Tuesday, March 5, 2013

Budget Shows Why India Resembles Canada in GDP, But Congo in HDI

India's Finance Minister P Chidambaram recently concluded his high-profile post-budget Google Plus Hangout which was well attended and insightful. During the Hangout, Chidambaram even made a brave prediction that, "There is nothing that can stop India from becoming the third largest economy in the world. We will be there along with US and China."

Anyway, the hype and the build-up to that Great Event and the Non-Event the budget always turns out to be, is just over. As usual, Opposition opposed the budget while the ruling circles hailed it as the greatest achievement since a long time. 

Stock Markets too played their role to the hilt. Long famed to deliver credit where it is due, markets tanked by around 300 points in appreciation. Not that the market’s appreciation matters. Thinking against the backdrop of India’s stark realities, market reaction should be taken as a positive, at least by all the non-market players who comprise the silent majority (98%+) of this vast nation.

Captains of the industry were, however, largely appreciative of the budget. Most applauded Chidambaram & Co’s hard work in delivering a fine balance between 180 degree divergences like fiscal discipline and cash-for-work program. 

Despite warnings from India Inc.‘s heavyweights like Naina Lal Kidwai of HSBC and FICCI to Aditya Puri of HDFC Bank that super-rich tax shouldn’t be imposed, Chidambaram did show the spine to implement super-rich surcharge this time itself, even though it is just for one year now. 

And not unsurprisingly, higher voices from the industry - from NR Narayana Murthy to Deepak Parekh - were seen applauding the move, exhorting fellow multimillionaires that they shouldn’t be this much stingy.

The FM himself had asked industry to take inspiration from Wipro Chairman Azim Premji’s recent giveaway pledge to the tune of Rs. 12,500 crore, by joining The Giving Pledge of Gates & Buffett. After all, as Chidambaram said, the move would affect only a miniscule percentage of the population. 

In fact, miniscule is not the right word, as the real number of affected super-rich are less than 50,000! Remember, this statistic, is about a nation that recently hogged world’s centrestage when an association of Swiss Banks recently remarked that Indians are one of the largest black money hoarders in their country.

The real reaction in the minds of the real super-rich was a sense of relief. While the majority of them heaved a sigh of relief that there is no breakthrough strategy yet to identify unaccounted wealth hoarding, the 50,000 affected HNIs would have heaved another type of sigh - because Chidambaram could have done worse. Not just through a higher surcharge, or by making it a permanent feature, but by introducing radical moves like Estate Tax, the necessity on which the FM had commented just days before. 

‘Introducing’ is not the correct word, as India had it long back, and even now most best-performing nations like US has it. Estate Tax would have gone a long way in better accountability of wealth hoarding, as this would have forced all forms of wealth - including land and jewellery - to be taxed whenever it is inherited from one generation to the next. 

The detractors of Estate Tax, of course, have their point - as during its previous implementation, many of the super-rich had found out ways to circumvent it. While that argument again emphasizes the oft-repeated point that it is proper execution that is missing, it is no excuse to not re-introduce Estate Tax.

The budget's key takeway question is what kind of growth is India aiming at? If it is the nation it is nothing but GDP, and if it is about companies, it is nothing but bottomline. This sheer focus on profit growth has kind of made the intelligentsia of this nation into economic morons who applauds only when bottomline bulges YoY and QoQ. 

But don’t we need a radically better paradigm for growth? The current bottomline-focused paradigm comes from the West, especially USA, where the resources-to-population ratio is starkly different. How can we keep on blindly following it, and even worse, struggle fatally trying to keep that course?

What should matter is not the Gross Domestic Product, but the Human Development Index (HDI). Whom are we fooling when we claim with the West that India is the world’s 10th largest economy by nominal GDP? We are fooling none but ourselves. Because, India’s HDI stands at a pathetic 134th rank with a value of 0.547. 

To put this performance in perspective, India’s position is worst in BRICS, with Russia at 66, Brazil at 85, and even China at 101. It is difficult to fool a comprehensive metric like HDI, as it takes into account almost all aspects regarding standard of living like health, education, income etc. 

And isn’t it an irony that despite the UN sponsored HDI being co-invented by Amartya Sen, his home country hasn’t yet figured out how to improve on that crucial front?

India's Human Development Index is comparable to Republic of the Congo, while our GDP is 142 times larger than the African nation.

Why don’t we have any politicians batting for HDI, as against GDP? Everyone from Dr. Manmohan Singh to Narendra Modi to Nitish Kumar is following the flawed development model which theorizes that economic growth will cause HDI to rise. It won’t, as is readily seen from India’s pathetic position despite growing super fast for more than a decade, and Gujarat’s equally pathetic position in HDI despite growing admirably under Modi. 

Even Sonia Gandhi’s cash-for-job program has fallen flat on the HDI front. The divergent tactics of Sonia or Modi can win vote banks for the short-term, but it cannot transform the nation forever.

Another striking example comes from Canada, whose nominal GDP is less than India's by $177 billion, but ranks high in Human Development Index, being the 6th rank holder in the world, against India's pathetic 134th rank. So, what has our focus and even success on the GDP front, achieved so far?

Is there a silver bullet to achieve better HDI for our people? Yes, there is, and it is called jobs. More jobs and more well-paying jobs. The best example comes from the tiny Indian state of Kerala, which stands above all states (yes, beating even Delhi) in HDI. Other famed development models like Maharashtra and Gujarat stands distant at 7th and 11th position respectively.

We can deride the Kerala Model by saying many things like it is a ’Money Order’ economy. Which is true too, as the state is heavily dependent on Non Resident Keralite (NRK) inflows from Middle East, North America, Europe, Australia, & New Zealand. 

It is not a right strategy too for a state to follow or encourage, but the point here is that only more jobs and more high-paying jobs can bring up HDI. In Kerala’s case, that jobs just happened to be in Middle East and elsewhere overseas.

Why does more jobs and more high paying jobs raise HDI? Because jobs begets jobs. High quality jobs create other jobs at least of reasonable quality. In Kerala’s specific example, despite being poorly industrialized, home construction is a massive activity in the state. 

But, today, it is very difficult to find Keralites doing manual labour for other Keralites. Rather, it is employees from Bengal to Gujarat, and Rajasthan to Tamilnadu, who are working there, as even an unskilled labourer’s daily wage is upwards of Rs. 500 in Kerala. In many Indian states, the wages is less than Rs. 100.

Kerala’s Middle East or overseas reliance is not the right model to follow, as it works only because all the income is repatriated back to the country due to poor investment prospects in Gulf and the Western world.

At the same time, it shows the power of lakhs of high-paying jobs. It is in this context that Chidambaram’s budget falls flat. Even its greatest admirers admit that it has no solutions to create lakhs and lakhs of reasonable jobs. 

But that is not the point either. The crux of the matter is that how can he kickstart such massive job generation when the corporate ethic of growth that is followed in India is solely of bottomline growth, which often mandates that jobs should be reduced massively to drive growth. More turnover and more profits with least employment is the corporate success mantra.

Instead, what the government and the nation as a whole should be applauding is best job creating organizations in quantity as well as quality, quarter after quarter, year after year, under a sustainable model, and not just stories of wealth creators and bottomline expanders.

The solution calls for a leader from a greater orbit. Like Gandhi, who foresaw the daunting challenge much earlier, and advocated the charka, self-reliance, and local sourcing of all essentials in our villages itself, making them self-sufficient, and providing gainful employment for all. 

It was perhaps a slower model of development, but wasn’t it what India really needed?

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