THE IDEA OF INDIA

WELCOME TO MY THOUGHTS, RESEARCH AND IDEAS WHICH ATTEMPT TO DEMYSTIFY THE INDIAN ENIGMA















Tuesday, May 19, 2015

India’s Pink Gold: an Ocean of Nutrition and Protein

Meddling with the well established Bovine Economy will be a drag on India’s Development 

READ FULL ARTICLE PUBLISHED IN 'THEWIRE.IN' - USE THE LINK BELOW.

http://thewire.in/2015/06/22/why-india-must-not-disrupt-its-balanced-bovine-economy-with-a-ban-on-beef/?utm_source=Email_Beef_Ban_News_Update_23Jun15&utm_campaign=BeefBan-News-Update&utm_medium=email




Thursday, May 7, 2015

Hindu Rate of Growth! BJP’s Social Ideology a drag on Economic Development?


India’s efforts to race in the league of the economically developed and politically matured countries of the world look somewhat premature. There is a lot of hype mostly emerging from relatively higher levels of growth rates during the last decade and half; as this happened due to low absolute levels to begin with. It is the large population count, a basic multiplier that leads to grand GDP estimates, real opulence that could generate sustained demand, promote economic activity and spiral up further growth is limited. At best the consumer-heroes of India are the middle and lower middle class who must engage the market to meet their basic needs such as food, energy, transportation, education, health and technological essentials. While affordability and appropriate technology is still the issue, the relatively higher inflation is leading unexpected race to achieve affordable living.

A considerable social and ideological baggage has sprung-up since the BJP assumed power which potentially can pull down and derail the economic growth and social development prospects of India. Note that India has come a long way overcoming the drag of the socialistic ideology, since about 1985 the GDP grew to increasingly higher levels continuing until now. Although the recent global downturn has only marginally depressed India’s GDP growth, it will be the only large economy in the globe expected to register a relatively high growth of around 6-7 percent during 2016 and 2017. Such a higher rate of growth if sustained for a decade and more, can then enable India register a place in the ‘new league of nations’ that will propel global economic development during the best part of 21st century.                                                                                                                                                                                                                                                                                                                         Now let us ponder over the conditions that are necessary for India to register a sustained higher growth rate during the immediate to medium term. Firstly, India’s natural advantage of harvesting and exploiting vast natural resources will yield higher growth only when it has access to investible funds and appropriate (green) technology. Both these inputs are available to India from abroad through the process of foreign direct (FDI) and foreign institutional (FII) investments. Secondly, the relative advantage of having a youthful population which will continue for at least another two to three decades can sustain only when they are educated and skilled appropriately; which in tandem with increasing investments get worthwhile rates of return through enhanced productivity in essential sectors of the economy such as manufacturing, services and agriculture.  Lastly but not the least, India must exhibit social cohesion and societal peace in the manner that it becomes the preferred destination for foreign investors and technological flows assisting the economy to progress through improved financial efficiency and reduced cost of production.  The structure of modern labour supply in India is uniquely lopsided favouring the high castes who are socially and economically better-off, keeping away large proportions of Scheduled Castes and Tribes, the Muslims and selected ‘other backward classes’  from the modern labour market. This scenario needs to be calibrated towards socially inclusive labor market, which amounts to no less than a paradigm shift.

Recent interferences by the ultra right-wing groups who fantasise India to be a Hindu state often identify themselves as a form of social-civil society have thrown off-gear the policy frameworks, legal and civic institutions regulating economic and social domains of millions of citizens. They are able to effect policy reversals in selected states and even at the centre, such as withdrawal of quota-reservations to Muslims (a case in Maharashtra), banning the culling and consumption of livestock and so on. Even many compelling legal cases with respect to police excesses and motivated political threats are being withdrawn. There are changes and revisions being made in school curriculums promoting right wing Hindutva ideology. The scientific temper among the students and the population at large is being challenged in a manner that unsubstantiated beliefs are used as citations and theories to the dismay of modern thinkers, practitioners of reason and science.

