Getting the acts together
April 7, 2008
I was reading interview of Mr. Deepak Parekh (chairman, HDFC) in The Indian Express yesterday. The interview was mainly around the current economical concerns around the globe and specifically in India. Mr. Parekh thinks that even if there is a bit of recession all over the world, India still has an inherent opportunity to make it big in terms of GDP growth. As per him only way to achieve this is getting our acts together. I was pretty convinced with his argument.
He gives two examples to support his stance. One is of the Mundra power project that was awarded to a private player a year ago but nothing has happened yet on the project. The reason is they are still to get approvals from some government departments, while major ministries have cleared the proposal. Another example he sites is of Orissa. Orissa is mineral and ore rich state and they successfully carved out the deal with Posco to setup their iron ore plant in Orissa. But everything seems to be stopped now. Orissa government is reluctant about letting their iron ores to be used in the steel plants in other states because these states are making a lot of money where as Orissa is getting pennies in royalty for providing the iron ores. There is one department of government which enables setting up hi-tech plants in joint venture with companies from developed countries and there is another department of government which is not even ready to revise its age old royalty rates for providing iron ores to steel plants. If steel prices can change as per global cues, then why can’t the royalty on iron ore? Government is failing to get its acts together.
Look at any industry sector in India and there are several government agencies with their own set of policies, administering the sector. A prominent builder in Pune was telling in an interview that to complete a project a builder needs to have clearances from 63 different departments of government. This includes both the state government as well as central government departments. Policy changes in the departments at national level are impacted by the global economical environment, where as these changes in the departments at state level have more impact of the conditions in the local markets/economy. So most of the times policy changes at state and national level go in opposite directions hampering the development. What government needs to do is get its acts together by making sure that the policy in the concerned departments are not going out of synch with each other as well with the time and changes in the technology.
I remember reading in of the news papers that workers in the Harayana were protesting against the government policies that provided a tax concession to automobile industry if they setup plants in Himachal Pradesh. Government had a genuine objective of developing Himachal Pradesh as an automobile industry hub there by providing employment to local youths. But industries from Harayana started shifting their units to Himachal Pradesh to get the benefits of tax concession, there by impacting the employment in Harayana. While making the policy if government had considered putting in a clause that only newly started plants can get the concession in tax and not the shifted plants, the situation may have been different.
With general election ahead, I don’t think that government is in any mood to make any kind of changes to the policies now. All the parties will be concentrating on the common man and their needs. Lets hope that the next government that comes into power will seriously look into this issues and clear the way for development of India.
April 7, 2008 at 2:51 pm
Hi
Well easier said then done.
Do we really hope any change in atleast our lifetimes. Not me. These things have been here for ages and will be here for ages to come. We all wait for somebody to take action but the truth is nobody can take any actions.
We are all happy sitting here and writing posts and reading blogs. Our parents are happy that their children are doing a good jobs and able to earn their bread and butter. We are happy taking hefty paychecks and doing our routine jobs.
Everybody is happy shitting and nobody bothers to clean this mess. Ofcourse these are deep rooted issues and there are too many constitutional and regional barriers to be solved overnight. But then it has to start from somewhere. Somebody has to take the onus to change the things.
But hey don’t look at me I am not the pioneer.
April 8, 2008 at 12:37 pm
Hi,
I could not get the point!
So do u want to suggest that we will be benefited by inefficiency? ( I think it will be great idea if you are pointing to it!)
Dear Animesh, I think by very writing about it you have pioneered.
I am not convinved about the spectacularly bearish mood the Indian carries…I believe there is lot of freshness and optimism in the air.
Pls correct me if i am wrong.
June 16, 2008 at 7:12 am
Good post, Suhas, although I would have expected a more analytical approach. And sorry for the late comment. I am sure you won’t take it personally.
The question (in question…boy, is this a lousy choice of words) was actually meant to assess Mr. Parekh’s answer to how rising metal prices, which are a contributing factor to the rising inflation in the country, can be controlled. In all fairness, Mr. Parekh gave a very good answer. But as it usually happens with all of us, nobody dared to challenge the actual usefulness of that answer to the present situation. And consequently, Mr. Parekh got away with it. For a common man like me, inflation is the rise in cost per kilogram of wheat or rice or daal that I buy at my local grocery store every 15 days or so, or the Rs.2 increase in the cost of a vegetable, which I need to consume on a daily basis. Granted this rise does not occur over a very short period of time, but it also does not occur over a very elongated period. Thus, for the common man, it’s this rise that really matters. Consequently, inflation control measures are usually aimed at infusing more commodities in the marketplace in a relatively short span of time. While Mr. Parekh did suggest a long-term strategy to counter inflation in this regard, he did not address anything tangible that would allow a quick and easy control over metal prices. One could wonder if this was partly in keeping with his own perspective of the sector. And I am not saying this without a reason. Consider both the examples you have cited in this post, Suhas. Both the Mundra power project and the Posco project are long-term projects. You cannot set up any of these in a short duration of time. Consequently, these projects will themselves only help to ease some inflation after maybe a period of say, 4 to 5 years. And while Mr. Parekh sounds like he suggested these policies to the government 5 years ago, his conviction fails to come through as anything more than a matter of opinion.
Mr. Parekh was right about one thing though. GDP growth and inflation always go hand-in-hand. You have to maintain a balance. A robust GDP growth in the past 5 years has filled our coffers with valuable foreign exchange, but all that value will ultimately go to ease up on inflation. Now this is where India and the US or the EU are different. The US has traditionally been a very flexible economy, although I have to admit that countries like China, India, and oh yes, Iraq, have put a very serious dent in their treasury. The EU, on the other hand, is a much stable economy in my opinion, but history has always been against them. Still, economists and policy makers in these regions can afford to come up with stop-gap measures and then spend the rest of their lives to constitute other liberal economic reforms, primarily because these countries possess capital reserves. India, on the other hand, has a lot of foreign exchange now, but without a stable economic reform policy, we will lose it.
I believe it was the Himachal Pradesh government who had promised tax concessions to the auto industry, not the central government. In that case, the Haryana government would have been unable to do anything, while the Central Government would think ten times before messing in that fine mud. Why? This is what brings me to the end of my…thoughts. It’s true that we need to get our act together. It’s true that our objectives, from the top echelons right down to the local panchayat level, should be in sync. But the question at the end of the day is whether this is really going to happen in this era of coalition governments. What good is a central leadership if the leaders and policy makers in that government threaten to collapse their own front over what they pretend to be in their people’s best interets? How can a power project or a steel project go ahead when the requisite ministers and/or their subordinates are too busy taking care of their own or their party’s agendas? And here’s the rub: why should anybody expect anything different after the upcoming General Elections. I think it is safe to assume that no party is going to get a clear majority on the floor of the Parliament, which means we will see yet another coalition government. Until and unless we, as in the people of India, unite and demand radical changes to the political makeup of our “representatives”, this situation is not going to change, and the common man will continue to be dragged.