India in a hurry: Are we working towards development or chaos?

The sentencing of Binayak sen, the PUCL activist from Chattisgarh brings to the fore the way the country looks & treats naxalism. Naxalism is getting equated to terrorism & lot of innocent people are being targeted just because they are protesting against government's inaction. The governments of the day seem to be either hell-bent on taking advantage of naxalism or have tried to address the symptoms at best. No one is trying to address the root cause.

What is the root cause of naxalism? It is a deadly mix of poverty and perceived belief of being wronged. In most of the cases it is true. In a hurry to sanction lands for development (for obvious reasons), the state forgets its responsibility of the need to take care of its citizens in a wholesome manner and provide for their bare necessities at the least.

Whenever land is identified for a particular project, a thorough analysis is not done about the effect of the intervention on the ecosystem at that location. For example, when land is acquired for a mine in a tribal dominated area adjoining a forest, what could be the impact? The tribals who are generally dependent on the forest ecosystem are suddenly reduced to penury since the resource which they depended on is no longer there nor they are provided any alternative means of livelihood. The forest ecosystem is also disturbed, but so far I have not heard anybody paying serious attention to analyzing the impact on the animals & forest ecosystem. Ideally, both the tribals & the forest need to considered together while working on a rehabilitation process. Otherwise, tribals become naxals while the forest animals run into people in neighboring villages & get killed.

The case of acquisition of agricultural land is much more simpler. Either the complete ecosystem should be created elsewhere or people compensated appropriately so that their standard of living does not get negatively affected. In fact, the government should ensure that their standard of living becomes better since they are in a way sacrificing their convenience for the betterment of the country by surrendering their land. Unfortunately, the people who come up with the relief & rehabilitation programs either do not understand what needs to be done or simply not bothered.

So, in a hurry to get more projects off the ground quickly, the governments end up creating Singurs across the length & breadth of the country. In some places, the people succeed in halting the project while in some others, the movements are just suppressed and the result is there for everyone to see. While India's GDP is increasing at a scorching pace, more than half of the country lives in poverty. More development projects will lead to more chaos unless enough attention is not paid towards relief & rehabilitation. The end-result could be a Laloo-time-Bihar kind of situation across the country with affected people taking to unlawful means to earn their livelihood.

Yet another naxal encounter. But we refuse to learn.

The Dantewada massacre resulted in the death of 75 ill-equipped, inadequately trained CRPF personnel. Was this avoidable? Yes. But the government refuses to learn from such attacks. All that happened was a political drama staged by the home minister. Like 26/11 we just refuse to take appropriate action All the people, including our beloved prime minister just talk. But what is missing is real action on the ground.

To start with, let us delve into India's history to understand how we have handled such insurgencies in the past. The problem in the north-east is the best example. There we have the bodo problem, problem in Nagaland, Tripura, & pretty much the whole of north-east. The root cause of the problem is exploitation of the natural resources of the region without the natives getting anything in return. It is this unfair treatment which has made people revolt against the establishment. The government has still not figured out the best way to handle the situation there. How can we expect it to handle similar uprisings well?

The naxal movement in Telengana (Andhra Pradesh) is another example where the state government managed to (that is what they claim!) suppress the naxal movement. The end result was that the naxal leaders migrated to other parts of India. What was Telengana's problem yesterday became some other state's problem. Unless the government tries to address the root cause, there is no end to this problem and it will surely hurt the long-term development prospects of the country.

What should the government do? Whenever massive projects are conceived, the government must take the people in the affected region into confidence and make them party to the decision-making process. They should figure out a way to make these people stake-holders in these projects so that they will be able to reap the long-term benefits that accrue because of undertaking the project. The land-acquisition & the rehabilitation process should be transparent unlike what is prevalent today wherein only some middlemen benefit.

What would happen if the government takes the casual approach towards this issue? Like what has happened in heavily naxal-infected areas in north-east & Bengal, people would hesitate to invest in those areas. Already the naxal problem has spread to almost half of the country. In no time, it would spread to the rest of the country unless urgent measures are taken to address the root cause of the problem, which, in my view looks very unlikely.

In summary, the central and state governments in India are not taking a proper approach to solving the naxal problem. Instead, all the measures that are being taken is making the problem bigger and probably reach unmanageable proportions. Unless this changes, we may not see any improvement in the situation on the ground.

Is the Indian growth story sustainable?