Establishing links between religion and levels of GDP across the nation is taboo. It is instructive, however, to learn that, unlike the Christians, the Muslims and the Buddhists who constitute much of the population of the globe and spread around a large number of countries across the continents; the Hindu religion is confined within shores of India from three sides and the imposing Himalayas in its north.  Note also that over 95% of the Hindus live in India and only small numbers in Nepal, Bangladesh and Pakistan; all these countries have registered low levels of per capita GDP of less-than USD 1500, India being on the top.

Over 61 per cent of the Buddhists on the other hand domicile in countries which have high levels of GDP including Japan, South Korea and China.  Incidentally it is a matter of historical fact that Buddhism emerged in the Indian sub-continent yet it did not survive on these lands to the extent that only about two percent of India’s population is Buddhists. Similarly, practically all Christians with the exception of Congo and Ethiopia (about 124 million out of 1.5 billion) live in countries with very high levels of GDP, such as the USA, most of European nations, Brazil, Mexico and Russia.  Even over 55% of the Muslims live in countries which have relatively higher per capita GDP although the most numerous of the Muslims live in India, Pakistan and Bangladesh with meagre GDP. This simple association between religion and GDP summarizes the broad parameters of religiosity and culture and its influence on the economy and Hindu-radical groups need be better informed about this association.

On another plain, it took a President of another country - the USA to preach lessons on diversity, tolerance and creation of equal opportunity during his visit to New Delhi in January 2015. Mr. Obama even invoked Mahatma Gandhi, the icon of religious tolerance during the ‘63nd annual national prayer breakfast’ speech in Washington D. C, to point out that ‘looking at what is happening in India even Gandhi would have ashamed’.  Politically though, at the moment in India, the presence of minorities especially the Muslims are of no significance excepting as a historical fact. They often are of entertainment value for the general masses and not welcome co-patriots.  However, the Muslims constitute the backbone for a number of traditional manufacturing; the structure and growth of modern industry especially in the areas of textiles, construction, leather, garments, gems and jewellery and iron and steel and have been based on the artisanal skills they carry to this day. A recent estimate undertaken by this author suggests the Muslim labour force contributes relatively higher value added compared to all other socio-religious categories at all levels of education excepting the topmost which is affected by labour market and employment distortions caused by quota system.
 

The state governments in India wield a substantial independent power in many areas of governance especially those affecting the basic needs and human development. The public police are implemented mostly through state bureaucracy the solutions for the social and also many economic issues have to be found at the local level. It is in this context that India and its states need to establish institutional arrangements to ‘equal opportunity a cherish goal and institutional mechanism to be found and executed. Prudent economic and social policies both at the national and state levels can yield higher economic growth lets India falls again in the trap of the so called ‘Hindu (Low) Rate of Growth’.

Wednesday, January 28, 2015

Pathways to link Communities with Governance at the Grassroots in India


National Planning takes effect and yield fruits at the grassroots. It is essential therefore to make assessment of the efficiency of the government programs at the lower level of administration. Factual and evidence based research will enable effective policy engagements with the district and state level political and bureaucratic institutions for corrective measures as well as making new demands that are needed for the communities and local stake holders.  Public policy approaches to development are generally limited to levels of India and States. Given the vast geographic expanse and high population concentrations across India a meaningful development strategy that address acute poverty, malnutrition, illiteracy, ill-health must occur at the level of the districts. Further, hitherto development policy decisions were made using a combination of district level per capita averages and a small set of indicators such as average rainfall and agricultural productivity; little information on the quality of life and human development were available.

