Economic Focus for a Better India

Overview:
Land reform, Special Economic Zones (SEZs), Exports, Infrastructure and expanding the Private Sector rapidly under strict environmental and compliance guidelines are key to expand India’s economy.

India has a landmass of approximately 3 million Sq. Km. or 1.27 million sq. miles. This translates to a population density of 368 persons per sq. km or 863 persons per square mile based on the 2000 census. Not all of India’s land is inhabitable. But this number does give an idea of the magnitude of the situation confronting India. With the forecasted growth, the population density is only going to increase. The question is how do we plan to accommodate this growth.

India needs to plan and build at least 200 metros/townships that can accommodate up to three million persons each to meet the forecasted growth in the population.

The time to plan and act is now. It is better to underestimate and over build than to continue a constrained based implementation path that we are undertaking today.

Furthermore, an estimated 1 Million youth are expected to enter the workforce every month for the next ten years. This so called demographic dividend discussed by some intellectuals will turn into a demographic disaster due to widespread unemployment.

Industrialization and Urbanization are the Economic Engines that provide jobs and opportunities. Also it is easier for a person in Rural India to move to a job than to bring a job to the person.

Fuel for a Vibrant Economy:
At the macro level, India’s economic focus should keep in mind that the population is expected to be 1.5 Billion by 2050. Sustaining this population will require a major increase in availability of food (domestically produced or imported), jobs, infrastructure and affordable housing, along with attention to Quality of Life issues such as, clean air and water etc.


Liberalization has benefited Urban India primarily and Rural India as well. Some are feeling hardships, which is inevitable with change. The overall impact is positive and a plus. The key is to drive the benefits deeper to benefit more. An expanding economy require:

• An increasing consumer base fueled primarily by private organized and un-organized sectors
• Increased exports, preferably net exporter of goods and services
• Appropriate increases in government spending (infrastructure, education, defense etc.) funded by an increasing tax base

This is not rocket science. Increasing the consumer base requires a focus on jobs. At the very discreet, “micro” level, these are opportunities for individuals and families both urban and rural, to earn a living, attain an adequate Quality of Life, put aside some savings for emergencies and discretionary expenses and build a “nest egg” for retirement.


Also at a macro level (Figure 1, below) from an economic standpoint, the Rural economy would be surplus in Natural Resources, Commodities and Hard Goods (Agricultural, Manufacturing and Mining/Exploration). The Urban economy would be surplus in Soft and some Hard Goods (Soft: White Collar economy, Services and Hard: High Tech). The resulting net cash flow should be positive towards the Rural economy. Exports, FDI and remittances should result in increasing Foreign Exchange Reserves for India as a whole.

Figure 1

Urban and Rural India - Different Environments, Different Needs, Different Solutions:
Rural (Bharat) and Urban (India) are two markedly different environments and Quality of Life (QOL) translates to different issues for different demographic and economic segments.

For the Urban Poor this translates to a roof, sanitation facilities and basic amenities i.e. provide Shelters, Hostels, and Affordable Housing.

For the Urban Middle Class and the Rich it translates to better roads, transportation, and a cleaner environment.


For Rural India QOL translates to providing gainful sustained employment for the Uneducated, Unskilled and Unemployed beyond the agriculture sector.


The Rural Middle Class and the Rich enjoy the best Quality of Life in India today!

Housing 1.5 Billion people in 2050
Urbanization is Inevitable. Beginning with the Industrial Age, an urban environment became essential for any growth in the job sector. Agricultural jobs shrink with increased mechanization and the surplus labour has to be absorbed by an organized sector supported by a typically larger un-organized sector.


The organized sector – Manufacturing, Food Processing, Chemicals, IT, BPO etc. form the core. Surrounding this core, is the unorganized sector comprising of shops, dealerships, restaurants, maintenance and entertainment businesses etc. Also required are primary, secondary, vocational and post secondary institutions. All of this comes together only in an urban setting.


