‘Make in India’ a call by PM Modi: What’s your view?

Our PM Modi is certainly doing great in selling the Image India abroad. His ‘Make In India’ is a call upon international companies, NRI s, manufacturers, businesses, countries to come & make long term investment in India. This will certainly boost the FDI (Foreign Direct Investment).

The FDI comes to India in 2 ways. One, through investment instruments in stock markets. Second is through companies establishing their businesses, manufacturing here. Both are important and good. But the first one creates a greater volatility. They pump in and pull out depending upon various speculations. That creates a panic situation and market mayhem quite often draining lot of energy in assuaging it.

The call for Make in India is more strategic. The companies which Make in India will have to make long term investment here. They have to look at India as a strategic partner in both low cost, high quality manufacturing but also as a hub for marketing in Asia. They are also likely to look at India as a great domestic market.

For the urban educated Indian this is certainly a sexy appeal. This makes us proud Indian. The foreign investment will lock into our soil on a long term basis. This will boost Indian economy. This will boost jobs in manufacturing. The FDI pull out is that much more difficult for companies.

Economic Score is like Exam Score: Only answer to Questions & Need not know entire subject

Make in India is a call primarily to boost Indian Economy. The economic scores are represented by GDP, GNP etc., It is very easy to score that. 3 primary things will score that:

1.       Produce a lot: most efficiently, with very minimal input and maximum output

2.       Consume a lot: Keep changing cars, keep changing upholstery, keep buying more clothes, shoes, gadgets, packed food, movie tickets, sports tickets, plastics, steel, everything; Buy more pay less

3.       Move Money a lot: If above 2 keeps happening unhindered, then local banks upto world bank have a simple formula to keep disbursing more money. There is no limit binding to the concept of money. It can be millions, billions, zillions. You just need to prove that you produce a lot & push it down consumers. Then money will be disbursed to the producer as loan.

In our current education system, the exam score represents the excellence on a subject. For exam scoring, if you solve last 10 year question papers you are assured of good score. Without knowing the depth of the subject by scoring in exam you can claim excellence on a subject.

One important aspect in our education system is each subject is in isolation. An economics student doesn’t need to know sociology. A sociology student doesn’t know legislation. A law student doesn’t care manufacturing. And it goes on.

The current education system develops skills in isolation. It just equips a person to earn his living. It doesn’t teach holistic value system for harmonious living.

The government’s chase of economic score is similar to our education system. There is no depth of analysis. There is no interrelation with the aspects of the society like sustainability, culture, social harmony, ecology etc.,

Social Impact of Mindless focus on Economics

Economics looks at written records on books of money inflow and outflow. Everything is measured in terms of the money. For example if India produces 1 million plastic bottles, the economics will calculate the input costs, selling worth of each bottle, calculate the revenue & profit and records in the books. That bubbles up at the country level to calculate various economic numbers.

One of the main input materials is water for any industry. And that is not correctly costed. It cannot be. If it is rightly costed then everything becomes unviable. Factories are put up where Water is rich. What is counted in books is pump/bore well cost and a bit of arbitrary environment charges if any government department cares.

The costs of water that are not counted are:

-          The local lake that gets dried up rendering rural population poorer by water

-          The river bed drying up making downstream villages for 100s of kilometers go dry

-          The industrial waste release rendering the downstream river lifeless and poisonous

These will have major social impact for harmonious rural living. Rural population migrates to urban slums in search of living. There will be jobs generated for factories along a river in thousands. But lakhs along the downstream river will become water poor. They will be forced to migrate.

Lets try to simplify this phenomenon. We are producing cars in India. The number of cars produced is directly proportional to the economic strength of India. That means the more the cars we produce the more the India becomes rich. It will fill India’s coffers. That is correct. It means Indians will become rich? That is not correct. Indians will become poor.