In the recent past, however, dependable data on a number of qualitative aspects of human lives have become available at the level of the district. Such data can be extracted from the decadal Census (most recent 2011), the annual national sample surveys (large sample size surveys are done at about five years interval) and district level household surveys. The ‘US-India Policy Institute’, Washington D. C and ‘Centre for Research and Debates in Development Policy’, New Delhi have extracted a number of socio-economic and human development indicators from such multiple, nationally representative sample surveys, for all districts of India. They are reviewed to assess and compute the ‘levels of development’ and ‘equity of access’ to development for each district. The composite index consists of four dimensions - economic, enabling material-well being assets, education and health. The final results in the form of maps are scheduled to be released at New Delhi in January 2015, in the form of a composite development index and four indices highlighting components described above.

Continuing this district level analysis, in the second-stage the development indices are computed to each of the major socio-religious communities (SRCs) for each district of the state and all districts of India.  The differentials according to SRCs are presented in graphic format. This analysis is resonant of the Sachar Committee Report which was completed in 2006; current analysis can be termed as mini-Sachar report for each district of India. In this context there is scope to elaborate analysis of data on employment, financial allocations and measurable outcomes disaggregated by SRCs so as to operationalise policies for improving diversity in public programs. The district level mapping and analysis for operationalising diversity in public and private space cannot be over emphasised.


Generally the district-level reviews use service statistics drawn from district records which often are dated and qualitatively poor. The strength of the current research lies in the type and source of data as well as methodologies used in analysis. Information are extracted from unit (household) level records from well respected surveys, therefore estimates are robust and academically sound. These estimates provide the academics, watchful communities, civil society and people at large opportunities to find out the pathways to engage the district level bureaucrats and governance.

The most important issues confronting the communities at the district level are two: a) to begin with financial allocations are inadequate; yet huge proportions of the development funds earmarked for annual expenditures on essential programs such as mass primary/elementary education, women and child development services, public healthcare and employment guarantee scheme are never appropriated and spent. b) The inequity at the level of the district is a serious issue; there are many versions to it such as based on occupations, education levels and also social identities expressed in terms of religious and caste affiliation. The last dimension which important at local level in distribution of welfare benefits; they have become contentious at national-political level leading to promotion of discrimination at the grassroots.

The following is a short list of selected districts at about one hundredth interval. North Delhi is ranked 1 with an index of 0.69. Ideally first rank holder could have taken a value of 1.00 but even the first district has huge scope to develop for example in health parameters which has only a value of 0.51 although the enabling index is 0.91. 


Rank |Dist | State
Economic
Education
Enabling
Health
Devpt. Index
1     - North Delhi (DL)
0.68
0.66
0.91
0.51
0.69
100 - Shimla (HP)
0.47
0.54
0.52
0.45
0.50
200 - Uttarkashi (UT)
0.33
0.52
0.58
0.36
0.45
301 - Saharanpur (UP)
0.35
0.41
0.45
0.40
0.40
308 - Varanasi (UP)
0.36
0.43
0.47
0.35
0.40
400 - Osmanabad (MH)
0.33
0.41
0.40
0.36
0.37
500 - Chandauli (UP)
0.34
0.43
0.25
0.22
0.31
599 - Araria (BI)
0.27
0.19
0.06
0.12
0.16

However, the contrast is comparing the first ranker and the last. Araira in Bihar has recorded a development index of only 0.16 compare this with North Delhi which has a value of 0.69. Note that Araira has no enabling economic environment which can push development any time near future unless critical policy strategy and investments are made soon. It is this kind of analysis both within the state and across the state which gives comprehensive information for upliftment of communities living in clearly identified districts of India.

It is in this context that the district level development and development index provide ‘essential empirical evidence that makes a case for setting up of National and State-level Equal Opportunity Commissions (EOCs)’. The state level aggregated district-reports will help the state government in many respects. Besides enabling assessing and monitoring the levels of development and equity, the indices will make it easy for the state government to articulate the need to establish 'State Level Equal Opportunity Commission'. Such EOCs can independently deal with differentiation in access to public services at the grassroots level, thereby enabling the elected government and associated institutions to focus their time and energy to the development of the state.  The EOC as an independent institution will facilitate communities and local stakeholders - civil society and private investors, to interact with each other as well as with the government bureaucracy to thrash out contentious issues and strengthen welfare policies. Further establishing State-EOCs will severe as examples for setting up a national EOC as well.  