Special Economic Zones (SEZs):

Despite all the controversies, India has rightfully embarked on building new “Urban Centres” in areas earmarked as SEZs. These Urban Centres will provide much needed relief to India’s Mega Cities. They will provide opportunities for urbanites as well as the uneducated, unemployed, unskilled (U3s) from Rural India (Bharat). Situating these SEZ’s on the periphery of existing cities and in Bharat, is inarguably the right solution for the entire country. An SEZ in Bharat i.e Rural India, will be a mixture of an Urban Economy, surrounded by a Rural Economy.

These SEZs will provide opportunities for people:

• Currently living in India’s congested cities, 
• Living in Bharat, 
• Migrating from Bharat to India in search of a better life. 

The success of an SEZ is predicated on an Economic Engine that provides the momentum for development. Currently it is stipulated that SEZs cannot be housing only. They have to be export oriented or commercial, with housing being an ancillary function. This is an unnecessary constraint. The Economic Engine of the SEZ could be anything. Jobs, any job and affordable housing are the main objective. Housing only SEZs provide jobs as well. Any estimate of the number of jobs are spread sheet guesstimates at best. The person who gets a job doesn't care if it is Manufacturing or Export Oriented or working in a service oriented job in an SEZ that is primarily for housing.


The challenge is to build SEZs fast, build them well and build till supply catches up with demand. 


Summary:
Rural India is impoverished and Urban India is bursting at its seams. By embarking on an economic policy that balances the situation will result in benefiting both these sectors.

Rays of Hope, Clouds of Despair

This is a tale from the hinterland. Of what is working and what is not. And what could be done to bring hope to rural India.

In a village in Karnataka, there is an enterprising young man, probably in his late twenties. He makes about Rs.100 to Rs. 150 a day doing gardening work for homeowners here. His wife runs a tea stall. Recently, he bought a color TV, which included a free mobile as a gift and signed up for a Rs. 150 a month cable service. One can say he is a self employed person and an entrepreneur.

There is another individual in nearby village, who owns a half-acre plot in which he has been doing nothing, since it is not feasible to grow rice or sugarcane, the traditional crop in these parts. He could grow vegetables or raise poultry, but since he is a day laborer, he is in a Catch 22 situation. He would have to give up his only source of income to work on his plot plus he would have to find the money to invest. The local retired school principal had just sold his four acres and was advising this man to do the same. He might get about 2 lakhs, which he could put in a bank and get Rs. 18,000 a year as interest guaranteed. That would surpass what he would make if he were to grow rice or sugarcane.

And there are individuals in this area who drink away at night and stumble into work at nearby small-scale companies, the next morning. Alcoholism is rampant in Rural India, and no amount of social engineering is going to solve this problem unless we focus on the young and educate them on the hazards of destructive habits. Addressing the adult drinking problem requires local support and has to be locally initiated. At the very minimum, illicit liquor should be forced shut and only licensed operators should be allowed to sell. Local taxes can be levied and to fund local anti-drinking initiatives.

Liberalization has benefited urban India and the likes of the entrepreneur, self-employed and the fortunate who have jobs. Some have been hurt by their unwillingness or inability to change. It has done very little for the marginal farmer. Besides, it is being falsely blamed for bringing despair to the marginal farmer and the increase in suicides.

Land no doubt is an asset. It is either an idle asset, or in many cases, for a marginal farmer even though he is “asset rich”, it is a liability. The marginal farmer needs an “exit strategy” to exchange his assets for cash. There is catch though. The market for agricultural land is curtailed by the government’s restrictive land policy. An individual has to have an agricultural license and have a non-agricultural income of less the 2 lakhs a year to be able to purchase agricultural land. Are you aware that most Indians are not allowed to purchase farm land?

