Turning useless wastes to useful wastes

In Beverly Hills… they don’t throw their garbage away. They make it into television shows.” —Woody Allen.

Indian wastes are ‘useless wastes’. Our consumption habits may have leapfrogged, but our disposal habits are primitive. We mix up useful wastes with useless wastes, destroying the value in the former—you can’t compost paper and vegetable remains mixed with broken glass and plastic pet bottles, nor can you recycle paper mixed with food wastes and electronic remains.
If India has to successfully deal with its wastes, two paradigmatic changes are required in our thinking.
Unfortunately, it is the rag-pickers and the municipal authorities who are made to grapple with the messy problem, without either adequate incentives or resources. The problem has to be back-loaded on consumer product companies who created the non-destructive, non-biodegradable or unconsumed packaging or products and also benefited from it; and instead of trying to segregate mixed wastes, we should prevent it from getting mixed in the first place by appropriate incentives or punishments for compliant or errant behaviour, respectively, at the stage of the mix-up.
If this principle is accepted, (1) all packaging material should also go back to the packager—just like the truck goes back to the truck owner after the delivery of cargo—and they should be made to pay for the costs of such ‘back trace’, (2) what comes into the city and urban centres should go back from where it came, and (3) electronic hardware (which are potential future debris) and packaged food (which comes with non-biodegradable packaging) should be handled at the time of the original sale itself. Outlined below is a system of incentivising segregation at source and the benefits therefrom.

The suggested scheme
1. Every consumer and industrial manufacturer/marketer should be mandated to file their recycling plan or reclamation plan annually, or on a one-time basis. This can be enforced through fines or suspension of licence, till complied with.

2. They should be made to declare on the packaging (where it is multi-layered, on each of them) what value the marketers are prepared to give back to the consumer if he/she hands over the empty containers, cartons, plastics, corrugators, etc, to the point of sale. For example, water bottles may say: “Collect 40 paise against this bottle”. This would help create a ‘waste currency’.

3. Marketing companies should be mandated to collect at least 50% initially, and by the third year if at least 90% are not collected, their manufacturing licence should stand suspended (a similar procedure of disposal to source supplier exists in the Atomic Energy Regulatory Board regulations). The actual collection must be audited by independent entities.

4. To ensure compliance that marketers make efforts to collect back, few things can be done:
–   An upfront deposit with the government can be collected, say, at 3-4% (to be varied based on the biodegradability of leftovers) at the time of manufacture or entry into state or import into India, which can be refunded back based on the percentage collection.
–   Fines on the shortfall at twice the rate will enforce recollection of wastes.
–   Over a period of time, proper price discovery will happen if the enforcement is tight. If competing consumer marketing companies start offering different rates for recollection, it will be a signal to tighten enforcement on manufacturers who offer poorer rates.

5. Marketers may not deal with the wastes themselves. They will locate third-parties to reclaim, recycle, sell to re-users, or incinerators, energy companies, etc. Positive values will be reclaimed by recycling. Reusable material will be sold at commercial values. The rest may be sold to energy or incinerating companies.

6. The end-consumer may not find it worthwhile to go to a shop and exchange the waste currency. Rag-pickers may pick up wastes at the doorstep, and claim the waste currency at a discount and hand it over at sales counters. This will incentivise source-segregation. Rag-pickers should be trained to pick up all wastes and exchange the value of wastes, and dispose of the rest in designated ways.

7. Special shops will emerge that only concentrate on the collection of all wastes for a margin in every shopping mall, street corners, etc.

8. Heavy fines should be levied on selling companies for litters found in the open, which will induce some policing by them directly.
In addition, litter disposal should be made part of the Swachh Bharat Abhiyan.
Forward distribution is highly working capital intensive, requires expensive shelf space, advertising and product promotion, besides hefty retail margins. Wastes being reclaimed do not suffer from any of these. In fact, the total cost (net of recoveries, if any) involved may not be more than 1-2% of the selling price of base material, excluding the manpower involved.

