Comprehensive Development : Hindrances and Possible Solutions

Published March 12, 2016 by vishalvkale

This is the 3rd and concluding part of my ongoing conversation into the Budget and The Indian Economy with Mr Amitabh D Sinha, carried on from :

This discussion started with my contention that the recent budget is now on the right path, having focussed on Rural India; and that Rural economy should get preference over the Urban. The contention of Mr Sinha, an expert in Service Culture, Business strategy and the Director of Finance and Investment for the SME Chamber of India – is that we can do both; that the path of growth will be smoother and faster if we think out of the box and attempt the seemingly impossible

In the story so far, the two {or three-four} of us had got to the point of systemic competence in the Indian Economy to gear up to meet the new paradigm facing India, Inc; and the preferabality of a model that focussed on both Urban as well as Rural segments of the economy. This goes against the common grind, that we cannot do both. The contention introduced by Mr Sinha was that this is doable, which is as far as we had reached in the first two parts of this discussion
Moving on :

Me : Coming to the core question of comprehensive model, I have no doubts as to its inherent superiority; that is a no-brainer. If you can develop several strains and solve several problems by parallel processing, you get faster development. {Thing of processer cores, and how parallel computing improved things}

That models assumes enough system maturity to ensure seamless integration at the conclusion point; in the field of economics, it also assumes transparency and building trust – as you rightly pointed out above. Do have the requisite level of systemic competencies in our internal mechanisms to deliver on such a tough task? Agreed on the take on Credit policies, and the commitment to the Basle Framework; beyond argument, pretty much. Rationalizing, Assessment, Disbursement etc are also all very valid points raised by you; the problem is again in the ground realities and the doability

My contention is the same as before : I fully realise the inherent power of the model being proposed by you; that is transparently obvious. If we can develop Education, Rural / Agriculture alongside employment generation activities like industry on a small scale {given our structure}, the benefits are obvious. Further, given the existing entrepreneurial spirit and structure, the ease of promoting MSMEs also is far easier. Add to the the focus on big industry – and you have a mighty plan at hand. That I readily grant.

As another contributor in this thread pointed out, as well as myself in an earlier article, to create educated manpower without jobs is a recipe for certain disaster.
The issue is two-fold :
1) How do we implement the aspects pointed out above, in a scenario of multiple holdings by same promoter, lack of full penetration of accepted accounting standards, lack of transparency in documents, and so on and so forth? These will put the system at risk; the main difficulty in credit worthiness assessment comes from such factors.
2) Monitoring, early warning etc requires free, relatively full and fair information; that is absent by and large – although this being a major focus area, things are getting better with increasing penetration of proper accounts, systemic requirements like PAN, broadening of Direct Tax Net. Thus again, we are back to my original contention – that this might be premature.

As to the rest, spot-on accurate: the single biggest hurdle actually is what you state basis my 17 years work experience – lack of fund flow is the way I would like to put it, which results in companies running dry of working capital leading to shut downs. The receivable cycle has increased almost precisely as per your contention in my experience as well.  Further, the raised point of incentivising is indeed thought-provoking, it would, if added with penalisation, create a suitable environment. That might just be what is needed!

But again, wont the TReDS help in a major way in sorting out the mess in liqiudity? Am not too much into that, but am to speed on its basics. Next, extending credit is also the flavour of the season, but as I seem to recall it is limited to the priority sector. I do not recall much in this budget on easing norms for the MSME sector, correct me if I am wrong. I recall only point 66, 92 and 172 in my notes on the budget speech…

Amitabh Sinha|Expert – Service Culture, Business Strategy  : Vishal, chaos engineering has its challenges, no doubt, but the upside is palpably higher. As far as the playing field and the environment is concerned, recently at a budget review, I heard a question that is hard to invalidate given what we know of on ground systems – how much of the allocated funds will reach the point of action and how much will dissipate?

We know there will be diversion and dissipation, but we have to go ahead and do it anyway, while working in parallel on plugging leaks and ensuring smooth efficient flow to the point of action right? So no the model does not assume system maturity, it factors system immaturity, but not as an insurmountable hurdle.

The paradigm will never be perfect, but nor do we have the luxury of waiting. Malthus is not going to wait for Keynes 🙂

Vishal, I had missed your critical point on system transparency and information availability, especially people gaming the system through multiple entities, different accounting practices etc.

Part of the problem is being addressed through the information networks and their linking which is already in progress. Mr. Modi’s insistence on ‘Digital India’ might be questioned by many, but will form the main bulwark for creating greater system transparency. Banks are already starting to share client data, next will be to share decision data. UPA II dropped the ball on UID but that’s back in play too.

The next will be to force standardization of accounting practice, which is where the PM’s thrust on bringing in foreign investments will be a huge tool, because international money will demand internationally acceptable practice, which in turn will start to put pressure on local operations that deal with bigger entities to ‘comply or die’. Tough? Yes. Required? Hell yes.

Me : Amitji,
I see that you are in effect advocating a PPP type model for development to circumvent the resource crunch problem I was talking about. That is indeed out of the box thinking; appreciated. Unless I miss the point, you are specifically talking about going even further, and reducing the role of Government as far as possible, along the capitalistic model.

That is certainly doable, and is eventually the way forward. While this could not have been tried hitherto, due to lack of depth in the internal business and wealth scenario, but in the changed paradigm that now is the case in India – this is worth a look at.