How much ever cars, motorbikes we produce it is afforded by only 25% of the urban population (Car is afforded by only 8% of urban population) & about 1% of rural population. Urban population is about 40% of India. That means the Car/Bike as a richness Indicator for which we go ‘Make in India’ will never be able to service more than 10% of India’s population. Rest will remain poor? That is correct. The sad thing they become poorer. They don’t just stay poor by Car/Bike indicator but poorer by clean water. Access to clean water, air, land which was so much in plenty in rural will become extremely dearer in their new dwelling in urban slums & apartments.

Simplifying further. One car will service one lucky family for 2-3 decades. For that multiple families have to be uprooted permanently from their ancestral villages.

Because, one car production is not just one Car production. But it is producing whole lot of iron, steel, aluminum, plastic, rubber, wood, electric power which means coal. All of which will displace families permanently from their ancestral forests, hills & river side villages.

USA Model: Consume but not Produce: What is good? What is bad?

In the US, industrialization rapidly happened during 18^th, 19^th century. Slavery happened. Then the citizen awareness grew. Equality and rights were fought for by the oppressed. Oppressors also heeded to the oppressed gradually. Today, we have one of the best examples of Citizen Liberty in that country.

The GE, Walmart stories will tell how exactly, the Americans have transformed from Industrial nation to only consumers & traders country today. Jack Welch of GE moved ground up from Plant Manager, Regional Manager to CEO. During his early tenures, he spent hell lot of money (law suits) and time fighting against citizen rights for clean water, air & land. When he became CEO, he vehemently pronounced China is a reality. We are going to offshore every damn unviable production to China. If it means closing down plants and joblessness so be it.

Walmart pushed consumerism to heights. Where a family needed just clothes, it sold double, triple it needed for less. We Sell For Less is their tag line. It demanded very high production from its vendors. Newyork, Chicago were industrial hubs producing clothes, could not sustain the demand. They looked offshore to supply in plenty. Now everything comes from Asia to America. Nothing gets produced there.

USA produces only WMDs (Weapons of Mass Destruction), Technology Innovations, IPs, Patents.

The basic needs like food & clothing is consumed so much that they cannot produce so much “Sustainably”. So they have offshored their basic needs production. Even basic food is imported. Is it good or bad?

So what transformed industrialized country to become only traders and consumers? Is it good or bad?

What lesson to take away for India? My lessons are:

-          Good lesson is we need to raise Citizen Awareness and support the rural when they fight for their basic rights, water, air & land

-          Bad lesson is not to go for converting basic needs into greed by raising & praising consumerism. Buy more, change more, eat more, wear more is very bad for the country

China Model: Produce at the cost of Individual Rights

China has become the producer of the world. Some of the basic things like safety pins, are no longer produced anywhere else in the world! It is raising its production so much at the cost of exploiting earth that it is finding fewer consumers now. So it is pushing mountain dwellers, tribals to urban jungles to become consumers! It is a baffling phenomenon! How long will this go? Where will this end? It will flood its cheap produce everywhere across the world. India used to be equal trade partner with China few decades ago. Now it has pushed India down so much that it will take centuries to recover. Similarly it will push its product across all countries.

So how is it able to produce so much? Is the earth so much rich there? Are the citizens not affected? What about water to produce so much?

Earth is rich everywhere. Every country can produce a lot by the land ratio. But Citizens will raise voice & protest. And usually, countries care for citizens. In China citizen voice is curbed. They got to do what they are told to do by the autocratic state. Even peaceful living citizens on mountains who ask for nothing from state are told to vacate and come to cities! Even state also doesn’t want their earth and land. But the state wants them to consume its produce. They cannot protest. Those who protest will be silently culled.  

What about water? China captured water rich Tibet. There are huge dams & canals built to carry across water to the main land from the Himalayan high lands very easily through gravity. When the citizen unrest will grow exceeding the current available water what will china do? Kashmir & Arunachal Pradesh is also water rich which will come to its use by next century if there is no resistance from India!

So what lessons for India?

-          Care for citizens; Don’t curb their rights to live

-          Strengthen security to secure its borders, states & its citizens

-          Increased Industrial production will not solve India’s hunger.