Estimates of employment and benefits
The Indian retail market for FMCG and pharmaceuticals was estimated at $630 billion in 2015. In FMCG, packaging costs typically account for 3-4% of sales value—the costs incurred on packaging on sales of $630 billion (`42 lakh crore) is likely to be about `1.4 lakh crore.
If the fines for non-collection are kept at, say, 4% of the sales value, hopefully companies could be expected to spend at least 2% on recollection (including on wages, transportation, storage and dealing with wastes), i.e. Rs 84,000 crore.
If roughly one-third of this accrues to labour as wages, it is about Rs 28,000 crore. At minimum wage rates of around `300 on 240 working days, it comes out to be 35 lakh man-years, i.e. 0.3% of our population. This is not wayward compared to the reported 0.7% currently employed in South Africa in similar activities, compared to 0.1% in India currently.

Going forward, probably the government’s role would be minimal. It should create the enabling legislation and set-up a ‘waste police’ whose job will be to catch and fine sellers who are not marking waste currency value, people littering, recyclers not completing their jobs, supervisory audit of audits, ensuring manufacturers file their plans, certifying refunds, etc. This ‘waste police’ should be additional trained staff, and not as an adjunct to the existing police duties.
The government can use a portion of ‘funds in custody’ (through upfront deposits) or fines for training and certifying the people involved. It can train people as part of skill development programmes or get originating companies to train them (for automobiles, e-wastes, hazardous chemicals, etc).
Even if compliance starts with multinational corporations and organised sector companies, it could quickly reach 40-50%. It will have a demo effect and lead to others falling in line.

For the Poor Interest Rates are more a function of Culture; not arithmatics

https://www.financialexpress.com/opinion/a-poor-understanding-of-monetary-policy/1234554/

For much of poor – rural or urban – in many parts of the world, interest rates are not a monolithic price point balancing demand and supply of credit with variations mainly (if not solely) for credit risks and time duration.

Poor people have been observed to keep currencies for safe custody without any compensation with the same wealthy lender from whom they have borrowed money at  usuary rates of interest. This seems irrational but is compelling to the poor to ensure cashflows for upcoming events like marriage, funeral, school admission, or sowing. This perhaps addresses their ‘fear’ against an irresponsible husband or ‘lack of self control’ over competing short term spending itches.

Nothing can explain so many irrational practices (as formal system sees them) in South Africa surrounding funeral finances. A decent funeral is a matter of prestige and social standing (ranks perhaps number 1 in their Maslows hierarchy) and consumes about half/full years income. Years of zero interest (or even paying safe keeping fees), deposits with funeral societies defeats arithmatic rationality but addresses anxieties on maintaning social prestige.

As the book Portfolios of the Poor reports, moneylenders to the poor almost always collect interest rates in advance and don’t refund proportionate portion for unutilized period on any prepayment. Yet just to feel relieved from the burden/shame of indebtedness the poor pay up most loans ahead of time thus increasing the ex post interest rates by several % points – irrational arithmatic wise but rational mental relief wise. The book also observes practices where people borrow expensive monies leaving savings accounts intact due to a silo (usewise) mentality.

Just no commentator or official have understood the ‘Rs 10.50 in the evening for Rs 10 in the morning’ small trade finances. Simple arithmatic tells us it is more than 1800% per annum even without compounding. But the money lender apart from running counter party risks also knows the purpose and can get into such business himself or set up someone else who can. So why should he not get to share the spoils with the trader. In that sense it is more a share in the joint venture profits not interest. Its just dividends with a Cap in treasury managers parlance.

Surely in the ladder of social shame, borrowing ranks somewhere sub-ordinate to other social compulsions (gifts and donations in marriages, funerals, festivals, religious functions, etc), medical emergencies etc. Otherwise they wont be borrowing. Borrowing for economic purposes like for sowing, cattle buying, houses etc. may be justified on rational grounds. If Governments want the poor to become rational, they may have to invest a lot in social education and training to move up indebtedness and make other non economic needs less shameful than borrowing.

In fact this sense of indebtedness and shame from failures to meet obligations and social policing have induced repayment discipline amongst the poor. This is a great social collateral which the formal systems refuse to recognise or promote.

Most poor cannot count; even if they can, most don’t

Many studies indicate that in their decision on when to borrow, from whom (for some loans from next door neighbour is preferred, for some relatives but some other purposes it is considered shameful to borrow from them), and when to repay or prepay, the arithmatic of interest rates weighs far lower as compared to a rational person. Culture, social customs, peer pressure, shame and fear, family pressures decisively overshadow the arithmatic.