To articulate these relationships better it is essential that development practitioners, government officials, political leaders and civil society groups come together to discuss and debate strategies to address district level development and diversity of development. Such data will also give a comprehensive visual picture of the development of the nation in a comparative perspective promoting strong sense of nationalism and patriotism. DDDIx makes a good case for district level monitoring of development strategy considering the aspects of equity and social justice.

Monday, January 5, 2015

Will the ‘Ordinance-2014’ passage to the Insurance Laws (Amendment) Bill-2008 yield Business?


The federal NDA government, based on a cabinet decision passed an Ordinance clearing the Insurance Laws (Amendment) Bill (ILAB) with an enhanced FDI share of 49% heralding the beginning of second and third generation reforms India. This bill originally drafted by the UPA in 2008 and cabinet approved with 49 % FDI in 2011 itself; yet  UPA could not get its passage through the bi-cameral chambers of Indian Parliament. The bill was also opposed vehemently by Communist leaning parties, the BJP and NDA partners.

The Politics of Insurance Bill
Passing Ordinances strategically is not new; the UPA got the ‘food security bill’ through this process in 2012. The NDA’s current move of strategically getting ILAB through Ordinance announces a pro-business and pro-FDI stance; while UPA and other opposition parties made the normal passage difficult due to political logjam.

The NDA could not place this bill for a vote and process in the Rajya Sabha because of a lack of ‘quid-pro-quo’ that is common during political engagements. The opposition was united in blocking the passage of Insurance bill because the Prime Minster during the recent weeks did not recognize the hotly contentious issue of religious conversions which is hurting the very foundation of the Constitution and secular ethos of India. Whether such a quid-pro-quo and role reversal is fair in political decision-making is a moot point; but what was real was the inability of the passage of a landmark and path breaking piece of legislation. For Mr. Modi, it was essential that a positive investment friendly gesture was made before the visit of President Obama to New Delhi in late January 2015.

The Modi government, a day after Rajya Sabha went to recess, passed an ‘Ordinance’ to bring to life the ILAB. The Ordinance is a temporary arrangement as contained in article-123 of the constitution. “If at any time, except when both Houses of Parliament are in session,  the President is satisfied that circumstances exist which render it  necessary for him to take immediate action, he may promulgate such  Ordinance as the circumstances appear to him to require". The Ordinance thus promulgated carries the same force and effect as an Act of Parliament. However, the Ordinance has to be laid before both House of Parliament and it will cease to operate at the expiration of six weeks from the reassemble of Parliament. Once the ordinance is laid in Parliament, the government introduces a Bill addressing the same issue. This Bill is supposed to highlight the reasons that necessitated the issue of the Ordinance. Thereafter, the Bill follows the regular law making process.

Will the ILAB pass through the regular law making processes?  The Finance Minister of India Sri. Arun Jetli stated that “the country cannot wait even if one of the Houses of Parliament waits indefinitely" (Economic Times 24th December 2015).  This is a statement of power and statesmanship, yet it generated strong sense of uncertainty. There is an indication that the Modi government will be ready should that becomes essential to summon a ‘joint parliamentary session’ to press for the passage of the ILAB along with a few other bills.  

The BJP along with its NDA partners is placed well with assured support of 49.7 per cent of the MPs. It would not be difficult to win over the support of 3-4 more MPs from other parties to get the bill passed during the joint session. There could be a possibility, however, of opposition to this bill from within the NDA and also many from within the BJP itself. That is a real and serious danger in summoning the joint parliamentary session to pass the ILAB. Note also that so far in the history of Independent India only three bills namely, the Dowry Prohibition Act - 1961, the Banking Commission Repeal Bill - 1978 and the Prevention of Terrorism Act - 2002 have in passed at the joint sessions. 