There is a prevailing sentiment both in the government and presumably amongst the Leftists and Naxalites that the marginal farmer should be protected and assisted. What is being sidelined is that a successful farmer in today’s economic environment requires significantly greater skills than the farmer of even a decade ago. Today’s farmers have to possess entrepreneurial skills and approach farming as a small business. Not everyone is cut out to be an entrepreneur. Small landowners may or may not have the requisite entrepreneurial skills required. The odds are stacked against them – Illness, failure of monsoons, failure of crops etc. Consequently, programs geared towards protecting and promoting “marginal farming” are a romantic notion and is an exercise in futility. What the “marginal farmer” needs is a viable exit strategy whereby he can trade his land for sustainable income. The very laws intended to protect the farmer is working against the farmer’s interest. Instead of focusing on farm ownership, the focus ought to be on jobs. It is better to be employed and make a living than to own and not be able to make ends meet. Land ownership is a desirable goal, what is more important is focus on “Cradle to Retirement” Income and Quality of Life issues.

There is a tendency amongst the people to expect the government to solve their problems resulting in populist handouts and subsidies. New programs are launched, but a lot of the funding is consumed in administrative costs and by corruption. There is saying that is making the rounds, “The economy grows at night while the government sleeps.” The government should focus on essential programs and proper governance and allow the private sector to expand rapidly under proper environment guidelines and governance. In essence the government should “do right” and allow more.

The National Rural Employment Guarantee (NREG) when administered properly is an excellent means of providing assistance to the rural poor. What will make this program really effective is if individuals are provided with opportunities that they can avail themselves of, and bootstrap themselves out of poverty. The solution is appropriate infrastructure projects and an expanding private “rural” sector. An ideal situation would be as follows; NREG reaches out to the rural poor where they are, and as opportunities become available they can relocate to where the opportunities are.

A change in the current land policy that will allow anyone to own farm land would elevate land prices significantly. That in itself would go along way to let the sun shine through the clouds of despair that are hovering over the rural poor. And by facilitating private enterprises in rural India will bring rays of hope as well.

A question came up regarding the connection between agriculture land ownership and issues such as: alcoholism, improving non-farm income of the rural people and the two cases cited above.

Many farmers in Noida, for example got rich quickly by selling their agricultural land. Quite a few entered into various business and investments. However, there were some who squandered away their money in a few years.

The issue is what about landowners who squander away their windfall? Unless they can find a way to generate income during the time they are living off the one time payment, their children and families will be worse off.

The squandering of windfalls and alcoholism are age-old universal issues. You hear of Lottery winners squandering away their winnings. Alcoholism is not unique to underdeveloped countries it was and is prevalent in the developed world as well.

Angela's Ashes, an autobiographical novel, depicts how weekly earnings were squandered in a day to pay for the week’s drinking; a situation that is common in Rural India today.

The reverse of giving undeserving people land holds true as well. The Boon Dhan movement spearheaded by Vinobha Bhave was not entirely a success. A number of recipients were unable to handle owning land and their land reverted to money lenders or was sold either back to the original owners or someone else. Some donated land was not cultivatable and of not of much use to the recipient. Some rose, some fell to their level of competence.

In India there is a sentiment that land ownership is an entitlement. The land reform act in the 70s enabled the tiller to claim land they tilled from the absent landowner. The beneficiary was not allowed to sell the land for fifteen years. This was wrong and a mafia tactic of the government. In the developed countries, one aspires to be a land/home owner by earning it. It is futile to “engineer” human behavior. That importance should be given to a sustainable income stream rather than the ownership of land.

It is better to have a job, than not being to make ends meet from owned land. There will be some who will squander their windfall. These people are not going to create opportunity; opportunity has to be provided to them. That is where the private sector would come in and the need to focus on jobs. As long as they have a job to go to, they are not going to be any worse off than they were before the windfall. One can introduce programs where part of the windfall is put in a bank and provides these families with an annuity. But that again is “social engineering”. There is really nothing that ought to be done or can be done to stop these people from squandering their windfall other than making sure opportunities are available via job creation.