Everyone in the world is talking about the India and China growth story. India is considered one of the hot emerging markets. But is this economic growth sustainable in the long run? I am not really sure. I say this because of the inherent contradictions that the country is struggling with, which makes this growth non-sustainable. To understand what I mean, we need to dig a little deeper instead of just scratching the surface.

Firstly, India is no-doubt one of the hottest markets for every one in the developed world who are used to low single-digit growth in their respective countries. India offers a great opportunity to all these entities to balance low growth in developed markets with phenomenal growth in the emerging markets like India. They are looking at India as a fast growing market. But, what will they do when this growth slows down is anybody's guess.

Secondly, the government's role in the growth so far has been minimal. It is true that the software & other services industries grew faster because of the tax incentives, but that was not the only reason for their growth. The government is planning to spend a lot of money on infrastructure, power and other areas which are essential for this growth to continue. But is the pace with which these are getting implemented enough to sustain the growth? the answer is no.

Thirdly, with the way the government is going about implementing its industrial policy, be it SEZs or steel plats or power plants, it is introducing a lot of hardship to the people who are getting affected. In the newspapers, we mostly read about who all made money when Tata set up their Nano plant in Gujarat. But what we don't get to know is the number of Singurs & Nandigrams which are waiting to happen. This will create more naxals and every state will wait for its turn to become another Bengal.

If we put things (that I have mentioned so far) in perspective, we can easily understand that the India growth story which we are all proud of, will probably not happen in such a grand scale after all. Because of the way things are being handled now, a big pause in growth is waiting to happen. The pain such a pause is going to cause is not very clear at this point.

Is there anything that we can do to prevent this from happening? Yes we can.

To start with, there should be some method to the madness of acquiring land for industrial purposes. We should have designated areas where industries are permitted. This will bring some order to the process of acquiring land. In addition, the government should let some independent third-party agency handle the compensation fixing & distribution process, which needs to done scientifically rather than the way it is being done now.

Secondly, we should stop welcoming investment in every sector just because someone is ready to invest big money. The government & the scientific community needs to focus on the long-term impact these industries will have on the environment as well as the people getting displaced. It is the improper rehabilitation plans which are the killers in most cases. We should figure out ways in which the displaced people can be made stakeholders in the development which happens because of their sacrifices.

Finally, the way the infrastructure is getting built leaves a lot to be desired. Everything is happening in a reactive manner, with no specific strategy being followed. We are making the same mistake of building too many roads as was done in US rather than build an efficient rail network across the country. But with Railways being run by government, this is not possible.

To conclude, unless we take remedial measures quickly, the economic growth that we are seeing in India may quickly come to a grinding halt in no time. The Indian population, which we are able to leverage now, will itself become the problem when such a thing happens.

Great Indian Budget:: Does it deserve the attention it gets?

Everyone in India, including the media, the industry and everyone else eagerly awaits for the union budget every year, without exception, as though the budget is going to change the way their lead their lives. Is the budget really that important? I don't think so. In my view it is an hyped up event which does not deserve any attention at all, at least not the amount of attention it gets.

What happens in each budget? The government in power presents its annual report for the current financial year and outlines the income and expense heads proposed for the next financial year. Pretty much similar to what Infosys does at the end of every financial year. The companies do it after the financial year ends, but the government does it one month before. This is the only difference.

Current & potential investors and analysts (so called) pay attention to an Infosys annual result briefing, because, they are affected by it. The analysts need to advise their investors based on the results while investors decide to stay invested or increase their investments in Infosys based on the results and guidance, if given. But, with regard to the union budget, do the investors have such a choice? Yes they do. They can leave the country and go elsewhere if the policies are not favourable. That is it. They have no choice but to remain invested and continue to invest more, every passing year.

So why so much hoopla? It is because media wants it that way. Media needs events to report. For instance, would Ruchika Girotra's case have got so much media attention if Pune blasts had happened at the same time? Most probably not. Every year, the media tries to build hype around what to expect in the budget and soon after the budget, have folks analyze it and say something about it. Once that is done, they move on to the next story.

To summarize, the buzz around the union budget is a media creation and nothing else. We are certainly better of not paying so much attention to the budget, because we pretty much know what to expect in it much before than the announcements are actually made.

Price rise: What are the possible causes?

