anti-India rhetoric with abject ignorance and denial!
4. Complaining about corruption in Indian context doesn't make much sense when lobbyists in US have corrupted their whole democratic process. Misappropriations of the order of trillions of dollars during the war on Iraq are conveniently swept under the rug. Barbara needs to look at the other three fingers' direction when she points one at India's direction.
5. I need not touch upon America's stand on human rights as its antics at Abu Ghraib paint quite a colorful picture. Talk about Visa denial is a complete non-sense as American approach to allocate Visas to developing countries’ citizens works more like a lottery. Also, someone needs to give Barbara a count of life lost and/or irreparably affected by the actions of her compatriots all over the world.
I have to give her credit where it is due. Her article is highly accurate in an unintended way. One has to make a small adjustment to the article to make it factually correct and logically sound. REPLACE INDIA WITH AMERICA.