Given the plethora of writing on the Indian economy, one
would have thought that all important facets of its structure and dynamics
would have been explored by now. But, Prof. R. Vaidyanathan (Vaidy) clearly
establishes in his new book, India Uninc. (Westland Books, 2014), that our
understanding of the Indian economy is far from complete. And, that our partial
view may be leading us to take inappropriate policy decisions.
India Uninc. Is the Growth Engine of India
Vaidy’s core argument (based on a close look at India’s
National Accounts Statistics and other data) is that small partnerships and
proprietorships operating primarily in the services sector (but with some
presence in manufacturing as well) are the growth engine of India. His math shows
that these firms account for as much as 45% of national income, compared to
only 18% for the incorporated firms. Not only have these grown at a fast clip,
they are responsible for the high savings rate that is one of the positive features
of the Indian economy. Vaidy believes that, in contrast, Foreign Direct
Investment is over-hyped, accounting for less than 10% of the financial
resources available for investment.
Vaidy points out that a sizeable proportion of our
population is self-employed, often in micro businesses that involve only
themselves, their family and, at most one or two others. He quotes data from
the National Sample Surveys to show that this kind of commercial activity
transcends caste and religious boundaries. He therefore questions the importance
given to large investments and FDI which will offer primarily wage employment.
(Needless to say, Vaidy is firmly against FDI in retail, believing that it
would lead to the pauperization of India). But this may need further
investigation. Studies in entrepreneurship in India (such as the Global
Entrepreneurship Monitor report some years ago) have referred to such
wide-ranging self-employment as necessity-based entrepreneurship, implying that
people get into such activity for survival and not because they necessarily
want to.
The Latin American economist Hernando de Sato is well known
for arguing that the absence of property rights in the form of title to
property leads to a lack of collateral and hence difficulty in raising capital
for the poor. Vaidy argues that gold plays the role of such collateral in the
Indian economy. He points to some of the additional benefits of gold such as
divisibility and liquidity. He is therefore of the view that gold should not be
considered as a consumption good or a non-productive asset as seen in the west.
Vaidy is particulary critical of government policy that not only ignores India
Uninc, but goes on to tax it heavily without providing it a safety net.
Vaidy is anti-consumerism and emphasizes the importance of India’s
frugal past. But, given the growth of malls, multiplexes and consumer spending,
it looks like he is on the losing side of this issue!
India Uninc. & Innovation
As a student of innovation, this book triggered an important
question: What role is India Uninc. playing in innovation? I must confess that
I don’t have a good answer to this question. Just as economists have tended to
miss out this vibrant slice of the economy, observers of innovation in India
have tended to focus on innovation in the corporate sector or start-ups. I
suppose Professor Anil Gupta’s grassroot innovators might fall under the broad
rubric of India Uninc., but the drivers of India Uninc’s impressive growth
numbers are in areas like real estate, construction and restaurants which are
not the sectors that our well-recognised grassroot innovators work in.
One exception is the interesting work on indigenous fast
food chains like the famous Darshinis (stand-up fast food restaurants) of
Bangalore. I wonder whether these darshinis fall under the organized sector or
India Uninc. This needs further investigation.
There may, however, be a close link between jugaad and India
Uninc. Many of the popular examples of jugaad like lassi being made in a
modified washing machine would fit in with the fast-growing sectors identified
by Vaidy’s work. Given the importance of India Uninc, it would be useful to know
more about how productive the India Uninc firms are in using resources, and
whether (and to what extent) innovation helps them use resources more
productively leading to faster growth.
Another question that looks interesting is regarding the
links between India Uninc and the so-called organized sector. We know, for
example, that the software boom in Bangalore has triggered a boom in catering
services, service apartments, “paying guest” accommodation, interior
decoration, and similar services. Apart from large developers who are
incorporated and sometimes even listed on the stock market, there are hundreds
of small builders and contractors who are meeting the demand for housing as
well. So, I wonder whether the growth of India Uninc. and the organized sector
including multinationals are as unconnected as Vaidy’s book might suggest.
Tailpiece
Vaidy has been developing these themes for several years now
through his columns in the national press and digital media. Often times,
Indian scholars do good work, but fail to consolidate and integrate their
ideas, thus undermining the impact of their scholarship. So, I am really glad
that he decided to put together all his writings on this subject in one volume.
There is some repetition of ideas across the book, but I found that this helped
to reinforce and underline the key themes.
We know from the field of innovation that good ideas take
time to ripen and germinate. This one is no different. Vaidy attributes the
trigger for this line of thought to talks given by Professor K.N. Raj at IIM
Calcutta in the 1970s. Of course, it’s somewhat ironical given Vaidy’s contempt
for communism and communists that he was inspired by a leftist economist like
Professor Raj, but I suppose that’s what good scholarship is all about!.
An important contribution of this book is to underline the
urgency of reform of our national statistics. Though the National Sample Survey
and other economic and social data collection efforts of the government provide
useful data (Vaidy has used this data extensively in this book), it’s clear
that some changes are required in the categorization of economic entities if we
are to track the progress of India better, and to come up with meaningful
policy interventions.
[The views expressed in this blog are the personal views of
the author.]
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