As a matter of fact, there are a couple of case studies in the real world in India : where industries have become world leaders through private enterprise, aided by friendly and enabling policies.

I respectfully submit that this model can work out very well indeed in select areas : Manufacturing, Service areas in totality. In Infrastructure and Agriculture, this can certainly be tried in product areas : Fertilizers, Seeds, Implementation of Projects etc are areas that come to mind. But for the overall execution, I do not think the Government can step out due to the humongous nature of the funds required.

The single biggest problem is choosing where to invest the surplus we have. We have a budget {any budget since 1947!} where non-plan expenditure takes the bulk of the funds; this leaves the plan expenditure, with a series of demands on it. You have to choose between one of the two, eventually; therein lies the rub.

You have requirements for huge funds for Roads, MNREGS, Irrigation Projects, Power Sector, Smart Cities, Digital India, Armed Forces, Education, Health and so on and so forth. You do not have the requisite funds to invest in all. Further, given the scale of poverty, you cannot ignore the demands of what is euphemistically {and inaccurately} called Social Spending; as the past year’s experience shows,

That is why, considering the priority of the demands, we have no choice but to ignore the cities of India and put our funds into the rural sector – namely, rural roads, and Agriculture Sector. I accept the advantages of digitisation as outlined by yourself; being a hardcore techie- that is plainly obvious to me. My daily bread is from a hard core technology industry; my survival and growth is a direct function of technology. How can we do both?

Digitisation – rightly pointed by you as both an effective enabler as well as leveler – will require funds. Huge amounts. Where will they come from? Being from Telecom, I am only too well aware of the impact of corporate valuations, cost of funds and the investments, and their impact on the ground scenario.

The current level of infrastructure in India in terms of data – will it sustain the demands of a national digitisation mission? I fear not. 3G is a case in point; the speeds as well as connectivity we enjoy are abysmal by any standards, not due to telco faults, but because the demands on the network are tremendous by any standards, and the additional factor of cost the telcos incur in setting up networks in terms of both capital and revenue expenses. Having finite resources, the telcos have no real option but to put their money where revenue will be maximised; that is the only strategy that makes business sense.

Thus, the PPP model will not really impact rural connectivity except over the long run, given the cost profile of setting up networks across the hinterland. Further, digitisation and seamless connectivity across 545 districts, and thousands of tehsils, talukas and villages is a daunting task. This task is admittedly underway, and we have achieved wonders in this. Accepted.

My point is straightforward : given the paucity of resources at our command, we have no choice but to let the digitisation proceed as its current pace {for example}- and put our money into priority sectors. I accept the points made by you – some were real value additions to me, and made for great learning. But my core question remains unanswered.
The scene in Rural India is worrisome, as pointed out by me with proof in my three recent articles – and such a situation demands we forget all else, and focus on bringing things back on keel once again.

That said, we do need to focus one hell of a lot more on the MSME sector, and I do not spot much in my reading of this current budget {have yet to go through fine print, am on tour}. Credit, the single biggest problem for MSMEs, in addition to gargantuan rules, offers no details as to the Government thinking – correct me if I am wrong. Time will tell – let us see.

As a matter of fact, if we look at Annexure Section of the Budget Speech, specifically Annexure III-A page 36, one can see that while MSME ministry gets an allocation for 3645 Cr, The Ministry of Urban Development gets 24523 Crores.  MSME+Unorganised sector taken together is the largest segment of the economy… Are we paying due attention to this sector?  This is a genuine question in my mind… would love your expert comments, since this is a core part of your daily bread

Amitabh D Sinha : Vishal, for years people have delighted in presenting either-or choices to us as a nation, deftly hiding the fact that either-or always leads to greater rifts and addresses nothing.

The point that I have been trying to make is that we have no choice but to push for what you’re calling PPP and what I call as the only rational model for comprehensive speedy development. What we have inculcated over decades is an efficiency crisis and we always try and present that as a debility. Simple participative accountability and making people do what will benefit them and yield incidental benefits to the country will work, will be faster and will be effective. As Mr. Shetye is saying, build the small outcomes, the large ones will take care of themselves.

Me : That bit hit home, and hard : efficiency crisis, meaning both corruption and productivity issues. I see the point both of you have been trying to make; I am also aware that real life requires hard choices. While we do need to set our priorities straight, as I alluded to earlier – the point above that the resource crunch may not be as big as assumed is well taken – of which there is plenty of evidence; meaning that there is a lot we can do internally.

But what it boils down to, critically, is that we need to tackle corruption as well as enhance efficiency {Both, corruption as well as inefficiency are what lead to leakages} on a war footing : if we can save that money, and tap into internal resources more effectively, we may have a good thing going… we are going to save money to do both – we need to root out both from our internal systems… the question then arises, how can we do that? And is that really doable for us as a people? But that, I am afraid, is the subject matter of an entirely different discussion to be taken up and examined later… Till then, till we can, as a people, solve this riddle, we may have no choice but to focus on one area… that is what worries me!

Thanks for an enlightening discussion – one of the best on Th!nking Indian so far….

If you have liked this discussion, please feel free to visit Th!nking Indian on LinkedIn for the entire discussion, as well as other hot topics with presentations from many people from all walks of life….

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