Thus when the RBI’s appointed committee put caps on the interest rates charged by MFIs as the main weapon to deal with some events in the erstwhile combined Andhra Pradesh, it only betrayed its lack of understanding of the financial culture of the poor. The arithmatics of interest rate may work better for formal systems, between banks and financial markets, in cities and amongst the rich and heavily banked but not amongst the poor.

The poor levels of financial integration and inclusion in india is the result of this lack or refusal to understand the culture. RBI (or its equivalent monetary authorities) should stop their colonising mindset: they should not  supplant the financial culture by dictating the price, acceptable instruments and institutions. Formal form over substance KYC’s can never match the KYC of the local moneylender whose self interest is locked in with his customers fortunes.

Establish the role of money first before seeking policy effectiveness

Before trying to establish the suzerinity of its policies over the rural and poor India, RBI should first establish the hold of our currency (Rupee) on the poor. For some of more important functions of money the poor trust its surrogates more. Gold (cows in Swaziland or cattle in many parts of Africa) has much more dominance in store of value function of money and to a limited extent even in liquidity and transaction demand. Policies and schemes about Gold over the years have been rather unimaginative. The high levels of informal economy does not help either.

Some aspects of the financial culture of the poor described above also come out of fear and anxieties, cashflow uncertainties, ill timed arrival of cultural exigencies, etc. These can be overcome to a large degree by appropriate insurance whose penetration is very poor now. Proper insurances on various cashflow risks that the poor face, will release a lot of gold and make the poor adopt a more ‘rational’ and self-optimal practices.

Indian authorities should subsume the existing system into its network by refinancing money lenders and accepting social collaterals, finance Nidhis and Chit funds, etc.; instead they erect barriers against such practices on institutions which seek to use the available conducive social infrastructure.

We should of course continue to educate the poor communities about the arithmatics so that wherever possible the poor could act rationally, including proper search of alternatives in their own ‘irrational’ markets.

A regulator who fails to have a grip of the market culture, market practices or interact with its participants continuously to gather market intelligence and spot any significant trends and shifts, is bound to falter. East Asian societies like Indonesia (as spread out), Malaysia, Vietnam (as dense as India) have not tried to supplant the local systems but have sensibly allowed them to co-exist and serve their societies.

 

The Art and Need for Creating Employment

Link to FE 29/5/2018:  https://www.financialexpress.com/opinion/the-art-of-and-need-for-creating-jobs/1184633/

If there is one thing that is common to every government since reforms they all had a growth consciousness but equally they all lacked an employment creation strategy. Employment it needs to be realised is like the insulin that delivers the sweet benefits of growth to the individual citizens. Otherwise growth accumulates like sugar in the blood as inequalities in society with their own adverse consequences.

The chart shows the employment in formal sector versus the economic growth over the last 40 years. Unfortunately, reforms have preferred cost cuts over ensuring adequate levels of government services and preferred efficiencies over employment in private sector. If only post reforms had created employment at half the rate as before, it would have taken care of the army of currently unemployed, a ticking time bomb. An employed and hence an engaged mind would tackle several of our social ills far better than investments in tightening surveillance or even infrastructure. Even the 1.3% uptick in the last few years may be more due to informal employment turning formal.

Presentation1

Unsatisfied needs – the basis of all markets and economic activity

Demand or an unsatisfied need is the basis on which any business is created. Meeting an existing demand with an established market and pricing mechanism is a safer approach to success. But, ingenious minds come up with IPL which fulfilled a latent demand (which perhaps even the customer didn’t know existed) for after day entertainment. Our telecom sector saw explosive growth by satisfying India’s motor mouth urges, never previously anticipated. But this requires foresight, some daring, financiers willing to take the bet, besides creative minds to come up with the relevant package of practices.

Demand for Government services arises out of public goods, constitutional rights like justice, safety, protection of property, ensuring equality of opportunity besides some commercial activities. It sometimes is required to serve needs where users may not be willing or able to pay commensurate prices.

Art of creating jobs – an example

Huge negative value is being imposed on the citizens by our unclean surroundings, waste and litter, sewage drains masquerading as rivers, un-cleared urban wastes spilling over to drive ways etc. There is sure a demand for neatness, cleanliness and hygiene, even if all those desirous of the service may not have the ability to pay for it.