The Economics of Insurance Bill:
The insurance sector could become an assured source of capital for development projects that have long gestation such as building road and rail networks, irrigation projects and so on. In the industrialized economies practically all workers maintain documented payment and savings plans including insurance schemes, but insurance penetration is merger in India.

 The penetration of both life and non-life insurance is low. The latter has many components such as crop insurance, health insurance, insuring small and micro-businesses and so on. Data base on the current status of insurance is also week, although Insurance Regulatory and Development Authority maintain rudimentary information and not in public domain. The total insurance sector business was about $64.5 billion during 2011, covering just about 10 percent (200 million insured persons) of total workforce mostly employed in government and organised private sectors. According to Indian Brand Equity Foundation, the government claims that 25 million farmers (out 120 million) are insured, but this amounts to only 4.5% of the total non-life insurance market. Further only 124 million policies were in operation under the health insurance in 2013.

The ILAB-2008 with enhanced share of upto 49 percent for the international investors will attract higher FDI and FIIs. This would also facilitate the re-insurance companies located in the UK and other European nations. The ILAB will also attract attention of new investors especially from the USA. The bill will provide a formidable competition to the hitherto monopolistic government controlled companies and will force them to reform. A direct result of this bill would be fresh investments in health insurance; the consumers will be exposed to a range of innovative products and services hitherto not know to them.

Although there is still uncertainty whether theILB-2008 will be passed by Rajya Sabha during the budget session in early 2015; what is important is to appreciate NDA government for bringing this Ordinance. Will this policy reform generate international investments is difficult to answer since most of the international investors have already announced their desire to wait until the Bill is passed through the regular parliamentary procedures.


Saturday, January 3, 2015

What Should Mr. Obama know before taking a Republic Day Salute at New Delhi on January 26th 2015?


The global outreach heralding the ‘might and right’ of India by Prime Minister Mr. Narendra Modi seems to have halted momentarily, although the grand finale event is Mr. Barak Obama’s salute at the Delhi Republic Day celebrations of  26th January, 2015.  In the scheme of power equations USA still holds the prime position in India.  Although symbolic this is a welcome event and a lot of behind-the-scene operations are heating up.

The US-India bilateral activities have increased - not only that the executive-jets are shuttling but also that the first and business class tickets are getting filled up fast. Those gearing up are the bureaucrats and the business house representatives to kick-up the bilateral trade, business and investments many folds. There is meek state level focus, a new and cut-to-size Andhra Pradesh making all the noise while the Bengaluru-Scare still continues, remember Mr. Obama shunned a visit as it was cited as the city that snatched the American jobs through the migration of back-office and IT enabled employment. West Bengal is in the news for wrong reasons as the investment climate especially with respect to property rights have not settled in that state. 

The following essay has two distinct focuses – firstly the economic/trade related issues relevant for the President Obama’s visit and the other social policy perspectives which are essential background for defining the quality of democracy and rule of law within India.


Economic/Trade Related
Under a continued diversification and strategic alignment policy of the previous government – remember the ‘nuclear deal-123’, the USA hopes to build a massive market for its defence equipments to India. Although ongoing crossover helicopter deals between ‘India and US’ and ‘Pakistan and Russia’ are indications of winds of change; there are other impediments to overcome. India’s current inventory is dominantly Russian while Pakistan’s is dominantly American; a good example is the fighter jet brands they both own. US will continue to face difficulty in pushing its defence inventory so long as it continues to supply same or similar inventory to Pakistan. After all no country would like to face a possibility that enemy country reuses the war-booty against itself.  Further, India’s longstanding policy that mega defence deals always comes with technology transfers continues; the French multi-role fighter jets and Israel’s air-defence and anti-tank guided missiles systems deals are the most recent examples. Although previous technological transfer deals have yielded little for India, for example the British-Jaguar and French-Mirages etc, yet the policy is expected to continue in future. The US has so far shown little interest in such riders.