Price rise is the buzz-word these days. The rise in prices of essential commodities has been bothering people for quite sometime now. But the governments don't seem to be taking any measure to address this problem except for making some statements. Everyone seems to be putting the blame on hoarding of commodities, exports, introduction of commodity futures, etc. But the real problem is something else, in my view.

First of all ours is a highly regulated economy with too much of unaccounted money. All the while, this money was chasing real-estate. But recession has changed this trend quite a bit. With so much of disposable incomes not finding investment avenues, people tend to be more liberal with other expenses like travel, food, automobiles, dining-out etc. All these activities translate to a lot of money into other pockets as well (like auto salesmen, food joints, travel agents, etc). When these others also start spending, it is a chain-reaction. Indian tend to spend a lot of money on food. A recent Mckinsey survey found that Indians spend 42% of their income (which is accounted for) on food & beverages.

Secondly, there are these APMCs (Agricultural Produce Marketing Committees) which consists of middlemen who buy up the produce from the farmers at low prices and sell to the retailers and make handsome profits. Unless the governments scrap the APMC act which forces the farmers to sell their produce to these folks, we will not see fair prices. If the retailers can buy directly from the farmers, then at-least the farmers will make more money. This anomaly needs to be fixed.

The last straw in this price imbroglio is the government's policy of fixing minimum support price for commodities and buying the produce from the farmers and putting it in its warehouses and let it rot. It should let market determine the price and compensate farmers in other ways rather than try to fix the price. They should stop the quota system like the ones which require sugarcane farmers to sell their produce to a particular sugar factory at a given price. This will only make the sugar barons richer and will not benefit either the farmer or the end-consumer.

In summary, the government policies are the root cause for the current price rise. Unless they take bold steps to fix the anomalies, the situation is only going to get worse. Of-course, some steps to boost the real-estate market may provide a quick fix to the problem!

Why there is so much poverty in India?

I have always wondered why there is so much poverty in India while the country as a whole is marching very quickly to become a top-3 economy in the world. When you try to look deeper, most of the reasons have to do with our development model. If we talk in medical terms, the policy makers mostly focus addressing on the symptoms while the root cause is not addressed.

Firstly, the governance model that we have adopted, which is the British model requires the state to guarantee the basic necessities like education & health-care to everyone. But these are not taken care of even in the urban areas. The rural areas fare much worse because their so-called representatives bother only about their own welfare and not the welfare of the people who elected them. In the urban areas, though the people are more aware, the government's delivery mechanisms for the basic necessities do not reach the intended recipient due to large scale corruption.

Secondly, the role of non-governmental organizations in filling the delivery gaps also leaves much to be desired. The primary reason for this is that most of the non-governmental organizations are set up mostly to swindle money from donors. With very few organizations really working for the cause, the donors are also very reluctant to part with their money for such causes. This makes it much more difficult for the people below the poverty line to be able to work towards crossing the line.

So it is the corruption in the system which seems to be the real bottleneck. To make things worse, the corruption is so well entrenched in India, we experience it at all levels. In spite of all these hurdles, some people & organizations have managed to help people in need. But very few of these beneficiaries even think about giving back to the society which helped them prosper. Some of them don't even acknowledge the help. Hence, I am forced to conclude that the real reason is that the concept of giving back does not really exist in India and this is the root cause for continued poverty in India.

What can we do to see the change we want? We see a lot of people donating to the religious institutions very generously. Some of these institutions are really doing some good work, but most of them end up as tools in the hands of political class. The best work-around that I can think of is to encourage more professions to join these non-governmental organizations. In some of the more developed countries, people make a career working for these organizations. Once professionalism comes in, we will see a lot of innovative delivery mechanisms which are fool-proof.

We have also seen a lot of corporates creating trusts which will engage in improving the basic living conditions of people including education, health-care, poverty-alleviation etc. Some of these efforts involve professionals, but mostly after-retirement ones. This needs to change. The corporates need to attract younger crowd with better compensation so that more people are attracted towards these career options. We are seeing some action on this front, but a lot more needs to be done.

To conclude, there is continued poverty in India because the system is not making a concerted effort to provide for the basic necessities of the under-privileged. Some efforts in that direction lack professional touch and this is what is making these efforts un-successful on a large scale. If these efforts are run like any other corporate project with professionals managing it, we can expect to see some real difference on the ground. Till then India will continue to have the maximum number of people below poverty anywhere in the world.

Can we get a deal in Copenhagen?