India’s employment from rag picking and waste collection is abysmally low at 0.1% of population whereas similar activities employ 0.7% in South Africa, 0.5% in Brazil, 0.6% in Lima (Peru) as per ILO. The GDP from these activities in advanced countries vary from 2.5% to 3.8%. Employing the people required (say 50 lacs at even 0.4% of population) won’t affect other sectors since these skill sets are low and there is an excess supply in the labour market in any case.

The main missing link is who will pay for the services. At the macro level given the direct and indirect benefits it may be worthwhile re-distributing 1-2% of GDP through taxes and expending it in tackling wastes. But there are other ways. Elsewhere, nearly 30% of value of wastes generated are recovered and reused. There are people in various income classes whose desire for ‘cleaner surrounds, safe drinking water, litter free zones’ are more intense and more can be recovered from them for cross subsidizing the lower income strata. Hopefully the net unrecovered portion can be contained to 0.6-0.7% in the initial periods. People taking employment under these schemes could be made to give up all other subsidies.

The direct and indirect benefits of cleaner surroundings should also be taught to the citizens creating over a period of time greater ‘demand’ for them and higher willingness to pay for them. Or higher willingness to move into areas where such services are recovered at higher charges. The capital required for creation of each job in this sector is way lower than industrial or service sector jobs, private or public sector. The skill sets can be developed a lot easier with minimal training.

The open sewages in our cities, unclean rivers, garbage, etc.  are all a huge source of opportunity for employment creation. Of the various links in the supply chain the only missing link in this case is the poor ability or unwillingness to pay arising out of poor sensitisation of benefits and income. In the case of IPL virtually all the links were missing or invisible and it required some genius still to spot the opportunity and put all the links in place to create the ‘market’.  Similar opportunities exist where just one or two links may be missing and some creative thinking can add substantially to GDP, welfare and employment.

The disproportionate fatal accidents per vehicle is an opportunity to set right the systems by employing people (may be a lac or two) and adding positive welfare value. Our ill-disciplined roads, haphazard parking in crowded areas, rampant littering, usage of killer plastics are all potential opportunities of employment at low incremental capital investments. Our collapsed criminal policing and investigation (in deficit by at least 5 lacs); delayed judiciary can easily create new jobs for twice the existing number. Our deficient healthcare as Dr Shetty points out has a 50 lac employment potential at ‘fit for purpose’ doctors, nurses and service levels.

Government at both central and state level should identify ‘demand’ and need for its various services and ways to fulfil them rather than just run after roads, ports or infrastructure: our governance infrastructure for policing, justice, safety, protection of property, education and primary healthcare are in far greater levels of deficit.

Hiding behind our awful deficit of government services and under-development, chaos and disorder is a latent demand which could create 3 crore new jobs at comparatively low capital investment. This level of additional employment would have most certainly returned the incumbent government in 2014 despite all other troubles and could make a difference in 2019 as well.

This level of employment can be created at 1.8% of our GDP at Rs 100,000 p.a. wage levels. It requires some ingenious minds in the government to identify and fit the missing links in each case. The government should perhaps leave the return based (ICOR, IRRs and Paybacks) growth to private sector and chase newer indices like Incremental Employment per Capital Invested (IECI) for itself –a compromise of efficiency for employment.

Tribal protection or Poverty Preservation

The article with the above title has appeared in Financial Express of May 16, 2018.

Link: https://www.financialexpress.com/opinion/tribal-protection-or-poverty-preservation/1169401/

 

Conversations with an Ex-Naxalite

Warning: I have generally decided that Grammar and spelling are useless appendages. If you are not in that genre, pl pardon. Naxalism, for the uninitiated is domestic militancy or localised terrorism.