Another caveat; it is difficult for India to entirely come out of the erstwhile, now defunct ‘non-aligned’ policy even when US intends to support India’s stake of permanent member at the UN- Security Council. It is also in India’s interest that a ‘triple-bhai’ or ‘three-brothers’- policy of ‘India-USA-China’ is pursued, given new geo-political scenario and a rising Eastern Star namely China.  After all China is the biggest business and investment partner of the USA as well (imported about $440 billion worth from China during 2013, compare this to only $42 billion from India. India imported about $50 billion worth from China in 2013).

There are issues with respect to intellectual property rights (IPRs) especially in pharmaceuticals that is another contentious issues between the US and India. To be realistic, this issue is not likely to be settled any time soon. A compromise on IPRs can only be reached with a comprehensive understanding of the health care market in India. This sector has been the worst and most abused in India; one cannot expect a breakthrough especially when the international negotiations are geared towards pricing and cost of medicines with little or no concern to morbidity and sickness profile and affordability issues.

Agriculture is in the domain of tripartite negotiations - the world trade organization being the intermediary. A recent announcement by foreign minister that India-favourable agreement has been worked out is not convincing. There are 90 million farming and another 28 million agricultural labor households in India. The average farm-holding is less than one hectare, most with meagre cultivable lands barely yielding food sufficient for survival. Given this state of agriculture, prudent policy has to ensure safety and sustenance of farming households across India. The US-India partnership in agriculture must therefore focus on mechanism to mitigate rampant and high incidence of malnutrition amongst the children and reproductive aged women. Investments in food processing, packaging and trade in food products will benefit both the businesses and people within India. Technological breakthrough of ‘no till farming’ as well as policy agreements to improve agricultural productivity through the use of genetically modified process are niche areas the need of the hour.

The Principles of Social Engagement:
The President’s visit to India has multiple dimensions to it. It is not entirely business, defence, money and national pride. There are a number of other issues to be confronted during such occasions. Right now, US is reeling under the accusations of police excesses and indiscriminate killings of black men and men across many states. As a champion of human rights, Mr. Obama comes out in public expressing grief and anguish and even pledging federal policy response to contain such events.

On the other hand while Mr. Modi carries a baggage of extreme human rights violations of the past; he seems to procrastinate when a prompt policy protection is needed to protect millions of minorities especially the Muslims and Christians of India. In India one do not come across engagement of the PM on situations and events which are crudest form of human rights violations - undertaken by a set of well organized groups against other groups of people who are historically identified as the minority religions of India. The fringe groups often receive tactical support from the police and security agencies on the one hand and political system itself on the other. Such events occur so very frequently and often in proximity to the watchful Delhi administration – the nations capital. A number of communal riot like situation have happened right in Delhi and immediate surroundings and the PM is quite as if nothing is happening. Or is it a way to communicate the characteristics of the newly elected NDA government policy that such events will continue to happen in times to come.

No one can accurately gauge the limits of tolerance and perseverance of the minority communities especially the Muslims and Christens of India. It would be in the interest of India and also the larger world - the US and neighbouring countries that the NDA regime over come the historical baggage of misunderstood history and shun the proxy-cultural revolution that is being unleashed. Note that similar cultural revolutions in Russia and more recently in China have not shown positive and people friendly impacts.

