This
is the 3rd and concluding part of my ongoing conversation into the
Budget and The Indian Economy with Mr Amitabh D Sinha, carried on from : http://reflectionsvvk.blogspot.in/2016/03/indian-economy-msme-problems.html
This
discussion started with my contention that the recent budget is now on the
right path, having focussed on Rural India; and that Rural economy should get
preference over the Urban. The contention of Mr Sinha, an expert in Service
Culture, Business strategy and the Director of Finance and Investment for the
SME Chamber of India – is that we can do both; that the path of growth will be
smoother and faster if we think out of the box and attempt the seemingly
impossible
In
the story so far, the two {or three-four} of us had got to the point of systemic
competence in the Indian Economy to gear up to meet the new paradigm facing
India, Inc; and the preferabality of a model that focussed on both Urban as
well as Rural segments of the economy. This goes against the common grind, that
we cannot do both. The contention introduced by Mr Sinha was that this is
doable, which is as far as we had reached in the first two parts of this
discussion
Moving
on :
Me :
Coming to the core question of comprehensive model, I have no doubts as to its
inherent superiority; that is a no-brainer. If you can develop several strains
and solve several problems by parallel processing, you get faster development.
{Thing of processer cores, and how parallel computing improved things}
That
models assumes enough system maturity to ensure seamless integration at the
conclusion point; in the field of economics, it also assumes transparency and
building trust - as you rightly pointed out above. Do have the requisite level
of systemic competencies in our internal mechanisms to deliver on such a tough
task? Agreed on the take on Credit policies, and the commitment to the Basle
Framework; beyond argument, pretty much. Rationalizing, Assessment,
Disbursement etc are also all very valid points raised by you; the problem is
again in the ground realities and the doability
My
contention is the same as before : I fully realise the inherent power of the
model being proposed by you; that is transparently obvious. If we can develop
Education, Rural / Agriculture alongside employment generation activities like
industry on a small scale {given our structure}, the benefits are obvious.
Further, given the existing entrepreneurial spirit and structure, the ease of
promoting MSMEs also is far easier. Add to the the focus on big industry - and
you have a mighty plan at hand. That I readily grant.
As
another contributor in this thread pointed out, as well as myself in an earlier
article, to create educated manpower without jobs is a recipe for certain
disaster.
The
issue is two-fold :
1) How do we implement the
aspects pointed out above, in a scenario of multiple holdings by same promoter,
lack of full penetration of accepted accounting standards, lack of transparency
in documents, and so on and so forth? These will put the system at risk; the
main difficulty in credit worthiness assessment comes from such factors.
2) Monitoring, early warning
etc requires free, relatively full and fair information; that is absent by and
large - although this being a major focus area, things are getting better with
increasing penetration of proper accounts, systemic requirements like PAN,
broadening of Direct Tax Net. Thus again, we are back to my original contention
- that this might be premature.
As
to the rest, spot-on accurate: the single biggest hurdle actually is what you
state basis my 17 years work experience - lack of fund flow is the way I would
like to put it, which results in companies running dry of working capital
leading to shut downs. The receivable cycle has increased almost precisely as
per your contention in my experience as well. Further, the raised point of incentivising is
indeed thought-provoking, it would, if added with penalisation, create a
suitable environment. That might just be what is needed!
But
again, wont the TReDS help in a major way in sorting out the mess in liqiudity?
Am not too much into that, but am to speed on its basics. Next, extending
credit is also the flavour of the season, but as I seem to recall it is limited
to the priority sector. I do not recall much in this budget on easing norms for
the MSME sector, correct me if I am wrong. I recall only point 66, 92 and 172
in my notes on the budget speech...
Amitabh Sinha|Expert - Service Culture,
Business Strategy : Vishal,
chaos engineering has its challenges, no doubt, but the upside is palpably
higher. As far as the playing field and the environment is concerned, recently
at a budget review, I heard a question that is hard to invalidate given what we
know of on ground systems - how much of the allocated funds will reach the
point of action and how much will dissipate?
We know there will be diversion and dissipation, but we
have to go ahead and do it anyway, while working in parallel on plugging leaks
and ensuring smooth efficient flow to the point of action right? So no the
model does not assume system maturity, it factors system immaturity, but not as
an insurmountable hurdle.
The paradigm will never be perfect, but
nor do we have the luxury of waiting. Malthus is not going to wait for Keynes
:-)
Vishal, I had missed your critical point
on system transparency and information availability, especially people gaming
the system through multiple entities, different accounting practices etc.
Part of the problem is being addressed
through the information networks and their linking which is already in
progress. Mr. Modi's insistence on 'Digital India' might be questioned by many,
but will form the main bulwark for creating greater system transparency. Banks
are already starting to share client data, next will be to share decision data.
UPA II dropped the ball on UID but that's back in play too.
The next will be to force
standardization of accounting practice, which is where the PM's thrust on
bringing in foreign investments will be a huge tool, because international
money will demand internationally acceptable practice, which in turn will start
to put pressure on local operations that deal with bigger entities to 'comply
or die'. Tough? Yes. Required? Hell yes.
Me
: Amitji,
I
see that you are in effect advocating a PPP type model for development to
circumvent the resource crunch problem I was talking about. That is indeed out
of the box thinking; appreciated. Unless I miss the point, you are specifically
talking about going even further, and reducing the role of Government as far as
possible, along the capitalistic model.