This was about 8-9 months back. My driving licence had been suspended and i had to rely on Ola and Uber on holidays.
It was twilight and i had hailed an Uber to get back home from Noida. When the cab arrived, I tried to put 3-4 bags with me beside the front seat before taking the front சleft seat as I always do.
‘How is the day treating you Sir’ Came a confident voice – more of a CEOs than a cab driver. I must have murmured some response since i was still at tucking in the bags between my foot/legs and seat.
Once he started driving, i said everything was fine; the day had treated me all fine. I was looking into his face which had the rediance and lustre of say a Kabir Bedi with a 4-5 day cultivated bread which always stays that way.
Me: Are you from Bihar? (I have generally found that people from Bihar and Jharkhand are loquacious and keep yapping and many times excessively to my discomfort dishing out advice on advice even if unsolicited.
No Sir. I am from south- western orissa -Korapur district.  We have a factory in the adjoining district and so know something about the district and naxalite movement in adjoining areas within Orissa, northern Andhra and Chattisgarh.
Somethings I learnt from him about naxalites during the ensuing conversation:
1      It is not like you people think – that naxalites live a life of complete seclusion from the rest of society – in a demarcated land island with boundaries. they move in and out of society. Most of them do farm work during sowing, transplanting or harvest times in the adjoining villages. during slack or non season (or people permanently unemployed work) their activities peak. Most people know them and their families and activities. people in the vicinity dont have the same level of animosity towards them as people distant from the scene.
2      It is only the top 2-3 who dont mix with or expose themselves to the rest of society. They are nearly completely cut off – and some more people who are not known to move around. But mostly they move in and out of the society.
3      The recruits are drafted based on 3 criteria: Physical strength, ability to execute gruesome pain or crime and thirdly loyalty.
4       There are pay scales and cadre depending on the skill levels and experience and years with the movement and of course ‘performance’. They are all trained in their assigned activities.and there is specialisation.
5       the area under their influence has shrunk slowly. It is more or less finished in Andhra Pradesh. (as someone else confirmed in the late 1990s prominent guys in AP from the affected areas felt unsafe or scared even in Hydrabad; now you can drive thru the areas even at night). In Orissa and southern tip of Cgarh their is a marked downscaling of activities.
6      Many of them have moved into Government contracts – road construction, etc. The Govt knows it and has been helping it along. The local politicians and MLAs (who help them with some moneys sometimes) and sometimes even the police help them along.
7       Govts also dont make too much of their past crimes or issues or hound them or their families. there has been a practical approach in the last 10-15 years which helps in normalising their relationship and rehabilitating.

My mind started weighing the new insights with my pre-existing ones item by item saying yes, no , possibly, unlikely and likely as so on. And i muct have fallen silent for a while.
Driver: ‘Kya hua Ji suddenly completely silent’
‘No No just getting frustrated with the jam. I must have reached home by now. We are not even half way through. By the way can i ask you a personal question?’
Yes

Me: Haven’t you thought of joining the naxalite movement yourself. By what you say, it is not as dishonourable as i once thought it was.
He turned and sized me up for may be 20-30 seconds. I was unnerved for those few moments. Not knowing what was in store.
‘Yes I was’.
Hmmmm… i was a bit relieved now.
‘I was a good student normally topping my class and school right thru. suddenly at the 10th std board exam much to the surprise of my teachers, family and self i plugged in 2 subjects. I gave the papers again 12 months later but failed again. I realised my heart was not in it any more. I was loitering around, no work and leaning on poor parents during the time. almost for a year and more. It singed me that i should earn something and thats when i decided i will take it.

But then i was short on physical parameters. But then since i was good with my science, they agreed to train me as a ‘doctor’ (their brand). The training lasted for 3-4 months. I used to stay with my family and they used to pick me up whenever required.
But then it was mostly during night times at whatever time … 10 pm one day and nothing for a few days and then 3 am – very erratic. It took a toll on my health, outlook and general wellbeing. I was getting disillusioned even while the money was OK.
I must have been on duty for 9-10 months – say about 15 months with them.

I was looking around and a sardar offered migration to Canada and i went to Toronto. There it was … I was hold up for 45-50 days. I didnt have money … so was hardly moving out … mostly confined to the garage level shelter. It was not that the sardar wasnt trying but then it was not easy. I lost hope and decided to forget the Rs 2 lacs i had spent from my familys and self savings and loans and came back to India.
As luck would have it, i found employment as a travel desk operator with a French MNC office in Delhi. I looked decent and spoke good English so i guess i was lucky with that one.
Me: So do you know Mr Nathan?
Him: How can i not know him. He was a top boss. He used to live here only in Mayur Vihar somewhere. (actually the Gman was our beighbour for 4-5 years and moved to deep south on voluntary retirement).
Him: I was with them for about 3-years or so.

