According to Prof Vaidyanathan, soon we would have to strengthen and facilitate our small business that contributes a huge 45% to the Indian economy and this would help in better employment and society
R Vaidyanathan, the professor of Finance at Indian Institute of Management, Bangalore (IIM-B), in one-of-its-kind and in-depth well researched study, delves into India Unincorporated by presenting a persuasive case on this sector’s single largest contribution of 45%. This contribution comes from national income, savings, investments and taxes that are ignored even though it exceeds three times the corporate sector’s contribution of a mere 15%. The official guestimates of its contributions in manufacturing and services sector are inaccurate, flawed and outdated, making the India Story incomplete when this real engine of growth story is thus wrongly disregarded.
“The growth of the economy in the nineties should be attributed to the partnership and proprietorship (P&P) firms in service activities and not due to the reforms carried out by the government or the miniscule contribution of the corporate sector... ironically this remarkable contribution of the P&P sector has not been documented and appreciated.” The wealth of information presented is adequately backed by facts and figures of P&P firms or “the unincorporated economy” that comprises small entrepreneurs in India’s growth and development of over the years…governments control and regulate an economic activity that it does not understand it and tax it if it is growing fast...this gargantuan appetite of the government goes against the grain of our civilization ethos and negates the entrepreneurship of the non-corporate sector designated mini, small and medium enterprises. Its contribution to national savings hasn’t received the recognition because the aberration is due to it being wrongly labeled “household sector, though many of them notch turnovers running into hundreds of crores… Nirma was once a group of partnership firms…. Incremental capacity created is based on its ingenuity like many passengers travelling by bus are outside the bus (by hanging on to the widows or door rails taxis in Bihar, UP and Bengal carry a couple of passengers more and a barber needs two more hands to shave an extra person rather than four more chairs… The concept of capacity is cosmic and unlimited unlike western notions of limited capacity and possibility of increasing output only by increasing capital.”
The best part of this book is Prof Vaidyanathan’s masterly analysis that discusses at length the “FDI in Retail Trade - Fact and Fiction”. The learned Professor dispassionately analyzes that “Retail trade (in India) is currently dominated by P&P firms… the retail revolution that is applauded by planners, encouraged the government and eagerly talked by experts… but not many seem to be worrying about the millions of retail traders, who will get marginalized. There is not much debate [let alone informed debate] among academics and other policy-makers about the far reaching implications that the entry of global retailers has on our economy, where the level playing field argument is meaningful and significant too. Next only to agriculture’s 17.5%, wholesale and retail trade contributes 16.6% and manufacture 14% of the GDP, their growth rates have been 3.6%, 9.2% and 8.4% respectively in the national DP of 8.3%... Livelihood of 30 million, including children and others, is involved in retail trade; 120 million will be directly impacted by the so-called retail revolution, when real estate sharks will corner prime land to construct large malls by evicting retailers.
Many householders will then create small retail shops inside their homes with the help of surplus self-employed in-house labour with mini refrigerators to store just-in-time stock of cola and bundles of toilet paper rather than a major retail revolution with the razzle-dazzle of shopping in comfortable surroundings, computer generated unreadable printouts as a panacea for all problems. The arguments that the new outlets will remain open for longer hours unlike those in the West where they close early and on Sundays falls flat as the local next door mom-n-pop kirana shops manned by the efficient owner knowing and his family the customers’ tastes, requirements, price considerations offers free home deliveries and also extends credit. He opens at 7am and closes at 10pm every day for 365 days, but labeled ‘unorganized’ by our experts and the national income data to diminish his contribution. The customers don’t need to blow up fuel to drive miles away to go to the malls. The footfalls in these shops cannot be measured using western models [since there is no place to keep anybody’s foot inside his shop!] and so he is derided and abused. It is like clubbing housewives with prostitutes in our Census data to showing them that they are involved in ‘unproductive’ activities. This is indeed a great tongue-in-the mouth apt simile. He considers these economic constraints imposed by the west to be terminological terrorism mouthed ad-nauseam by economists and policy planners without understanding their implications, they want to open it up to global sharks in the name of liberalization and kill the fast growing, productive, efficient and effective retail trade.
In this trade, the weak are marginalized due to the denial of adequate lines of institutionalized credit at reasonable rates. The other is the difficulties faced by them in opening Core Banking Solutions bank accounts – KYC [Lord Megnad Desai terms it “KILL Your Customer”!] requirement on insistence of proof of residence more particularly the migrants with no fixed residences. The just-retired governor of the Reserve Bank of India (RBI) was unable to open a bank account at Hyderabad because he couldn’t provide proof of residence in that city! While large corporates obtain large lines of credit with highly suspect credit appraisals, at prime lending rate (PLR) or base rates, soft loans and exotic facilities, a poor flower vending girl cannot open a No-frills account. This too at times she may be borrowing from a usurious money lender at 180%, or getting Rs45,000 up front for a loan amount of Rs50,000. More than 70% of the retail working capital requirements come from such non-bank sources.
