Prosperous India-14

Higher levels of entrepreneurship

Many of us have a feeling that our people are generally lazy and so there is not much entrepreneurship in the country. We tend to believe that the concept of ‘contentment’ taught to us in the Indian way of life, has obstructed all the initiatives and remained a stumbling block for development. But this is not true. This is one among the many wrong interpretations of Indian life made by the Europeans in order to justify their colonial dominance and suppress the native minds.

Unfortunately this interpretation continues to dominate our thinking even today, as we still do not have a proper understanding of our functioning systems. The large scale poverty, poor standards of living and poorer rates of growth during the British period and the consequent underdevelopment during the time of independence are taken to show that Indians lack the necessary drive to undertake new initiatives. The moderate rates of growth achieved during the initial decades after independence are used to support their argument, little realizing that the country had to start from a very poor base and the people had to struggle against the socialistic framework during those years.

India is an ancient nation. An objective study of her economic history would show that the country remained the most prosperous region in the world for most of the time, till the aliens started interfering in the native ways of lives of people. The country would not have reached such an exalted position without higher levels of enterprising qualities and newer initiatives of the population. So entrepreneurship is not something new to the Indian society and it must have dominated the lives of the people so much so that it remained superior for a very long period compared to any other nation in the world. India was in fact made poor and underdeveloped during the British period.

Studies on Indian economy during the post-independence period reveal that there has been a continuous growth in enterprises during the past sixty years. But what is significant about this growth is that it has not been confined to any particular segment. All sorts of enterprises – tiny, small, medium and big - have been coming up in thousands every year. It only indicates that different sections of people are engaged in entrepreneurial activities and entrepreneurship is not confined to any particular section of the society. As a result, the Indian Brand Equity Foundation notes that India has emerged as a country with 85 million entrepreneurs, perhaps the largest number in the world.

The innate qualities of Indians namely the family orientation, frugal ways of life, tendency to submit to hard work, saving mentality and taking on the burdens and the risks attached for the betterment of the others around motivate them to set up new ventures, even under extremely difficult conditions. We have to remember that the Indian life emphasizes specific duties for everyone and ‘karma yoga’ is considered the best way to lead a purposeful existence. Mahabharata exhorts people to work without expecting results, as being engaged in work is one’s foremost duty. As a result the Indian mind has been conditioned to engage in one or the other productive activities.

The data relating to the different sectors of the economy namely the unorganized sector, small scale industries sector and the corporate sector over all these years testify the growth of enterprises. Let us take for example, the unorganized sector where the people from the ordinary and less privileged sections of the society operate by promoting tiny and smaller enterprises. Economic Census 2005 notes that this sector has grown at the rate of 4.69 per cent per year during 1998-2005, reaching thereby a total of about 41.83 million establishments. The growth of bigger units coming under the corporate sector has been particularly impressive during the recent decades, with the total number of companies limited by shares at work touching 7,86,774 at the end of March 2009. The growth in the case of small and medium enterprises over the past six decades is noteworthy, though sections of these groups have been facing difficulties in the recent years due to government policies and other issues.

Field level studies in different business and industrial centres show that there remains an extraordinary sense of entrepreneurship in many places across the country. For example, Sivakasi situated in southern Tamil Nadu was a small place during the beginning of the 1920s, with people depending on agriculture based on salty water. Two enterprising youngsters, from ordinary agricultural families, promoted the first match factory in the place after learning about the business while working in a company owned by the British in the then city of Calcutta.

But today after about nine decades, Sivakasi is a household name in India and is familiar in many places abroad. The locals proudly note that about 90 per cent of the total cracker manufacture from India and about 80 per cent of the Indian match production take place through Sivakasi. They also claim that about 40 per cent of the sophisticated off-set printing in India takes place there. It is interesting to note that the highest priced diary in the world released in the US was from Sivakasi. Sivakasi entrepreneurs also print cheque books and items of high security such as flight tickets for countries from Europe. What started off as a small venture has transformed Sivakasi into a vibrant business centre, leading to transactions worth crores of rupees and giving livelihood to thousands of families. All this has happened due to the entrepreneurial urge of the native people without much support from the government and other outside agencies.

The growth of the industrial and business centres across the country, be it Rajkot or Karur or Ludhiana or Coimbatore, exhibits a similar pattern. The development of these places has been powered by the entrepreneurial spirit of their people. As a result businesses have expanded and the economy has grown. In the process, some of these places such as Surat and Tirupur have become synonymous with their products throughout the world.