What is India’s Indigenous Model? Gandhiji’s Gram Swarajya is the Answer

India must look for producing locally for self-sufficiency in food and clothing needs. These needs should not be allowed to become greed. Industrialization of food production, packaged food production, large scale farming, industrialized farming, food security bill etc., should be curbed. Local food production & consumption should be encouraged. What is excess should be traded out. Producing only to trade out will make even growers go hungry. The mad chase to cash crops is driving farmers’ suicide.

Packaged food, tetra pack, stale juice factories should be discouraged. Consumers should accept packaged food become costly. Fresh farm items should become easy & cheap. Local food items according to the current seasons should be available in the market. Non season foods, imported ones should become unsustainably costly. China is ready to dump even milk down our throat.

Clothing also should become localized production. One Thirupur producing for entire world will get consumed only by the urban middleclass. It pushes excess clothes to only 25% population. It makes rest go clotheless. Cottage industries must be encouraged. Large industrial production should not be subsidized. The water taxation should be brought in appropriately for them or water should not be given to them so cheaply.

Make In India and sell anywhere else will make “production by very few people for consumption by very few people in lot of excess”. It will extract our earth then manufacture sucking away our water and sell the produce to very few people. It serves no purpose for largesse. It will fill India’s coffers with a lot of money. But it will make a large populace poorer of their basic needs. 

Idea of India And Idea for India: Series 2.1 – Capital Intensive Economy Vs Labor Oriented Economy

This series is on economic ideas of India and for India. This article is influenced by my reading of Made in America by Sam Walton the owner of the Wal-Mart, the world’s Fortune No.1 Company, and my reading of Small is Beautiful by E Schumacher, a very thought provoking book on sustainable economics.

Labor Oriented Economy is purely Gandhian economy which is practiced from ancient India. It is purely an Idea of India. It is people centric & not productivity centric. It is based on providing livelihood. The byproduct of this industry are: people’s harmony, need based consumption, equity of wealth, dignity of labor, sustainable development & production, regeneration of the raw materials, environmental harmony, art & cultural participation & appreciation, local art & artisan development, craftsman development and encouragement, local market etc., The world order created by this type of economy is mainly: Cooperative Movement & Cottage Industry. These 2 are discussed in detail later in the next article.

Capital Intensive Economy is a classic Western Idea for India.

Capital Intensive Economy means, the industry & economy centered on the Investment, Productivity, Quantity etc. It is simply driven on what is the return on investment. Time is of essence. Money is of essence. Industry has to produce maximum output in minimum time & effort. A by-product of this is excessive mechanization. Machines start replacing humans for quality and quantity production hence reducing labor requirement pushing up unemployment & agitation. Another byproduct is over production which in turn pushes for over consumption resulting in the monstrous “Consumerism”. Where one can live with 3 pairs of socks is enticed to buy 6 pairs for 3 pairs free creating a demand for 9 pairs which is not really the demand in a normal market. As one market saturates, companies are driven to find newer markets for their products. So this results in 2 major “World Order” s: Free Market Economy & Large Conglomerates. These 2 are discussed in detail in the sections below.

But before delving into those topics, let’s look at what is capital and where does it come from?

Capital is “Tomorrow’s Money = Loan”.

Capital is very cheap. World’s big banks are ready to lend money at less than 1% interest. They need credit worthiness. If a city commits to complete a fly over in 25 months and meets the timeline, that’s it, it is credit worthy. Then all banks queue up with the city to complete more flyovers, metro etc., then the city, country, states will get into debt cycle infinitely. The USA for example is the biggest debtor. (Data: http://www.mdleasing.com/nationdebt.htm ). Who cares? The country also runs on debt and the same mentality is encouraged for the public also. Everyone in US runs on debt only. If anyone is debt free then he is fool. So they go for higher commitment, higher consumption & live on credit. There is no ‘savings for tomorrow’ mentality. Living on ‘tomorrow’s money’ is considered wise in developed countries.