So why did you quit such a cushy job?
I thought i knew travel management well and so thought of starting a cab service and after some trials and errors started driving for Uber and Ola. For the last 3 years.

Me: So whats the status of Naxalism now?
Him: Havent really been following. Hardly visit my home town these days. Next time i go there i will find out. Meet them. may be some of my friends will be there.

And then there was a long pause.
I looked at him and now asked him ‘So its your turn to go silent now?’.
Him: After some long pause. In a completely different tone now. The gleam and glitter in his eyes gone and voice not exhuberant or decidedly hopeful like in the beginning.
Dont know sir. I manage to make Rs 15-20,000 a month doing this driving and my wife makes some 10-12 doing some office work. (some catering or some such thing). We have a daughter in 3 std and one 3 years old.

But dont know where i am going in life or what next. feeling lost not knowing what to do. I am just 34 and have so many years ahead. Not a great feeling. And saddled with responsibilities.
Me: Oh nothing new. Sounding bouyant  and pontificating (dont know if thats the proper way to respond). Welcome to the world of people trying to figure out their place under the Sun. It happens to everyone … between 32 and may be continue for you for the next 4-5 years.
even Vivekananda could not escape it. (he didnt seem all that convinced and i wasnt sure if he was taking in what i was saying).
even if you thought you had figured out, many other thoughts and doubts will wash that clarity in no time and you will feel desolate again. You will try to figure out the meaning of life, your purpose and so on. (That was the Philosopher myself for his benefit. Lucky he didnt say Enough. Shut up now and wait till we reach the destination).
I dont think much conversation took place for the last 7-8 minutes. he must have gone deep into introspection.
We reached home may be in 45-50 minutes where it should have taken 20-25 minutes normally. I paid him.
Him:“Hope we meet again soon. Hope fursat milega apko. Please store my number.
Yes I will. You too.
‘Sir you are brilliant conversationist. I enjoyed it with you”. (what a lie. he must have spoken for 90% of the time. and i became a brilliant conversationist!). In any case i rarely am at at the receiving end of such compliments and hence gracefully took it saying ‘No it was all because of you”.
And forgot to store his number.

A Rebalancing Budget – bottom up from the poorman’s kitchen

An edited version of the article appeared in Financial Express on Feb 21. Link:

http://www.financialexpress.com/budget/how-this-years-union-budget-reflects-a-great-grip-on-and-an-understanding-of-the-poor-mans-budget/1073485
This is perhaps the Budget with the widest sweep since independence – in terms of the % of people whose lives it will impact: mostly positively. Our budget pre or post reforms have shown excessive focus on industries, stock markets, and standard deductions and personal investment incentives for the salaried class. Not many of them would have had an impact on more than 20% of the people.Budgets have mostly been elitist; the economists’ macro sense stopped with fiscal deficits and growth numbers and hardly cared of how benefits were delievered at the door step of the common or poorer man.
Budget – a link in the chain: Poverty and what is being done within and outside budget.
The problems of the poor are (i) low incomes and (ii) high variability even in that limited income, and (iii) very high interest rates which kills all commercial ventures by them.
The Government has announced a MSP pricing formula, which will hopefully push more incomes into rural areas more systematically. Gas connections and proposal to buy surplus electricity from solar sytems will add to their comfort and income. Healthcare in rural areas will also create good employment and enterprise opportunities. And as Dr Devi Shetty (of Narayana Health) points out (TOI, Feb 1), there is great opportunity for paramedics and nurses with 2-3 years’ education after 10th and 12th capable of creating jobs for 5 million of them. This budget will create the demand for such services. If only we had tackled healthcare first thing after independence, may be even population would have stabilised by now.
In the last 2-3 years, the Government has tried to substantially tame the volatility in rural incomes. Crop insurance has already increased significantly -may be to 40% of farm produce during current year from negligible levels 3 years before. Life insurance of 2 lacs (for Rs 12) is already taking effect. The Budget has laid out a blue print for tackling the next most significant reason for debt trap of poor – health emergencies. With these the variability of poor family’s cash flows will come down sharply over time..
GST is formalising the economy. A more formalised economy widens the reach of cheaper formal credit from Banks. This can in turn bring down the interest rates facing the poor. It will come down from 750 – 1000% (the interest rates facing pushcart vendors according to RBI ex-Governor Dr Subba Rao. Page 266, Who Moved My Interest Rates) to a more sanguine number. Imagine what can be achieved if the costs for them comes down to 30-40% per annum which is what a Rs 3 lac crores additonal allocation and Mudra initiative, direct delivery mechanisms, Aadhar authenticated loans, Jan Dhan, etc. can achieve. Entrepreneurship can bloom in rural areas.
The Government has to work on a few more things. One is animal health, which also throws rural poor into debt traps. Agri productivity has been increasing year on year by 2-3 % on average but bumper crops only play spoil sport due to high price elasticity. MSP helps, but food-processing and exports are the real solutions.