Mr. Modi’s expression of solidarity with Pakistan is gesture to be appreciated; but this does not compensate for the pain, agony and psychological submission of over 200 million strong minorities of India. Two main processes through which the subjugation of minorities who have their ideological origins from out of India namely the Muslims and Christians are: a) The extreme rightwing groups such as the BHP, Bhajrang Dal and many others initiate hate crimes such as abuse, physical threat including denying residential spaces and more recently inter-mixing of youth through the concept of ‘love jihad’ and so on; which get tactical support from the Hindu cultural bodies such as the RSS.  At the political level the BJP the ruling party and its associates in the NDA besides providing tactical support to the right wing extremism, they also initiate rudimentary policy changes which can at best be described as mixing politics with religion in such as way that the religious minorities gets marginalized and over a period excludes them from many mainstream public programs including public education system. b) While such complex group specific strategies take effect often situation turns violent including extra judicial executions of members of minority communities. The local police and the security apparatus either ignores completely or extends nominal support in a manner not to displease and often support the cause of the extreme right-wingers as well the cultural hegemony of the RSS not to speak of the ruling class. The behaviour of the police only differs marginally when the political party orientation or the government changes at the national level and when the rulings parties differ at the national and state level administration. One of the largest fallout of such a partial and partisan behaviour of the policy has been illegal arrests of a large number of Muslim youth all over the country who are languishing in police stations, remand homes, judicial confinements and prisons with no bails and even rudimentary enquiries. Practically all those overnight arrests termed as ‘protective detentions’ are innocent men who are incapable of arranging huge funds needed to get bails and judicial redress.  

The most recent contentious issue has been the one of religious conversions. While both the Muslim and Christian faiths have been based on the principle of conversions, there are technical reasons as to why it is difficult for someone to become a Hindu as there is no such thing as a Hindu unless one also chooses a caste. Should the Hindu conversions happen, choice must be given to for example to either become a Brahmin or a Dalit with appropriate legal certifications and documentation.

However, a number of socially contentious issues must be left to the people at large to discuss debate and articulate appropriate legally supported solutions. In doing so the government of the day and especially the police and security system must be non-partisan and out of the picture. A durable institutional solution to such problems is to establish an independent ‘equal opportunity commission’ at the national as well at the state levels across India. The EOC would release the elected government and its large policy and security apparatus the trouble of dealing with situations which can be effectively handled by the EOC itself. Note that two of the highly matured and respected democracies of the world – the USA and the UK have established these institutions and with fair amount of successes.

This is an opportunity when Mr. Modi can turn a leaf in history book of Independent India to begin a new chapter in which he delegates the power to build cohesive, diverse and peaceful society. The minorities are not seeking handouts; all they wish is equal access to education, employment, housing, healthcare, development finance and entrepreneurial opportunities. Institutional facilitation by establishing the national level Equal Opportunity Commission and a series of EOCs at the State levels is the need of the hour. 

Friday, September 5, 2014

Why Japan and not the USA?

Is it prudent for India to be more FDI dependent on Japan than on the US?

Abusaleh Shariff and Amir Ullah Khan

The comparisons are unfair. One country is led by a nationalist Prime Minister who has been a steadfast friend and a source of personal inspiration. The other country is led by a President who has been adversarial and a reluctant ally. Abeeconomics and Modinomics are remarkably similar. Japan has been investing in infrastructure and manufacturing both sectors dear to the Prime Minister’s heart. And most importantly, while the US President might be wary of China, he is overtly friendly to India’s mighty neighbour. Japan on the other hand makes no bones about its animosity towards a country India competes with on all fronts, including on serious border disputes. No wonder PM Modi is off to Japan on his first trip outside the subcontinent for bilateral discussions, and is also now spending an extra day beyond the three originally scheduled.

On top of the agenda will be manufacturing. Modi has advised Indian Industry to promote brand ‘(made in) India’ across the globe by producing and exporting quality products. However the impact of this high level budge can be lacklustre. Quality of the goods and services of day-to-day use, for example, has improved reluctantly and slowly over the years, upon the opening up of the economy during mid 1980s and decisively after 1991.  Yet R & Dexpenditure is poor and often considered wasteful due to weak association with immediate cash flow. The level of competition in manufacturing sector is meek and has not matured yet. The Indian industry and manufacturing must improve design, durability and safety besides being visibly pleasing and environmentally friendly, to define ‘Brand India’.