So the consumer becomes rich, and producer becomes poor!! Horribly convoluted idea. Isnt it? Similarly foreign exchange, stocks, bonds, is all very complex webs of deceits. All producing countries in east & tropical are rich in natural resources, minerals, plants, animals etc., people are also pious, intelligent, well behaved and hard working. But they are Lilliput in front of the monstrous consuming western countries. So what is the root cause? I would vehemently argue the LOAN formulas are the root of this evil design. All sorts of mathematical formula towards, today’s economic confusion are well rewarded by Nobel Prize. The Nobel Prize in Economics is only reserved for creation of wealth for the western nations.

When British came to India, they wanted to trade. They wanted to buy spices, diamond, emerald etc., But with what? They had to trade with something. Bullion in either Gold or Silver was standard trading means. But India already had plenty of it & didn't get excited. So they started with “we pay later”. They stocked and shipped items. They cut deals with local kings to build forts around ports of their exit. One important thing they did was fortification of ports and developing security of it using ammunition, guns, canons etc. Slowly they hit upon helping one feudal king to fight the other with arms & ammunition. And the rest is history.  

Coming back to the living on LOAN. In the ancient India, there was a visionary Philosopher called Caravaka. He proposed a system of Materialistic philosophy called Lokayata espousing religious indifference. Because our religion basically espouses, minimal living ideals like: vairagya (detachment), thyaga (Renunciation), seva (Service of elders & needy). His materialistic philosophy rubbished these ideals and espoused, take LOAN and live a life of luxury. His philosophy came about around 5^th-6^th cent BC. At which time, Buddhism was at peak which also espoused ‘desire is the cause of misery’. Mauryan kingdom was at helm. Most kingdoms adopted Kautilya’s Arthashastra to run their economy. There was very high opposition to Lokayata. No kings adopted Lokayata. But still it seems to have survived long in India in pockets. There are records of this philosophy debated in Akbar’s philosophy meets also. During Vijayanagara kingdom a great philosopher Sayana Madhavacharya, and Advaita vedanthi, wrote a book called ‘Sarvadarshanasangraha’. In that book he details the merits of Lokayata in the beginning and takes up thread by thread to demerit and demolish the ideals. It seems to have laid the final nail on that philosophy then. 

But alas! It is now raising its ugly head through western influence on India.

1.0 Free Market Economy:

This is one of the most embraced ideas around the world in the recent years. This is how the developed countries became developed. So this is vehemently thrust upon the developing countries to bring them up. India opening the flood gates since 1990’s though a series of trade liberalization legislations. It is reeling under its pressure now. It is also an irreversible phenomenon. So we cannot go back to the closed economy regime. Also in the closed economy, the Indian companies become laggards and compromise on the innovation, technological advancement, agility and global competitiveness. For example, Bajaj scooters were notorious for their bend & kick, difficult hand gears etc., But same company today is producing some of the best indigenous bikes and continuously innovating. Similarly, ITI phones, Ambassador cars, Televista TVs, Mafatlal suitings etc., Either they are bought over, or revived.

What is free market economy? Basically it is to make India a free market for the world. Removal of import duty on all items. So that makes all foreign products to compete with local products on equal footing. So immediately in the aftermath of the liberalization, in the 90’s, many local companies tumbled big time. Like Kirloskar, Videocon, Bajaj, Godrej, many units of Tatas like Tata Steel, etc., Because they couldn’t compete with the sudden surge of foreign brands vying to capture the Indian market. But most of our companies have revived big time since. Because once India signed Free Trade Agreement with other countries, our companies get free access to their markets. And hence the global competition has pushed our companies on the world stage. Today, for example, Tatas are a big conglomerate in UK!! J Spate of acquisitions there like Tetley Tea, Jaguar Landrover, Corus steel etc., has pushed it well on the world stage. Tables are turning!

1.1 Consumerism Monster

But the bad thing is free market economy has become a monster. It feeds only the greedy. It drives a very large section of people homeless, slum dwellers. It creates large scale migration, monotonous labors, long working hours, loss of dignity. It creates very large companies, large conglomerates, which can arm twist the governments in their favor.

Lets take American example. As a country of 250Million people it consumes about 25 clothes per person per year. The car population is about 1 per person. These are just 2 examples to give an idea. The self-indulgence life style is high but its consequences are unknown to them. They think they are leading normal life. For example, the high competition of apparel export creates unhygienic, high risk working environments in Bangladesh, China, and India. The producing workers don’t have enough clothes for themselves. But who does it matter? Recently in Bangladesh, a very large clothes manufacturing company building supplying to Wal-Mart collapsed killing thousands of people. America doesn’t ask for flouting security norms, hygiene norms etc., But it simply demands more, and does volume business. It goes to anyone who gives them volume discount. If the company supplying it, is squeezing humans and country is supporting it, it doesn’t care. We can see the same phenomenon of continuous squeeze in Software services too! In 90’s it was a sunrise industry, so the labor dignity was enviously high in that industry. Today it is not the case.

When it comes car production, it requires so much of minerals extraction, environment degradation, people displacement. For car running, it requires again all the fuel extraction, river basins impact, etc., So all those associated bad things are outsourced out of the country. Hence the developed country’s citizen doesn’t know & hence doesn’t care how he lives. He doesn’t even realize he is leading a self-indulgence life which has a spiral impact on someone else in some other country driving him to abject poverty, depriving his access to clear air, water, food.

Once the developed countries became saturated market, they are making developing countries as their free market. And India’s urban population is best field to play. We are playing well into their hands. We have created a similar self-indulgent society in the urban middleclass in India. And that society creates enormous demand on the earth’s natural resources by their insatiable consumerist lifestyle. It starts a spiral effect exploiting the earth and its resources, impoverishing the people and regions. 

References:

https://www.wewear.org/assets/1/7/usimportsapparel1112.pdf

http://en.wikipedia.org/wiki/List_of_countries_by_vehicles_per_capita

http://www.bbc.co.uk/news/world-asia-22476774 

2.0 Large Companies, Conglomerates:

This is a very typical Idea of the western world that India has greatly embraced. But it is quite unfortunate for the country. It doesn’t create equitable wealth. It concentrates ugly, humongous wealth with few individuals.

There is a very wide deep rooted belief that large conglomerates are the saviors of India’s economy; Following are some of the myths of the large conglomerates:

1.       A large conglomerate is responsible for a very large employment & hence socially responsible
        a.       Otherwise people would die of unemployment?
2.       A large company is large tax payer and helps running economy
3.       Large company is environment sensitive, responsible
4.       They can invest on R&D and future of the world innovations

2.1 Large Tax Payment Myth:

Lets say a trader opens a shop in a corner in a city. He does business for couple of years, and he does well. He balances his accounts, pays salary for his employees & himself, and makes profit. On the profit, he pays tax. The post-tax profit he either ploughs back into the business or takes home as personal money.

He then looks at the prospect of opening another shop. He takes loan from a bank. Bank allows loan based on his business & balance of accounts. The loan is basically tomorrow’s money and bank takes the risk on his ability to generate that tomorrow’s money.

He does well & business grows well. His risk taking appetite gets him to open few more such shops, all on loans. The loan keeps increasing, but the risk is shifted to the bank & he keeps increasing his asset building. For accounting purpose the shops are liabilities and not assets. But for him it is assets. So the loan also helps contain the taxes to bare minimum. And that also encourages the entrepreneur to keep growing his business across cities, counties, states, countries, continents and on and on. 

So the large tax payment myth is busted. If he were to run a small business, after the loan clearance, he would pay taxes on one shop & continue business for ever. And similarly 100 such shops by different individual owners would do business paying taxes from each of them. Now they are all bulldozed by one large player who doesn’t pay tax as he is on loan always!

2.2 Social and Environment Responsibility Myth

Back to the story. His ambition to expand further is limited by lot of accounting, balancing loans and that revenue is trickling branch by branch. So he intends to go public! This public trading is another big scam that the western world has created. When he is going public, the market analyzes his business & prospects and gives a verdict that he will grow by 20 times in next 5 years! That’s it. If his revenues are $1Mil for annum today, the market evaluates his company as $20Mil. So he rises $20M overnight that too from the public! So the entire risk of the business is shifted to the public! If “he fails”, the “public lose money”!! But do the public see it that way. No it is a crowd mentality; everyone is upbeat as long as it lasts.

It lasts as long as that business idea keeps generating revenue as per market expectations. In this case as long as he keeps opening shops and generating revenue. That’s why he goes across county, country, continent, world. Apply same logic for Car manufacturers, Earth movers, Oil&Gas extractors, Airplane manufacturers, Software, Hardware product developers, services etc.,. If they are public companies, they have to keep growing. Any slowdown they go down in history. All of these industries (Yes even software, hardware also) require enormous amount of earth excavation, hills, forest, and rivers destruction. Tribals in hills, forests, rural population to become victims of displacement.

The government is so helpless in the tax collection from big companies, that they have given up, and pushing “mandatory  CSR spend” by large corporates now. CSR = Corporate Social Responsibility. It is another very big scam. Corporate buys a million, 20Rs Notebook, and hope to distribute it to poor students. It calls for corporate individuals to donate “time” for the distribution. The corporate while encouraging the rat race doesn’t incentivize CSR activities. I have seen even good hearted people getting frustrated and giving up. So where do those note books end up? It is up to your wild imagination. No level of CSR can match government, not even, Azim premji’s education foundation. I’m not undermining that great person’s good heart. It is greatly laudable. But private entities are private. One quarter results go bad, they pull the plug out.

References:

http://indianexpress.com/article/business/economy/mandatory-2-csr-spend-set-to-kick-in-from-april-1/

2.3 Large Employment generation Myth:

The large conglomerate of course generates a lot of employment. Because it is large. But it is at the cost of killing SMB s (Small & Medium Business). And in comparison of those SMB s would otherwise have created a lot more jobs, lot more independent businesses. Take for example Apollo pharmacy chain or any other medical shop chains. You won’t get any medicine there. But only get toothpaste, soaps, cosmetics etc., and some cough syrup/ crocin. Why? Because they are a profit making company & not a public service company. They have to have optimized storage, inventory, maximum goods transportation in minimum trips, maximum sales in a day etc., So they become only FMCG company and not medicine shop. So their service to the society is also bad.

If it is a group of multi owned medical shops, then they need to serve their customer’s needs in order to make business. Because they have only one shop to survive on & few customers in their area. So they work with multiple suppliers. So it creates an environment for specialized suppliers in each area. Some are general medicine suppliers, some are cold storage based, etc., Similarly inventory owners in each area and their network.

So each are independent business owners. SMBs. So they hold their head high with dignity and work hard, under nobody’s compulsion but their own desire to do well and serve better. They create large employment, independent small businesses.

So why not everyone become big tycoons if it is so easy? By just passing the risks from himself to bank and then to the public.

A formal education ends with certification or graduation etc., A high point of graduation is landing a high paying job in a big company. At that point in time nothing beats that feeling. And normal population once financially independent, doesn’t look for risk taking in life. Entrepreneurs are rare in population, probably 1 in 1000. They have such abundance of energy, they don’t wait for formal graduation, certification etc., they jump out and start out on their gut feel. Again in that most end up being SMBs. But really perseverant, brave, intelligent are those who break out of the league. It takes lot of courage. Once they become big, then it is not the personal greed but the whole system including government, private competition, employees, doesn’t let the corporate settle down at a certain level at all. It has to grow, big, large and enormous.

Next Series 2.2: I wanted to cover the topics of Labour Oriented Economy in this series itself. But this itself became so big, that I have to carve out another article to complete the Economic Ideas topic.

Kindly put your comments and suggestions to move forward.