Rebalancing gains and losses

The Government’s actions in the last 18 months is fundamentally re-balancing the economy – bringing in large sections into the formal fold by GST, DBT, Jan Dhans and Digitisation, into the tax net (both direct and indirect), and in the manner of intervening into poor households’ family budgets and welfare and most importantly bringing in the rural sector to mainstream economy. This is happening at a rapid pace and is bound to throw up some gainers and some losers. It is but inevitable that the rich 1% who are garnering 73% of annual incremental wealth (Oxfam) will lose to the balance 99% who garner a measly 27% of the wealth as of now.
But this rebalancing will also open up great opportunities. Even if it is just a transfer of wealth and income from rich to poor, since the marginal propensity to consume (MPS) of the tranferee poor is 90-100%, instead of the 50-60% of the rich, it will still create conditions ideal for consumption led growth.
Those who doubt the growth potential of the budget are missing the long term potential. Our consumption base is far too low. Its only the top 20% of population (income wise) who count for anything. When the penetration level of a basic hygiene item like sanitary pads is as low as 17% and that of adult diapers in low single digit, there is a compelling need to expand the base. This budget kickstarts the cycle. Better incomes at rural and urban poor levels will enable better FMCG growth in the immediate 2-3 years. Healthcare products and services will follow suit and create significant opportunites in the ensuing 6-7 years. Without this expansion, our growth would have been slave to a minuscule % of population which it has been so far during reforms.

Critics and their failure to see opportunities

A persistent fiscal deficit of over 4-6% (see accompanying table) seemed alright to tackle the global meltdown whose effect on India proved to be marginal, but a marginal slippage while effecting very fundamental structural changes seems unpardonable. How myopic and hippocritical!.
Fiscal Deficit as % GDP
Year        %
2007-08 2.5
2008-09 6.0
2009-10 6.5
2010-11 4.8
2011-12 5.9
2012-13 4.9
2013-14 4.5
2014-15 4.1
2015-16 3.9
2016-17 3.5
2017-18 3.5
Source: Economic Surveys

Little do those who lament lack of tax cuts appreciate that their economic efforts are rewarded by the society by higher incomes and wealth. The nation has given them access to market and the consumption basket and they need to pay or this access. Without this access, their wealth can never come about – it is two way transaction. Its sad that so much noise is being made about LTCG, when a retired pensioner cannot index his interest incomes and pay tax only on real interest rates.
Of course some of the initiatives will take 7-8 years to clear the cobwebs of culture, habits and bureaucracy to take full effect.

This budget reflects a great grip and understanding of the poorman’s budget and constraints on his reaching ‘escape velocity’ out of his hunger and poverty. It has constructed a national budget from the common man’s – women and men – kitchen upwards and each of his budget line items, so that inclusion of various kinds, delivery of programmes, poverty and hunger removal become integrated with budget making.

The usual commentators including the economic fraternity have scarcely picked up the fundamental directional shifts. They have dusted and delivered the same old cribs. In Cricketese, they are playing hook shots to yorkers because that is the only one they know.

(The writer is CFO JK Paper and Author of Making Growth Happen in India)

 

 

 

 

 

 

 

 

 

Shape of Economy – Interview with CFO Magazine

 

V Kumaraswamy, CFO, JK Paper Ltd says the new indirect tax law will bring rural economy into the formal fold and, thus, help create an inclusive economy