The rules of free trade and openness are supreme in the interplay of international investments,and India has to set its priorities correct, lest those trapped in poverty suffer.  So far the dominant FDI destinations are in the services sector and real estate; which must be redirected to massive infrastructure creation, power generation, oil and gas extraction, refining, health care including pharmaceuticals and food production and processing. Indian industry therefore will have to focus its attention on these core areas, with the aim of developing quality products that are innovative, efficient and differentiated. The new business models needs scaling up and reaching out to sectors that will define growth in the future.

Why do we however sense some procrastination on part of the Indian Industry? There are two sides to this - the demand and the supply.  Exposure to the ‘goodies of the new world technology’ is new and consumer has limited knowledge of consumer choice and rights. On the supply side in spite of assured returns of over  30 per cent per annum, the Indian industry is not motivated enough to improve product quality. The answers to such anomalies lies in the structure of industry defined in terms of manufacturing methods, technology and market segmentation. The root cause of inertia in Indian industry can be traced to constraints to funding needed for technological up-gradation and increasing the size of firm itself given the expanded domestic demand.  

Such constraints are reflected in cost of developmental capital which is far high compared to international standards.   There is a growing need for investable funds in almost all spheres of manufacturing and services sectors. Need for capital investment is in all areas of infrastructure (road, rail, port, rivers etc), power generation, oil and gas, refining, food production and processing and many more.  Banks are unwilling to lend especially to stalled projects. In other words the FDI and FII needs are immense. What is in India’s interest is assured source of investment funds serviced at a competitive or mutually agreed upon long-term rates.

It is in this context that Japan becomes relevant as the source of cheap investment capital for India’s infrastructural and industrial development.  Japan is considered a source of long-term and low-cost finances. ‘Japan International Cooperation Agency (JICA)’ has 60 % stake in creating Delhi metro-network one of the largest in the world and most recent. About $2.7 billion with rates less than 2 % and 22 % of this loan has been on no interest payment at all as per the DMRC annual report 2011-12. 

The cumulative total FDI stock has been $ 326.5 billion averaging between 8 to 9 billion dollars per annum during recent years. However the most interesting analysis is regarding the source countries – the UK accounts for 10 %, Japan 8 % and USA 6%. But the irony is that36 % of FDI comes from one country which is hardly known for its status as a global investor– Mauritius. This followed by 12 % from Singapore and 3% of FDI coming from Cyprus makes the quality of funding suspect.  Such opaque dealings especially at the international level appear to push India into an uncertain world of development funding.   It is in this context that efforts must be made to strike transparent deals directly with major economies of the world such as the USA and Japan.

A word of caution is important here. Firstly, FDIs are not just funds from a foreign nation to India. The virtuous FDI comes with technology, production and inventory managements and exports. Japan as a source of FDI appears good as a source of funds but not as a destination of exports. This may be one of the reasons why major Japanese investments are in infrastructural development as these do not have export components.  The USA is the largest consumer market in the world with a 30% share. It will be in its long term interest that India strategically enhances its engagement with USA that not only provides cheap capital and ultra-modern technology but also is the largest consumer markets in the world.

Secondly, there are two real constraints - Japan is facing an uncertain economic future and a depressed consumer market; and on the other hand, the US is reluctant to invest in India. It is imperative that India identifies factors for US procrastination and overcomes them. One caveat though is to find how much of American investment is routed through Mauritius, Singapore and Cyprus. Why does this happen? What is the role of NRI investments from US and Europe in this puzzle? The European Union should also be on India’s priority list, though it is still in recession. There is a dire need for reverse FDI from India especially into Africa that shows a palpable increase in average incomes with a growing size of the consumer market. India must quickly make its presence felt in this continent and not lag behind China and USA.