The question that is on everyone's mind these days is "Whether a deal can be clinched at Copenhagen or not". If everyone has the interest of the planet in mind, then it is a no-brainer. But is that the reality. The answer is Yes and No. Yes because all the global leaders are expressing their concern about climate change in public. No because no one, even the worst polluters, wants to pay for it. What is the reason for this stalemate? There are a host of reasons.

Firstly, the worst polluters, in terms of emissions per capita, are reluctant to pay for the pollution they are responsible for. As always, even here, there is a shortage of leaders who want to lead by example. As we have seen in the case of gulf war, war in Afghanistan and other adventures which have gone awry, everyone wants someone else to fix the problem that they created. But they don't mind accepting the Nobel prize if it comes without any strings attached nor is preceded by any notable achievement.

Secondly, everyone is talking about reducing emissions based on 1995 levels, 2005 levels etc. This clearly shows that the politicians elsewhere in the world are no different than our homegrown ones who keep promising the same things in every election but never keep their word. But they are successful at making people beleive that they are really concerned in solving their problems! When it comes to reducing emissions, unless it is linked to the GDP per capita, nothing concrete can be achieved. It is like having affirmative action to help people who were once oppressed. This will hurt the regular junta, but they have to pay for the problems they created in some way.

The third and the most important point is that the Copenhagen conference is happening when most of the economic superpowers have been rendered worthless by the financial turmoil whose effects still persist. No government wants to commit to spend the money that they don't have. The US can print more dollars, but will have to pay to China later. India has still a long way to go in terms of development and hence can't commit to anything at all. The list goes on.

In summary, most of the reasons which can prevent this deal from happening have to do with economics and not about protecting environment. The sooner everyone accepts this fact, it will be better for everyone at the negotiating table in Copenhagen.

Tax evasion in India: Possible solutions

In India, as we all know, there is a lot of tax evasion both by the corporates as well as individuals. In fact it is mostly the honest tax payers who generally get harassed by the income tax authorities while the big evaders never get caught. What are the primary reasons for this phenomenon? What could be the possible solutions? Let us first try to understand the problem in little more detail before we delve into solutions.

In India, the tax rates are comparable with the rest of the world. The tax structure is also quite simple to understand. But, when it comes to enforcement, there is a lot of scope for improvement. But what compels people to evade tax? The main reason is that they know they can get away with it very easily even if they are caught by an honest officer. This is also one of the primary reasons for the rise in unaccounted money in India.

Another very important reason why people in India may be reluctant towards paying tax is to do with what they get in turn from the government. None of the guaranteed benefits like health care, safety, public infrastructure, etc are really available in an acceptable form. People are right when they ask "why should we pay tax at all when we get nothing in return". Having said that, the evasion has more to do with the corruption which has been so well entrenched in India's DNA than anything else.

How can we solve this problem? The best solution lies in simplifying the tax laws even further and rewarding people who regularly pay tax rather than announcing schemes to enable people to declare their black money without attracting any penalty. In addition, the government should bring everything into the tax net. The notable exclusions at this point include agriculture and donations to religious trusts. These are two main sources where people hoard black money in India.

In summary, tax evasion in India is a problem which cannot be solved in a hurry. A lot needs to be done including simplifying tax laws, bringing everything under the tax net, better enforcement and more incentives to honest tax payers than evaders. There is some action on this front already, but we have a lot more distance to cover.

Recession: Why was India the least affected?

The current financial meltdown started in late 2007 in the US, but it took more than a year to pinch India. Now, one year after the Lehman Brothers collapse, the world is talking about India and China leading the world out of recession.

Leaving out China for the time being, let us focus on India and see why we were one of the least-affected. In fact we hardly had 2-3 quarters of slower growth. We did not have a recession at all! This is primarily because India's GDP is heavily domestic-consumption driven. 64% of what is produced in India is consumed locally. The overly hyped IT industry's contribution to GDP is only 4.5%. We have a negative balance when it comes to exports vs imports. We import more than we export. This works really well when the world outside is bad and the domestic industry is doing well.

The RBI (Reserve Bank of India) also did its job very well by stepping in at appropriate time to prevent the banks from lending too much to sectors like real-estate. We did not have too many financial derivatives either to make things complicated. Having more nationalized banks and financial institutions works in our favour because when the whole world panicked, people in India could run to domestic state-run financial institutions for cover!

Overall, India came out of the recession very quickly because out here, the world was indeed not so flat. Europe got flattened because the world out there was as flat as the US!