India UnInc: Crushed by the State but can't be brushed aside! –Book Review

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 The official guestimates of its contributions in manufacturing and services sector are inaccurate, flawed and outdated, making the India Story incomplete when this real engine of growth story is thus wrongly disregarded.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.

 

India UnInc

Author R Vaidyanathan

Publisher: Westland Books 2014

372 pages

Price: Rs395

 

 

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COMMENTS

Snehal P Dani

5 years ago

Listening to Prof. R. Vaidyanathan is delight beyond imagination. His clarity of thoughts and innovative ideas are path breaking.The way he conveys in simple narration complex economic and social issues makes him eligible to be the Policy Advisor to The Government of India at hightest level of PMO or Finance Secretary.

The Org: How The Office Really Works
A delightful survey of organisations

When the Al-Qaeda successfully destroyed the World Trade Centre Towers in 2001, many experts sat up. A terrorist group, seemingly without a clear hierarchy or a bureaucracy, could motivate hundreds with the same beliefs and band them together for the same objective. The devoted followers were even willing to kill themselves in its service. Here was the kind of an organisation one would certainly die to create.
 
Then, the US invaded Iraq and encountered an insurgency that operated on the same principles. A terrorist organisation, a decentralised alliance of networks that could fight against the mighty US military, “surely held lessons for any organization looking to get stuff done,” in the words of the authors of The Org: The Underlying Logic of the Office.
 
But the authors point us to something like an ‘inter-office memo’, discovered in 2008 but dating back to the 1990s, from Egyptian Al-Qaeda leader Mohammed Atef to a subordinate. Atef, a former agricultural engineer, wrote:
 
“I was very upset by what you did. I obtained 75,000 rupees for you and your family’s trip to Egypt. I learned that you did not submit the voucher to the accountant, and that you made reservations for 40,000 rupees and kept the remainder claiming you have a right to do so... Also with respect to the air–conditioning unit... furniture used by brothers in Al Qaeda is not considered private property... I would like to remind you and myself of the punishment for the violation.”
 
As the authors triumphantly remind us: “That’s right: Al-Qaeda required a T&E report. Neither allegiance to a cause nor the threat of ‘punishment for any violation’ was enough to keep the troops in line. Even Al-Qaeda, the networked org of the future, succumbed to the weight of organizing.” T&E report is, of course, travel and entertainment, an essential part of corporate bureaucracy. 
 
Ray Fisman, a professor at Columbia Business School, and Tim Sullivan, editorial director of Harvard Business Review Press, have written a delightful book. This is a small paperback printed on paper generally used for printing cheap page-turners. But it offers a peek into the history and idiosyncrasies of organisations, especially business organisations, the most obvious public face of which is the modern-day corporation.
 
We all know that large companies lumber along; bosses get caught up in an endless cycle of meetings and supervising workers. And supervising the supervisors is a deadening regime. The authors cite many cases of how large organisations function like a moronic machine—squelching creativity. Here is one such story. 
 
Dustin Curtis had suggested simple design changes that would significantly enhance user experience of the website of American Airlines (AA)—www.aa.com. But he was so frustrated in failing to get his suggestions heard that he went public with it in his blog. An AA executive, Mr X, replied by email. He explained how large organisations with different vested interests cannot implement the changes Curtis was suggesting quite easily. With his permission, Curtis published the email on his blog without identifying him. AA hunted down Mr X and had him sacked.
 
While such examples abound, the central point of The Org is that companies, among the newest forms of organisations (compared to religious, social or other forms of business organisations), are products of centuries of evolution and really do function well. 
 
To explain this, The Org packs in incredible amount of titbits about corporate life, history and academic references. One such story is a Stanford-World Bank study of Indian textile mills, which recorded a sharp increase in productivity in Indian textiles firms after they got $250,000 of free consultancy from Accenture (49 out of the 66 firms approached turned down the offer, underlining how businessmen perceive management consultants). 
 
There is no big insight in this book. In a forest of tomes that scream about the next game-changing management idea, this book is a breezy romp through management and economic ideas about companies and many delightful corporate stories, including John Thain’s $1,400 wastepaper basket in an office remodelling that cost $1.2 million, to McDonald’s innovations to suit the Indian culture. A great read.
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Indira Gandhi's Tryst with Power by Nayantara Sahgal: Book Review

Narendra Modi may turn out be an autocrat, but he will have a tough time surpassing Indira Gandhi’s record of nastiness, as this books has documented

In late March 2014, as the election fever started rising, Narendra Modi, the prime ministerial candidate, started asserting himself more and more, pushing the ‘Old Guard’ of BJP aside. The billboards exhorted Ab ki baar, Modi sarkaar. His detractors, who have always said that Modi is ‘divisive’, decried that this is unprecedented: Is he bigger than the Party? Rajmohan Gandhi tweeted: “One person has complete answer to every Indian problem! Even Indira Gandhi was not marketed thus.”

While we hold no brief for Mr Modi, the fact is that Indian politics has always been about personalities. And the benchmark—of a politician’s interests being equated with national interest—is not being set by Narendra Modi. He is yet to come anywhere near the lows we witnessed when Indira Gandhi was the prime minister. Only a small part of this was captured in the detestable slogan coined by Indira acolyte, Dev Kant Barooah: “India is Indira, Indira is India”.