The phenomenal bribes extorted by police, municipal babus and their minions are ‘organized dacoity’ as much high as Rs20 on a daily income of Rs200. That is 10% of gross income.
The arguments that the multi-national companies (MNCs) bring in ‘funds, efficiency and cost effective solutions is totally mirage, and failed models, they only access funds in our domestic financial institutions by brandishing their parent company’s ‘letters of comfort’, which fetch them funds even below prime rates because they are ‘global’. Enron promised to bring in Rs10,000 crore, but our institutions now hold more than Rs6,000 crore of worthless paper now turned into non-performing assets (NPAs). Enron CEO Rebecca Mark claimed that they’ve “spent millions to educate Indians a part of the project.” The so-called ‘technology and knowledge base’ sought to be brought with them is “just “to dumb down India” as was done by Wal-Mart in the US. The French have their Loi Royer Regulations to protect ‘Centres of French towns and villages and living of small shopkeepers’ and Germany with similar legislative constraints on outlets exceeding 1200sq.m. Other Asian countries, like Korea and Japan have the well-developed regulations and local competition to protect community based local establishments by excluding overseas companies in any ‘distributional aspects in petroleum products, rice, tobacco, salt, alcoholic beverages, fresh foods, milk and fertilizers.
Indian laws are being amended a thousand times to facilitate the grand entry of global malls and hypermarkets, some to permit the retail giants to procure directly from farmers at the agricultural market yards and not to trade in commodities, the transparency doubtful. Indian brands like Reliance have encountered opposition in states like UP. In India, with mounting pressure presently 100% FDI is permitted in single brand and up to 50% in multi-brand. Wal-mart faces US Congressional investigations into allegations of bribery and corruption in India. Today it is a hot election issue with the principal opposition parties Bharatiya Janata Party (BJP) and Aam Admi Party (AAP) stoutly opposing the entry.
Prof Vaidyanathan sums up the chapter by saying – “The sooner we strengthen and facilitate our small business, the better for employment and society.”
This must-read-by-all has a lot to say on a variety of tropical matters like Taxation and Bribery, Social Security for the Self-Employed and the role of gold, role of the stock markets, Caste and musings on other matters like the NGO sector, Art of giving – Warren Buffet to be told, Sports and Bollywood as UnInc that I commend the readers to pick up from the book itself.
Author R Vaidyanathan
Publisher: Westland Books 2014
After Moneylife exposed fraudulent mis-selling of insurance policies by AB Capital, a corporate agent of Reliance Life, the regulator and the insurer has taken some corrective action. Reliance Life admits to receiving 2,141 complaints till August 2013, and has terminated AB Capital, launched criminal proceedings and so far got arrested five salesmen. But we keep receiving complaints
One of the biggest examples of systematic, fraudulent mis-selling of insurance policies, that has only led to a regulatory rap on the knuckles is that of AB Capital, a corporate agent of Reliance Life insurance, which has sold insurance policies to thousands of persons across the country on the fake assurance that they will get an interest free (or very low interest) loan that is equal to 10 times the premium paid.
Moneylife began to take up these cases in the early part of 2013 and wrote to the Insurance Regulatory Development Authority (IRDA) for the first time in July 2013. We have received complaints from all over India from people who did an internet search to figure out how to redress grievances. Some of these had even borrowed money to pay the premium in order to obtain the interest free loan. While some of those, who were duped, are not financial savvy, many included software engineers from leading companies. Clearly the fraudsters had a sophisticated technique of convincing people.
Thanks to the regulator’s pressure, 95% of the complaints forwarded by Moneylife Foundation to Reliance Life have received refunds. However, the flood of complaints shows no sign of stopping. We were convinced that complaints which came to us are just a drop in the ocean. Queries to IRDA, about this rampant cheating in July 2013 and January 2014 elicited no response, forcing us to file a Right to Information (RTI) application at the end of January.
Following a first appeal, we received a detailed response with some stunning revelations.
First, while IRDA did not respond to us, it had been pushing Reliance Life to redress grievances. Secondly, Reliance Life told IRDA that until 22 August 2013 it had received 2,141 complaints against its corporate agent AB Capital. These are a vast multiple of those who approached Moneylife Foundation and had their complaints redressed. It is not clear whether all 2,141 cases have been redressed by Reliance Life.
Thirdly, Reliance Life told IRDA, “AB Capital has already terminated those employees, who indulged in mis-selling and has also lodged criminal complaints (NC) against such employees. Five salesmen have been arrested so far. Considering, the large number of complaints received against the corporate agent, the company terminated the agreement with AB Capital on 8th July.” Moneylife Foundation started taking AB Capital complaints to Reliance Life in June 2013.
