India is in a dilemma. Can it grow without foreign direct investment?, asks a section of the industry and policy makers. The other question that racks the mind is despite slowdown, lack of organised jobs, falling industrial production how the country is sailing through. It is a mystery. But Indian story is complex. Some regions are growing faster than the national economy. Gujarat is growing at 10.28 per cent a year. Bihar in percentage terms almost matches it. So does Orissa.
Uttar Pradesh is a laggard. Interestingly enough its rural sector is an island of happiness though may not be in terms of prosperity. There are marketing innovations, parallel power supply system and surprisingly enough the hinterlands of UP has cash flows. The state’s magic for sustenance is the volume food grain and vegetable trade. The supplies reach far-off Maharashtra, Gujarat, West Bengal and in some cases even Tamilnadu.
The state of UP does not have the grandeur of Gujarat, which is flush with funds from indigenous as well as foreign sources. Industrialists shun UP for its lack of official culture despite a young chief minister Akhilesh Yadav. Even industries from Noida and Ghaziabad are moving out for safer pastures, where they would not be exploited by goons or would not suffer power shortage.
But states like UP, Chhattisgarh – riven with Naxal menace, have a penchant for survival. The magic is again in its cash flow. Even affluent Punjab’s success is in its cash flow.
Is it black money? It may be termed so or may not be. All cash flow is not black money. Any of the poorer states be it Bihar, Assam or any other North Eastern states would aver. One interesting aspect is that the economy survives on fast cash transaction and in some cases credit by private sources at high interest rates. Default in these economies is rare.
Bank transactions are not unknown. Many dealings take place directly as small businesses want to avoid the hassle of banking procedures and high costs imposed on them. So a potato trader of central UP is delivered money immediately through different channels by a trader in Maharashtra or anywhere else. It is a foolproof system.
Do they pay tax? They do but may not be to the extortionist official level. They can pay more if the transaction procedures are simplified and taxes are not oppressively high and at multiple points. The small traders have inter-state trading. If they have to pay tax all the levels, they would be left with little money to operate. The tax components are taken care of by the traders in respective states. It is a simple and honest method to avoid double, triple or quadruple taxes – a disincentive for trading and also helps keeps prices at affordable level at consumer end.
There is a flip side. The system compromises on wages. The MNREGA has made some difference. Rural wages have increased. So have the costs of the rural entrepreneur. It is made through increasing prices of goods and commodities. Has the present vegetable price inflation has something to do with it? Possibly, yes.
Sometimes, policies decided at the central level without considering implications could cause adverse impact on the economy. The recent proposals of economic reforms – mostly targeted for corporate intrusion into hinterlands – have underestimated the capacity of small traders, entrepreneurs and businessmen. The policy makers need to realise that howsoever they may have contempt for the rural entrepreneurs, the economy cannot grow without their active participation. It does not require large infusion of funds, least of all foreign funds.
A question may arise, how could an economy grow without funding? This is what the instances of these smaller states reveal. There is enough flow of money. If unrealistic rules and penchant for taxing every activity do not come in the way, Indian economy can grow faster and in a much robust manner.
The globalised economy, propagated by the large corporate under the aegis of World Bank-IMF, is keen on creating economic monopolies. It does not allow free growth or free functioning of individual enterprises. In such monopolies, the individual unorganised enterprises are disliked as they cut into profits of large corporate.
It has also a tendency of routing transactions through more expensive banking system and make individual operations uncompetitive. In short, it aims at weakening the foundation of UP, Bihar, North-East, Punjab, Himachal and Jammu and Kashmir. If these areas are not in distress, it is due to the cash transactions at different levels. If India has survived the Lehman crisis, it is because of its strength in transacting in cash without credit. Large economies are crashing owing to over-concentration of activities and offering credits beyond the capacity of the system. The Lehman Brothers and other financial institutions collapsed for this reason.
The strength that Indian system has needs to be strengthened. Its strength comes from decentralised operations. The country needs to protect it. It should be considered a safety valve. The recent efforts of the bureaucracy and Reserve Bank at centralising all such activities are fraught with greater risks.
It also needs to be understood that these are not black money operations. The definition of black money itself is convoluted. Any money out of centralised banking operation is not black money. The tendency to tax all operations is also a risk. It makes transactions difficult and expensive. It can also put an end to the way the smaller economies are sustaining. If people are sustaining themselves today they may have happiness tomorrow. These are different dynamics ensured by innovative entrepreneurs. These are best left unhindered.
Today India ranks second in the Global Innovation Efficiency Index of World Trade Organisation (WTO). It is for the enterprises of the unsung individuals. The Planning Commission, central or state governments have little to offer to create this innovation. If people are finding their ways for a better tomorrow, they need to be encouraged and protected. The state often in the name of regulation stifles such innovative functioning. It should realise human civilisation has evolved through freedom of innovative activities. If some Indians have it let them thrive because in their success lies the future of India.