Rahul Gandhi, the fifth-generation leader starting with Motilal Nehru, and grandson of Indira, leads the Congress Party in this year’s elections. He tries to present a humane face, highlighting the pro-poor policies of the Congress. He derides the aggressive and ‘divisive’ style of Mr Modi. For perspective, this is the right time to read a bit of recent history, especially about India under Indira. Public memory is short and contemporary history has often been whitewashed; so public awareness of the economic and political strife under Indira Gandhi has receded far back in collective in memory.

This is why we have forgotten that the main events of Indira’s life—the decimation of the ‘Old Guard’ in Congress, the atrocities under Emergency, pushing her sons into power, stifling the economy and keeping people poor with regressive notions such as ‘socialistic pattern of society’, the storming of the Golden Temple and, ultimately, getting killed in a ghastly fashion—she led a life centred only around herself.

One of the best assessments of that period, and Indira, one can think of, is by Indira’s cousin, Nayantara Sahgal, daughter of Vijaylaxmi Pandit, sister of Jawaharlal Nehru. She has written an interesting assessment of Indira, the person, in her book, Indira Gandhi: Tryst with Power. This is not a new book but has been reprinted in India recently.This is the right time to read the book when we are close to the most critical general elections in India’s history.

One of the shrillest battle cries of Mr Modi and his supporters is that we need to throw out the dynasty that has ruled the country for the past 65 years. How did this dynasty come about? Pandit Nehru died in 1964. Indira was still unnoticed in her own right, and “not seriously considered a candidate for the succession to Nehru. She had had no training in a profession and no experience in government.” Of course, she was present on the working committee of the Congress Party and this indicated some status in the Party; she had worked for the organisation behind the scenes and remained in the background, by choice.

Remember, she was married and a mother occupied with caring for her two sons. According to Sahgal, Indira was devoted and imaginative about their upbringing, always torn between domestic and public responsibilities. She even described herself as a ‘private’ person, so private, indeed, that no one knew her intimately. “Her griefs were well sheltered, her joys restrained. There was almost a pathos about her personality for those who tried to break through to it. It was a personality that would not step out.”

Although she was inevitably involved in politics, it must be remembered that even until then “she had hung back from the ultimate political trial—an election.” She even declined to stand for the by-election to Lok Sabha from Nehru’s constituency, Phulpur, in Uttar Pradesh after his death.

She had been elected unopposed to the Rajya Sahba after she was appointed as a minister. Interestingly, as Sahgal writes, Indira was so private that “though she had taken part in election campaigns, she had never faced the electorate herself and did not do so until 1967, more than a year after she became prime minister, when the trial could no longer be postponed.”

Indeed, Indira herself wrote to Ms Pandit on 7 December 1965: “It may seem strange that a person in politics should be wholly without political ambition but I am afraid that I am that sort of a freak… I did not want to come either to parliament or to be in Government. However, there were certain compelling reasons at the time for my acceptance of this portfolio. Now there are so many crises one after another that every time seems to be the wrong time for getting out…”

According to Sahgal, she had been only an observer, albeit close to the fount of power, during her father’s lifetime. “The party presidentship, like her earlier appointment to the Working Committee and its subsidiary bodies, had been bestowed on ‘Nehru’s daughter’.”

In other words, “these were not positions she had earned through the rough apprenticeship of state politics with its numerous considerations of region, faction and caste. She had not had to work her way up through the vast organization, or show outstanding talent, in order to be singled out. And she had shown no desire to stand out as (a) political or public personality… Her predominant image was one of retreat and extreme reserve. The country knew her as her father’s companion and the mother of two boys. If her father was grooming her for prime ministership, there was not enough evidence of it…”

Within a few years, of course, an altogether different Indira emerged. One that smashed the pillars of democracy—executive, legislature, press and the judiciary. Her means of subverting the legislature was through rigging elections, imposing President’s rule on the states at her whims and, later, putting the opposition leaders behind bars. She staffed the ministries with officials who would further her agenda. She gagged the press not only during Emergency but even earlier. Hardly anybody knows that, as early as in 1971, she tried to suffocate the Indian press through a draconian system (see Excerpt).

The radical transformation of a shy, reticent woman, about whom Nehru worried constantly, into a combative and egotistic personality that leaned heavily on Soviet power, forms the main theme of the book. Sahgal describes the Jayprakash Narayan-led movement and the mysterious case of Sanjay’s small car project Maruti in detail too.

Those who feel passionate about the future of India must know about the wasted years of the 1970s and early 1980s when a toxic mix of poor economics and self-serving politics set the country back by decades.

EXCERPT: How Indira Tried To Muzzle the Media

During the summer of 1971, the government made its first move toward control of the press when Mrs Gandhi’s own ministry of information and broadcasting prepared a draft scheme to ‘diffuse’ ownership of newspapers with a circulation of more than 15,000. This climaxed Mrs Gandhi’s bias, faithfully reflected in her minister of state’s (Nandini Sathpathy) pronouncements about the  ‘monopoly’ press. The draft scheme proposed that 95 per cent of a newspaper’s shares would be offered to journalists and other employees, and 5 per cent to existing shareholders. But each shareholder would exercise only half a vote per share, their combined voting rights amounting to 50 per cent. The remaining 50 per cent of voting rights on the management would go to a government appointee. The management would thus bear the final imprint of government authority and decisions. 

 

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