Fourthly, Reliance Life has told IRDA that there are no more complaints pending about AB Capital. However, this is clearly incorrect, since Moneylife Foundation continues to receive fresh complaints even today. So far, Reliance Life has paid over Rs22 lakh to 31 people duped by AB Capital based on complaints sent by Moneylife Foundation. The amounts range from Rs30,000 to Rs2 lakh each.
In fact, while IRDA has not obtained all the details of the total extent of mis-selling by Reliance Life’s agent, or the correct data on redress, it has also not initiated any action against the company. On the contrary, Reliance Life seems to be comfortable enough to demand greater proof from victims of mis-selling. In a few recent cases, it only redressed complaints from those who had taken the precaution of making voice recordings of the telecallers and were able to provide proof.
This is clearly an issue on which the insurance regulator also needs to be held accountable for dragging its feet over the massive fraudulent actions by insurance agents. So far IRDA has done nothing beyond sending letters and asking for data and information. Were the regulator been more pro-active or the Finance ministry and the Ministry of Consumer Affairs more diligent in their supervision, we would have seen some attempt to make companies more accountable for fraud and mis-selling by their agents.
But this is clearly another long battle along with better financial literacy among those who buy insurance.
You may also want to read…
Reliance Life refunds Rs60,000 in a suspicious transaction: Another Moneylife success
Is Reliance Life’s corporate agent AB Capital involved in fraudulent “interest-free loan” offers? Will Reliance or the regulators initiate action?
Reliance Life’s drive against fraud callers – Will it take action against its corporate agent AB Capital?
Reliance Life’s corporate agent AB Capital offers to help victims of fraudulent “interest-free loan”
Is Reliance offering 10-year interest-free loan for buying insurance?
A software that will tell you what kind of ailment you will have, based on your DNA! Is it scientific?
“Every man’s life lies within the present; for the past is spent and done with, and the future is uncertain.” — Marcus Aurelius
A few days ago, The Hindu reported on a medical horoscope available in a new software that is expected to be installed soon in all major hospitals. One has only to answer some questions and the software will predict your medical future accurately. This is not new. “Doctors have been predicting the unpredictable future of their patients all the time” felt WJ Firth, professor of physics at Strathclyde University in Glasgow, in the British Medical Journal in 1991.
Following similar advice, Angelina Jolie had her beautiful breasts removed, a couple of months ago, to avoid any future chance of her getting breast cancer based on her genetic data. Ultimately, science claims to have triumphed over nature in unravelling the secrets of the future against the natural law.
Why does nature intend to keep your future a secret? That is the only way a human being can be happy on this planet. Ignorance is bliss here. Imagine, for a minute, that the software declares that you will get cancer in the near future. Your life, from that time onwards, will be totally different and, for all you know, you might die of sheer fear of cancer.
When it comes to our poor village astrologer predicting people’s future, based on their horoscope, the rationalist ‘scientific’ community demonises him, in no uncertain terms. But we prefer a predictive software because it represents technological sophistication. The software is supposed to predict the future based on your genetic make-up, like the one Angelina Jolie experienced.
Curiously, not all the DNA in your chromosomes come from your evolutionary ancestors. Your DNA includes the genes from at least eight retroviruses and many other germ genes. At some point in human history, these genes were incorporated into human DNA. These perform important functions; yet, they are entirely alien to our genetic ancestry. There are more than 10 times the germ genes in your metagenome so that there is more bacterial life inside you than ‘human life’!
The software astrology is based on our genetic make-up as we are taught to believe that genes determine what each of us is like, physically; but genes are only a tiny part of our DNA! A large portion (97%) of our genes was thought to be junk, until now. We now realise that the process that goes on outside the genes—epigenetics—has a major role to play in our evolution and development. Otherwise, how can just 23,000 genes represent all that happens to us? The so-called junk (epigenetics) is as important as, if not more than, the known human genes.
The picture of the world we ‘see’ is also artificial. Our brains don’t produce an image the way a video camera works. Instead, the brain constructs a model of the world from the information provided by modules that measure light and shade, edges, curvature and so on. This also compensates for the rapid jerky movement of our eyes, the saccades. We have more than just five senses.
With all these new data accumulating from the new wisdom of quantum mechanics, the old idea of predicting the future from our genetic make-up, as they did in the case of Angelina Jolie, looks childish, to say the least. What worries me is that the new software astrology might do far more damage than poor village astrologers that rationalists cry hoarse about. I might now repeat my usual warning to the apparently healthy in society. Do not go to the hospital when you are healthy. You might get a wrong prediction of your future, thanks to the new software toy. Do see your doctor for any deviation in your health without fail and be an intelligent partner in your treatment process.
“In times of change, learners inherit the Earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.”— Eric Hoffer
Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS.