Prof R Vaidyanathan, the most popular professor among all IIMs, regaled the Moneylife Foundation members with a brilliantly erudite and hilariously funny presentation
India Unincorporated (non-corporate sector )—which comprises partnership, proprietorship and household enterprises, your neighbourhood flower-seller or the kirana store, contribute nearly 45% of India’s gross domestic product (GDP) but remain off the radar of policymakers. On the other hand, the organised corporate sector contributes just 15% of GDP but occupies the maximum mindshare. These and other findings from Prof R Vaidyanathan’s path-breaking book, India Uninc., were the theme of his hugely popular talk at Moneylife Foundation on 25th April.
Prof Vaidyanathan, rated one of the most popular teachers among all IIMs, brought alive
a host of complex economic issues by punctuating his talk with innumerable asides which had the audience in splits. But there was nothing humorous about the topic: India Uninc: crushed by the State but can’t be brushed aside!
The burden of his talk was that official statistics about the contribution of manufacturing and services sector are inaccurate, flawed and outdated, making the India story incomplete.
Blind adoption of foreign methodology and definitions has led to the government ignoring the real engine of growth which is the unincorporated sector. Consequently, this sector survives, despite lack of access to formal funding, extortion and harassment from multiple government agencies as well as the police and without access to any form of social security. Yet, they toil and put away retirement funds, giving India’s economy the security of a high savings rate.
He started with explaining the economic scenario of the world and the reasons for the crisis in the West being the increase in single-parent homes, which cast a burden on the exchequer, deterioration in savings tradition, and a demanding, rights-based society.
He argued that there is a shift in the economic axis towards emerging markets, like India and China. Thus, it’s time for these economies to utilise this opportunity while focusing on their core strengths.
Prof Vaidyanathan began his talk by walking his audience through a quick roundup of the global economic and demographic situation, to explain how India’s economy fits into this scenario. In this context, he explained a number of issues that have agitated policy-makers such as foreign direct investment (FDI) in retail.
Prof Vaidyanathan believes that large-format retail stores that exist abroad cannot survive in India, because it essentially transfer of bulk inventories (packs of beer, litre bottles of soft drinks and consumables) from malls to homes.
This is impossible in India, where large families and tiny apartments force people to buy and store only what is required. Prohibitive real estate is also a major factor. According to him, FDI is retail in a non-issue, except that there must be parity in borrowing rates. Our local kiranas, a major constituent of India Uninc, pay a very high interest rate, while global retailers will borrow and below prime rates even from domestic institutions by brandishing ‘letters of comfort’ from their parent organisations, he said.
Prof Vaidyanathan also explained that it is the incredible savings rate of Indian households that is another engine that drives the Indian economy by supplying the capital businesses need. Again, in this context, the role played by foreign capital, that is, foreign portfolio investment, is highly overrated.
Much of the Indian household savings goes into buying gold. While economists denounce the Indian habit of buying gold, it only reflects the prudence of Indian women. In the absence of State provided old-age security, they know that they would have to to create their own security. And gold serves this purpose admirably. He said that India ought to put up statues of the anonymous ‘Indian Woman’ whose natural thrift and savings habits have contributed hugely to the growth of the Indian economy.
On education, he says, “I often argue with banks that they should provide such loans to parents seeking admission for their kids in under KG or KG classes rather than IIM or IIT. What is the point in providing loans for the second and third floors when there is no money to build a foundation? ” His talk touched a large number of issues that affect most ordinary Indians and was heard with rapt attention.