Vijay Kumar Gaba

Tuesday, July 14, 2020

One size fits all policy

Recently, in couple of newspaper articles and research reports I saw the use of abbreviation SMB. The articles and reports had not specified the full form of the term anywhere; which implied that this is common jargon understood by everyone. Embarrassed by my ignorance, I sought the help of St. Google, who referred me to St. Wiki for enlightenment. St. Wiki suggested that it may mean "Server Message Block", a network communication protocol for providing shared access to files, printers, and serial ports between nodes on a network. This explanation did not match the context of the articles and reports.

Perplexed, I further probed St. Google, who finally provided the answer I was looking for, i.e., "Small and Medium Businesses". Since ages we were used to the term "SME" for this, and never realized that "SME" has been subsumed by the new term "MSME" since 2007, when the central government created a new union ministry for Micro, Small and Medium Enterprises. With a heavyweight (literally also) minister in charge of the ministry for the first time, the term has gained tremendous popularity in past one year. The recent stimulus packages announced by the government have focused overwhelmingly on this segment.

Historically, in October 1999 the NDA-1 government had created "The Ministry of Small Scale Industries and Agro and Rural Industries". In September 2001, the ministry was split into the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries. In 2007, UPA-1 merged the two ministries into one Ministry for Micro, Small and Medium Enterprises. The Khadi, Village and Cottage Industries are now within the realm of this umbrella industry. For non MSME we have Ministry of Heavy Industries and Public Enterprise, which primarily governs 48 Industrial CPSEs and the Ministry of Commerce and Industry which governs policy for all other trade and commerce related matters, including foreign trade.

So, while all traders, irrespective of their size and form, are governed by the same policy maker, industries are classified into MSME, CPSE and Others. The same policy framework is used for a cottage industry doing an annual revenue of Rs five lac and an industrial unit logging an annual revenue of Rs2.5bn. I am sure, there are different departments and different bureaucrats within the ministry dealing with various types of industries, but the minister must find it very tough to think from so many viewpoints at the same time.

The reporters and analysts are however quick to make a distinction and carve out a subset from MSME and name it SMB. Some may also like to see this as apartheid towards micro, village and cottage industries, insofar as the analysis of industries is concerned.

Anyways, for investors it is worthwhile acquainting oneself with the present MSME definition and scope, because many of these enterprises may now come in stock market radar. This is as per the latest RBI circular relating to funding of MSME.

Classification of enterprises

An enterprise shall be classified as a Micro, Small or Medium enterprise on the basis of the following criteria, namely:

a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and
a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees

Composite criteria of investment and turnover for classification

A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.

Calculation of investment in plant and machinery or equipment

The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.
The cost of certain items specified in the Explanation I of section 7 (1) of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.

Calculation of turnover

Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.

In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.

Thursday, July 9, 2020

Few more random thoughts

Two years ago, my car cleaner asked for a loan of Rs75000 for building an additional room in his one room house. He said his children are grown up and need a separate room to study and sleep. I gave him money with the condition that he will return in 1yr. In February this year, I asked him to return the money. He promised that he will give within a month. Then this lockdown happened and he was barred by the RWAs to clean the cars of the residents. No one paid him for 3months. I do not know how he survived in this period, but he handed over me a cheque of Rs75000 last week. I deposited the cheque in my account, but it was returned due to "insufficient funds". When I told him, he told me to deposit the cheque again, which I did. It returned unpaid again for the same reason.

I have not confronted this guy again. I know both his children are good at studies and a separate room to study and attend online classes will be very useful for their studies. Mentally, I have gifted this money to his children. But this is not the story. The story is that my bank has charged Rs236 (Rs100 each for two cheque returns plus 18% GST) to my account for the two instances of the cheque return. Imagine the agony of a person whose debtor has defaulted and he is being charged by his bank for the fault of his defaulter!

A recent story published in outlook money magazine (see here) alleged that the banks which suffered hugely due to defaults by the Indore based Ruchi Soya Limited, were forced to lend even more to the Patanjali Ayurveda group for acquisition of the defaulter company. The minority shareholders who have seen their investments in these banks having eroded by over 50% shall suffer even more when the company defaults again. The lenders and investors in these lenders shall have same feeling as I got when I saw the debit of Rs236 in bank statement.

A few days ago, one of the legendary investor/trader of Indian stock markets repeated his staple opinion about the Indian economy and stock markets for the n^th time. Imitating the global legends like Peter Lynch and Warren Buffet, he exuded confidence that in the "long term" blips due to these market disruptions will lose their relevance and trend growth will only matter. As usual, media highlighted his views and his ardent followers added some degrees to their confident.

I have nothing to disagree with the legend. However, at the same time, I draw nothing from his views and suggestions that will compel me to change my investment strategy or process. I formulate my strategy keeping in view my resources, needs, aptitude, limitations, risk appetite, emotional strength, access to information, and analytical ability, etc. I have always refused to read bestselling books on investments written by the legends like Benjamin Graham, Philip Fisher, Peter Lynch, Robert Kiyosaki, Warran Buffet, Charlie Munger et. al. I believe that their experiences and thoughts evolved in a different socio-economic environment and they worked in a different regulatory and legal framework. My environment, opportunities, and abilities match to none of theirs.

Besides, the current environment is very different than in which they operated. No wonder Warren Buffet led Berkshire Hathways has been one of worst performing funds in US in past one decade. I do not know about the performance of our own legend, but as per publically available information, his portfolio has also performed too well in past one decade. One decade is a reasonable "long term" in common parlance.

The Benjamin Graham would not have anticipated that investors holding US$17trn worth of bonds will be willing to pay for holding those bonds for 7-30years (negative yield); buyers of crude oil will have to Pay US$37/bbl for not taking delivery due to shortage of storage; analysts will peg "reasonable valuation" to the "average valuations" of past 3-5yr rather than DCF because the traditional valuation method cannot operate with negative or zero interest rate and zero residual value of assets; and the person (or bank) suffering from debt default will be asked to suffer more by paying charges!

Wednesday, July 8, 2020

Are you being fooled to buy junk?

The history appears to be repeating itself for the n^th time in the stock market. The small time traders, who normally join the band wagon right at the top of the market cycle, have once again jumped into the market arena. Completely overwhelmed by the left-out syndrome, they are queuing in hordes in front of the counters where they had lost their fortunes, not long ago. Many of these scrips are trading at a fraction of the price they were trading just six months ago. Some notorious stocks are topping the volumes charts. A strong urge to prove a point, rather than greed, appears to be the dominating factor here. Everyone wants to prove that it was their bad luck rather than lack of financial acumen, which caused them loss last time. I wish luck favours these traders this time. But in my heart I know for sure, this is not going to be the case. This reminds me of a very popular stock market story, which I think needs to be revisited.

“Once upon a time in a village a man appeared and announced to the villagers that he is willing to buy monkeys @ Rs. 10 each. The villagers lured by his offer, went out in the forest and started catching monkeys. The man bought thousands @ Rs. 10 and as supply started to diminish and villagers appeared tiring in their effort, he revised his offer. He announced that now he would buy monkeys @ Rs. 20 each.

This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The man increased his offer rate to Rs. 25. The villagers would now spend hours in the forest to catch even a few monkeys. Soon no monkey was left in the forest. The man would coax the villagers every day to go and get more monkeys. The villagers would try their best but in vain. As the frustration grew, the man made the offer even more lucrative. He announced that he would now buy monkeys @ Rs.50 each! But there was no monkey.

At this point in time, the man left his servant in the village and left for the city. In the absence of the man, the servant told the villagers, "Look at the monkeys in the big cage that my principal has collected. To help the poor villagers, I am willing to cheat my master. I will sell these monkeys to you @ Rs. 35 each, so that you could sell them back to my master @ Rs. 50 when he comes back from the city.” The villagers queued up with all their saving to buy the monkeys. Soon the servant had sold all the monkeys back to the villagers. He then also left for the city with all the money he had collected. Then there was no trace of the man or his servant. Only monkeys were left in the village.

Demographic dividend dissipating fast

A recent survey report released by the census office of India highlighted many important characteristics of the latest Indian demographics. As per the report, now more than half the population across segments (rural, urban, male, female) is above the 25yrs of age. With the steady fall in fertility rate and rise in life expectancy, the share of young population in Indian demography is declining steadily.

The key highlights of the data could be listed as follows:

The Sample Registration System (SRS) in India is carried out by the Office of Registrar General & Census Commissioner, India with an objective of providing reliable annual estimates of birth rate, death rate, infant mortality rate and various other fertility and mortality indicators. SRS is one of the largest demographic surveys in the world covering about 8.1 million population. It serves as the main source of information on fertility and mortality both at the State and National levels.
Presently two third (66%) of India's population is in working age (15-59yrs), whereas only 8.1% population is retirement age (60+yr). Working age population is higher in urban areas (69.1%) as compared to rural areas (64.5%).
Total fertility rate for the country is 2.2; but the urban rate (1.7) is much lower than the rural rate (2.4). At prime fertility age (25-29yrs) also the urban rate (119.1) is much lower than the rural rate (160.1).

Total Fertility Rate = he number of children who would be born per woman (or per 1,000 women) if she/they were to pass through the childbearing years bearing children according to a current schedule of age-specific fertility rates. It is commonly believed that a total fertility rate of 2.1 is ideal. If this rate is maintained for sufficiently long period, each generation will exactly replace itself. A lower rate will result in decline in population over a period. Italy (1.47); South Korea (1.29); Poland (1.38); etc are some of the countries facing low TFR.

The fertility rate has shown remarkable decline with the level of education. For illiterate its is 3.0 while for literate it averages 2.1. For graduate and above it has declined to 1.7.
Mean marriage age for the country is 22.3yr. There is not much difference between the rural marriage age (21.8yr) and Urban marriage age (23.4yr).
Uttar Pradesh has the highest birth rate (29.3) while Kerala has the lowest birth rate (11.9). (Birth Rate = Children born per 1000 population)
Chhattisgarh has the highest death rate (8.9) and J&K has the lowest death rate (4.5).
MP has the highest infant mortality rate (54), while the Kerala has the lowest (7).
Overall infant mortality rate has shown significant improvement from 2013 (40) to 2018 (32). Despite this decline, one in every 31 infants at the National level, one in every 28 infants in rural areas and one in every 43 infants in urban areas still die within one year of life.
The sex ratio at birth has however not shown much improvement in this period. Overall sex ratio at birth has worsened from 905 (2013) to 899 (2018). Chhattisgarh has reported the highest Sex Ratio at Birth (958) while Uttarakhand has the lowest (840).

The data clearly points towards the following five things:

(i) The government, businesses and society need to rush to reap the much talked about demographic dividend.

(ii) The talk about a national population control policy at this point in time is totally redundant and could be counterproductive.

(iii) In next 10-15years we may have significant rise in dependent population due to old age, unemployment and skill redundancy.

(iv) The poor eastern and central states account for the highest population below 25years of age. Whereas the southern and western states which are relatively more developed account for the least proportion of young population. This essentially means, we shall see some of the following prominent trends in next 10-15years

(a) Large scale migration of labor intensive industry from southern and western states to the eastern and central states.

(b) Large scale migration of skilled and semi skilled workers from eastern and central India to the other parts.

(c) Relatively much higher rate of investment, savings, infrastructure development, urbanization, industrialization and economic growth in the eastern and central states as compared to the richer southern and western states.

(d) Eastern and central states gaining significant clout in the national politics. At present the relatively poor eastern and central states send the largest contingent to the parliament, but the power is mostly exercised by the relatively richer western and southern states.

(v) Failure to materially increase investments in the development and growth of the young but poor eastern states immediately may push Indian economy permanently into lower middle class orbit.

You can see entire SRS report here https://censusindia.gov.in/Vital_Statistics/SRS_Report_2018/SRS_Statistical_Report_2018.pdf

Tuesday, July 7, 2020

Trip to rural India

Some corporate leaders have repeatedly highlighted that the rural economy is doing much better than the urban economy in India. In their view, the economic recovery from COVID-19 led slowdown will be led by the rural demand. The rise in sales of tractors, passenger vehicles and consumer staples in rural sector has been cited as clear signs of rural recovery. The data of bumper Rabi crop production and highest ever Kharif sowing is being widely used to support the faster rural recovery argument.

To make an assessment, we visited some rural areas of UP and Rajasthan over last weekend. After visiting over 50 rural clusters and speaking with many people (traders, local administrators, farmers, laborers, etc.) our impression about the situation as follows:

(a) The staple Rabi crop of cereals and sugar cane has been good and prices have been supportive in these two states. However, the fruit and vegetable crops have not been good and caused losses to large number of farmers. The rise in sowing area for Kharif crop is mainly due to return of migrant laborers and good rains in past three months.

(b) The government work under MNREGA, acceleration in construction of road projects, shortage of farm and construction labor has resulted in created significant demand for tractors and farm equipments. The trend may continue for few more years.

(c) Due to paucity of labor, many farmers in UP and Punjab have used direct planting for sowing paddy this time. If the outcome is satisfactory, the labor requirement for paddy cultivation may fall sustainably by 75-80%. The government shall be supportive of this technique as this method is significantly less water intensive. The demand for rice planters and harvesters may rise multifold in coming years at the expense of migrant laborers. This essentially means that while the large farmers will gain materially (higher productivity, lower cost and better prices), the poor laborers will struggle to find employment at the prevailing rates (Rs600-900/day). This augurs well for sale of cars, SUVS, tractors, farm equipments, high quality seeds, premium liquor, etc., for staples etc it may not be a good news.

(d) The migrant laborers are facing a variety of problems in their villages. There is significant rise in family disputes over house and land properties. The children who were born and raised in large cities are finding it difficult to adjust to village life, especially education. Many laborers are willing to come back to cities, but most of them are unlikely to bring their families along. This means persistent pressure on the village civic infrastructure for longer duration than earlier anticipated. Most laborers have outstanding dues to be settled in cities (Rent, DTH bill, Phone Bills, Grocery & Milk bills etc.) Almost none is in a position to pay. So it will be a fresh begining for most of these laborers - new place and may be new work also.

(e) The government has provided decent money under various schemes. The food is available in plenty. The pre COVID-19 ration schemes (Rs 1/kg food grain) is functioning well to provide sufficient foodgrain for subsistence to the below poverty line (BPL) citizens.

(f) The post COVID-19 free food distribution scheme (PMGKY) which is primarily targeted at the daily wage earners and poor who would have lost employment due to lockdown, has not been successful in meeting its target. It is feared that most of the ration released under this scheme may have been misappropriated by the scrupulous politicians and administrators. Many people indicated towards this possibility but were scared of speaking in specifics. Many people highlighted cases of sudden riches in their villages. New cars, tractors, motor cycles were cited as the signs of new riches.

Overall, we got a mixed feeling. It would be prudent to wait for the Kharif harvest to get a clearer picture.

Friday, July 3, 2020

Few random thoughts on unemployment in India

In the blockbuster Hindi movie DDLJ, the heroine is deeply in love with a guy against the wishes of her father. Her mother is afraid of her husband’s retribution and advises the two lovers to elope. But the hero, who is equanimous and noble, tells her that the path suggested by her appears easy but it would lead them nowhere. He would rather prefer the path of courage, honesty and integrity which though arduous definitely leads to the desired destination.

Swami Jagadatmananda in his famous work “Learn to Live” extolled the readers - the sincerity and honesty of the means to achieve a goal is equally important as the goal itself.

Historically, our governments have however usually not concurred with this thought. They have rather preferred to take the easy road.

Three years ago, the government banned the condom TV commercials between 6AM to 10PM. The right path would have been to discuss the issue with the latex manufacturers and marketers to make commercials educative and plain, rather than seductive. The effort complemented with a mandate all schools to educate children (12yr and above) about safe sex could have yielded many positive results; reduction in cases of rape by juveniles being one of them.

A couple of summers ago, I visited a cricket coaching camp in south west Delhi. The visit was both motivating and shocking at the same time. Motivating because 60 odd children, aged 12-17yr and attired in proper white cricketing gears, were slogging in 42°C temperature. Some parents were also waiting on the sidelines. Most of these aspiring cricketers were from lower middle class families. Their parents could hardly afford the cost of proper gears and coaching fee. Speaking to some of these children, I realized that playing IPL and make tons of money, is latest dream career for many children these days. The shocking part was that none of the children or parents appeared to have a Plan B in place.

Last year I highlighted that a lot of new age businesses and start ups in India may be mere adaptations of the successful global business models, lacking in innovation and sustainability. The palpable idea behind most of these businesses also appears imitation of global practice of "create and sell".

I would refrain from commenting on appropriateness, or otherwise, of this practice of cloning; but I must say that a large majority of these imitated ventures are most likely to fail, making life miserable for the employees, the entrepreneur and in some cases the financiers also. It is only a matter of time when there will be no place left in the junk yard and sale of anti depressants would have risen exponentially.

It is unfortunate to note that our policymakers are mostly indifferent to this problem. They urgently need to recognize that a resource starved economy like ours can hardly afford the "start up" failure rates of developed countries. Each failed business not only losses its own capital, it blocks the path for some other genuine ideas also.

The worst part is that that the reset initiated by the global financial crisis and pushed further by demonetization, GST, IBC, COVID-19 etc, is bringing the hordes of traditional businesses to the junk yard every day. New businesses joining this race will only compound the problem manifold.

Few days ago, I drew attention of readers towards the fact of rising cases of suicide by disillusioned youth. Spread and popularity of electronic and digital media has lured many young people to choose performing arts or sports as preferred career options. Consequently there is huge supply demand mismatch. Variety of sports leagues, web series, TV serials, movies, standup comedy shows, realty shows etc can accommodate only a limited number of performers/players. Tik Tok, YouTube, etc could also become a medium of regular earnings only for a few thousands. The millions others will unfortunately end up miserable.

We have heard sorry tales of hundreds of talented people working hard and struggling to become successful in Bollywood; engineering, medical or civil services failing to find success. Some of them resigned and ended their lives. But here we are talking about millions of unsuccessful people. Close your eyes and reflect for few seconds to understand what I am trying to say. After TB and Diabetic capital of the world; India certainly does not need the title of suicide capital of the world.

I am not concerned about the ban on platforms like Tik Tok etc. Given the number of people who are eager to use this kind of platform to demonstrate their talent or skill or illusion of that, twenty new platform will rise in no time. What I am worried about is that the government does not have any policy to engage the youth in the nation building effort.

I suggest that the government must on top priority basis prepare a comprehensive strategy for engaging youth in the nation development endeavor. A nationwide MNREGA type scheme must be launched for youth, whereby they could be engaged in the socially useful productive work (SUPW). Millions of jobs like traffic management, night patrolling in areas susceptible to crime against women, enforcement of cleanliness of public areas, old age care, social forestry, teaching & skilling to unschooled, etc could be assigned to the youth not having a regular job. This shall help in developing of a sense of nationalism, belongingness, and responsibility amongst youth, besides keeping them occupied in productive jobs rather than leaving them on their own to waste time or take to the path of crime and unlawful activities.

Thursday, July 2, 2020

Disengagement with China in markets should be no less strategic than at borders

Continuing from yesterday (see here)

The Indian economy suffers from a variety of deficits. The most talked about deficit, i.e., fiscal deficit in fact is the least worrisome amongst all the deficits, in my view. I believe that some of the most worrisome deficits include:

1. Growth capital deficit

2. Advanced technology deficit

3. Skill deficit

4. Trust deficit

5. Compliance deficit

6. Governance deficit

7. Productivity deficit

8. Social infrastructure deficit

9. Employment opportunity deficit

10. Demand deficit

To successfully achieve the objective of self reliance, as being popularly understood, we must first bridge these deficits.

In recent years, China has been helpful in bridging many of these deficits, especially growth capital, technology, productivity, employment opportunities and demand deficits. Chinese investors have invested millions of dollars in Indian start ups by way of risk capital. Chinese have supplied affordable solutions in the areas of energy, transportations, chemicals, healthcare, etc. Affordable Chinese consumer imports have created huge employment opportunities for millions of self entrepreneurs, traders, street vendors, and aided in creation of demand, especially consumption demand. The Chinese economy funded these deficits at the expense of its labor and stability financial system.

We must pause here and assess that since due to legacy issues we always have a wide and deep trust deficit with China, was it advisable in the first place, to let Chinese and Indian economic interest intertwine so much?

Keeping the jingoistic nationalism aside, we must also consider that the non essential, toys, plastic decorative items, small appliances & tools which are more visible and talked about items, constitute a miniscule part of the total imports from China. The imports are dominated by electronics, engineering products & components, agro chemical, specialty chemical, medical equipments, precious metals and Iron & Steel. Our main exports to China include Cotton, gems & jewelry, copper, ores, organic chemicals. China is therefore present in our entire value chain.

Disengagement with China in markets therefore has to be equally strategic as in case of borders. We cannot and should not do it overnight by taking some whimsical, but popular, decisions. We need to have a strategy to fill the deficits by alternative means and render China redundant before disengaging ourselves. Self reliance in this context would mean, building capacities in the fields of advanced technology, raising the level of skill, compliance and governance to attract adequate amount of growth capital, raising productivity to enhance savings potential for domestic funding of growth; and bridging the trust deficit between the people and the administration.

This endeavor inevitably include bringing India into a state of equilibrium by removing social, and regional, economic imbalances, e.g., through-

Industries and businesses who have thrived historical on government largesse and not necessarily on the enterprising abilities of promoters giving back to society by way higher taxes, higher voluntary CSR spending, technology upgrade for better resource utilization, etc.;
Regions like Gujarat and Maharashtra, which are economically more developed despite not being endowed richly with natural resources, acknowledging that a part of their development is due to imperial designs of British regime and share their wealth with exploited regions like Jharkhand and Odisha.
Caste and communities which command ownership of the major part of economic resources and occupy most of the social space, voluntarily vacating some space for the historically oppressed and downtrodden.
Populace which has grown to be non-compliant by habit, not necessarily by intention, changing habits like spitting on roads, violating traffic rules, encroaching on pavements in front of their house/shops, exploiting domestic helps and child labor etc.

Wednesday, July 1, 2020

Self reliance is about contentment

Continuing from yesterday (see here)

As I highlighted yesterday, "Self Reliance" may be mostly a political slogan at this point in time; as not many people in the government, legislature and administration appear to be adequately clear about the concept itself. It would be a great idea if the government comes out with a white paper on the issue.

In my view it is important to assimilate the following considerations, if we truly want to evolve into a 'Self Reliant" economy.

First of all, we need to accept that "self reliance" is primarily a philosophical concept. Its economic implications are mostly incidental. The flow of "self reliance" therefore begins from the core of society, i.e., the individual, and moves outward toward the community and the State. For a State to be self reliant, all its constituents, i.e., individuals, communities, traditions, customs, culture, etc need to commit unconditionally to the objective of self reliance. Any incongruence amongst various constituents will defeat the purpose. A few individuals or communities aspiring to be globally competitive, wealthy, and famous, and therefore placing their lives relative to the others, may not allow the State to become self reliant.

Secondly, it is to be understood that the traditional Indian tenet of "contentment" is quintessential to the concept of self reliance. The individuals and communities must work to limit their needs, desires and aspirations to the spiritual goal of realizing the greatest truth, and designate the material pursuits only as a mean of subsistence.

As Gandhi ji stated, the western life style of chasing material and financial wealth cannot lead to self sufficiency, swaraj or self reliance. In fact the whole idea of economic development, as we are pursuing today focuses on centralization of power - political and economic.

Third, the pseudo socialist and quasi feudal nature of our democracy often leads to wasteful expenditure, policies and plans focused on winning elections rather than achieving sustainable economic growth and development, serious misallocation of capital and sub-optimal use of resources. We have seen politicians creating undue demand for color televisions, smart phones, laptop computers etc. by manipulating the process of democracy. In rural and semi-urban areas, motor cycle has replaced bicycle as a mandatory dowry item. These days, it is almost impossible to marry your daughter if you cannot afford a motorcycle in dowry. Smart phones also find place in most ‘demand lists’. It is clear that our society is defying the classic McGregor's evolutionary pyramid and moving directly from sustenance to aspirational consumption. The demand thus created is neither desirable nor sustainable.

Fourth, self reliance shall essentially result in material disengagement from the global economy. In the modern day context when geopolitical and cultural relations have essentially become a subset of economic relations, this disengagement may not be limited to trade and commerce issues.

Having these considerations will essentially bring us to the Bhutanese model of development, where the focus is on the individuals' happiness and spiritual elevation rather than the length of the roads & railways, strength of the armies, and other meaningless economic statistics.

The governance then will have to be modeled on the traditional concept of Ram Rajya - where the socio-economic equality & justice is prime consideration for the King, who is always subservient to the subjects.

Obviously, not many people think in these terms when swearing by self reliance. So, what are the implications for self reliance as being understood popularly?....to be continued tomorrow