That
is certainly doable, and is eventually the way forward. While this could not
have been tried hitherto, due to lack of depth in the internal business and
wealth scenario, but in the changed paradigm that now is the case in India -
this is worth a look at.
As
a matter of fact, there are a couple of case studies in the real world in India
: where industries have become world leaders through private enterprise, aided
by friendly and enabling policies.
I respectfully submit that
this model can work out very well indeed in select areas : Manufacturing,
Service areas in totality. In Infrastructure and Agriculture, this can
certainly be tried in product areas : Fertilizers, Seeds, Implementation of
Projects etc are areas that come to mind. But for the overall execution, I do
not think the Government can step out due to the humongous nature of the funds
required.
The
single biggest problem is choosing where to invest the surplus we have. We have
a budget {any budget since 1947!} where non-plan expenditure takes the bulk of
the funds; this leaves the plan expenditure, with a series of demands on it.
You have to choose between one of the two, eventually; therein lies the rub.
You
have requirements for huge funds for Roads, MNREGS, Irrigation Projects, Power
Sector, Smart Cities, Digital India, Armed Forces, Education, Health and so on
and so forth. You do not have the requisite funds to invest in all. Further,
given the scale of poverty, you cannot ignore the demands of what is
euphemistically {and inaccurately} called Social Spending; as the past year's
experience shows,
That
is why, considering the priority of the demands, we have no choice but to
ignore the cities of India and put our funds into the rural sector - namely,
rural roads, and Agriculture Sector. I accept the advantages of digitisation as
outlined by yourself; being a hardcore techie- that is plainly obvious to me.
My daily bread is from a hard core technology industry; my survival and growth
is a direct function of technology. How can we do both?
Digitisation
- rightly pointed by you as both an effective enabler as well as leveler - will
require funds. Huge amounts. Where will they come from? Being from Telecom, I
am only too well aware of the impact of corporate valuations, cost of funds and
the investments, and their impact on the ground scenario.
The
current level of infrastructure in India in terms of data - will it sustain the
demands of a national digitisation mission? I fear not. 3G is a case in point;
the speeds as well as connectivity we enjoy are abysmal by any standards, not
due to telco faults, but because the demands on the network are tremendous by
any standards, and the additional factor of cost the telcos incur in setting up
networks in terms of both capital and revenue expenses. Having finite
resources, the telcos have no real option but to put their money where revenue
will be maximised; that is the only strategy that makes business sense.
Thus,
the PPP model will not really impact rural connectivity except over the long
run, given the cost profile of setting up networks across the hinterland.
Further, digitisation and seamless connectivity across 545 districts, and
thousands of tehsils, talukas and villages is a daunting task. This task is
admittedly underway, and we have achieved wonders in this. Accepted.
My point is straightforward
: given the paucity of resources at our command, we have no choice but to let
the digitisation proceed as its current pace {for example}- and put our money
into priority sectors. I accept the points made by you - some were real value
additions to me, and made for great learning. But my core question remains
unanswered.
The scene in Rural India is
worrisome, as pointed out by me with proof in my three recent articles - and
such a situation demands we forget all else, and focus on bringing things back
on keel once again.
That
said, we do need to focus one hell of a lot more on the MSME sector, and I do
not spot much in my reading of this current budget {have yet to go through fine
print, am on tour}. Credit, the single biggest problem for MSMEs, in addition
to gargantuan rules, offers no details as to the Government thinking - correct
me if I am wrong. Time will tell - let us see.
As
a matter of fact, if we look at Annexure Section of the Budget Speech,
specifically Annexure III-A page 36, one can see that while MSME ministry gets
an allocation for 3645 Cr, The Ministry of Urban Development gets 24523 Crores.
MSME+Unorganised sector taken together
is the largest segment of the economy... Are we paying due attention to this
sector? This is a genuine question in my
mind... would love your expert comments, since this is a core part of your
daily bread
Amitabh
D Sinha : Vishal, for years people have delighted in presenting
either-or choices to us as a nation, deftly hiding the fact that either-or
always leads to greater rifts and addresses nothing.
The point that I have been trying to
make is that we have no choice but to push for what you're calling PPP and what
I call as the only rational model for comprehensive speedy development. What we have inculcated over decades is an
efficiency crisis and we always try and present that as a debility. Simple
participative accountability and making people do what will benefit them and
yield incidental benefits to the country will work, will be faster and will be
effective. As Mr. Shetye is saying, build the small outcomes, the large ones
will take care of themselves.
Me
: That bit hit home, and hard : efficiency crisis, meaning both corruption and
productivity issues. I see the point both of you have been trying to make; I am
also aware that real life requires hard choices. While we do need to set our
priorities straight, as I alluded to earlier - the point above that the
resource crunch may not be as big as assumed is well taken – of which there is
plenty of evidence; meaning that there is a lot we can do internally.
But
what it boils down to, critically, is that we need to tackle corruption as well
as enhance efficiency {Both, corruption as well as inefficiency are what lead
to leakages} on a war footing : if we can save that money, and tap into
internal resources more effectively, we may have a good thing going... we are
going to save money to do both – we need to root out both from our internal
systems... the question then arises, how can we do that? And is that really
doable for us as a people? But that, I am afraid, is the subject matter of an
entirely different discussion to be taken up and examined later... Till then, till we can, as a people, solve
this riddle, we may have no choice but to focus on one area... that is what
worries me!
Thanks
for an enlightening discussion - one of the best on Th!nking Indian so far....
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