Based on surveys conducted in different countries, Global Entrepreneurship Monitor (GEM) 2002 noted that India was the second most entrepreneurial nation in the world with 17.9 per cent of the population engaged in various entrepreneurial activities. The two most powerful economies of the world namely, the US and China were way below India with 12.3 per cent and 10.5 per cent respectively.

Thus India has moved from a predominantly agricultural economy, to an economy with significant service and industrial activities, mainly due to the initiatives of the people with higher levels of entrepreneurship. It is they who make the economy move forward, in spite of lack of clarity at the policy making levels. Their extraordinary abilities have to be seen to be believed.

References

1. Annual Report 2008-09, Ministry of Corporate Affairs, Govt. of India

2. Economic Census 2005, Ministry of Finance, Govt. of India

3. Global Entrepreneurship Monitor 2002 Summary Report, Babson College, Ewing Marion Kauffman Foundation and London Business School

4. India Brand Equity Foundation, ‘Hinterland India: The Real Source of India’s Entrepreneurship’, www.ibef.org

5. Kanagasabapathi P. and Gopalasamy R. ‘A Study on Supply Chain Practices and Performances in the Printing Industry of Sivakasi’, Unpublished Report, P.S.G.Collge of Technology, Coimbatore, 2006

Prosperous India-13

Relationships facilitate easy mobilization of funds for businesses

Finance is the life-blood of any business, however small it may be. Hence mobilization of the required funds for investment is the foremost duty of an entrepreneur. Generally the entrepreneurs themselves would have a portion of the money needed for investment in the form of personal savings or family assets. But that may not be sufficient for the promotion of a business or industry. In most cases, the total amount required for the venture would be more. So there is a need for the entrepreneur to mobilize the additional funds from other sources.

Indians are very careful when it comes to funds for investments. Usually they try to invest as much money as possible from their own sources. Personal savings is their first priority as it belongs to them and hence they need not go to anybody to get it, except that they may have to inform their family members. Next to personal savings, the most immediate source is the family savings. In this respect the role of ladies in the family is very significant. One has to specially appreciate the role of mothers and wives in contributing their savings for the promotion of new initiatives. So in most of the cases, the personal and family savings forms a compulsory part of the investments.

After exhausting the savings, people plan for pledging of the assets of the family and even disposal of a part of it to mobilize funds. The main idea is to mobilize funds from family resources to the maximum extent possible, before looking outside for help. A study conducted among the businessmen belonging to the Sozhiya Chetty community in the Ghee and Butter industry of Kangayam in Tamil Nadu showed that all their enterprises were funded by the families without any support whatsoever from any other outside sources.

Invariably in most of the cases, financial support from relatives and friends form a sizable share of the investments. Studies reveal that brothers, sisters, in-laws, grandparents, relatives, community men and friends play their part to support people who promote ventures. A study conducted among the Reddiar community businessmen in Tamil Nadu showed that about one-fifth of them received support from their married sisters towards initial investments. It is interesting to see that the sisters had nudged their husbands to give funds to their brothers for promoting businesses.

In many cases, the relatives play an important role in mobilizing funds for investments. A study conducted among the diamond exporters belonging to the Patel community in Ahmedabad and Surat revealed that the relatives had played an important role in the setting up of businesses. The study showed that about 46 per cent of the respondents received more than 30 per cent of the initial capital from their relatives, while another 43 per cent received funds varying between 20 to 30 per cent of the amount required. The community men and friends also play a role by giving funds for business.

It is not that the people mobilize funds from own and family sources only for initial investments. Even for working capital and subsequent investments, they prefer approaching the personal sources before contacting outside agencies such as banks. Almost all the businessmen of Sankagiri in Tamil Nadu, the well known transport centre with the largest lorry traffic in the country, use funds from their own and close sources even for working capital. In the power loom textile export centre of Palladam in Tamil Nadu, all the businessmen ploughed back their profits into the business as additional investments. It is interesting to note that 80 per cent of them were investing all their surpluses back in to their businesses.

World Development Report 2001, published by the World Bank, reveals as to how funds are mobilized by the businessmen through their net work of relationships in Tirupur, the internationally known textile export centre. It says that the businessmen belonging to the Gounder community, who dominate the industry, mobilize funds through their community relationships without going to banks and paying interest at the market rates. For this purpose, they employ the “credit rotation” system and get funds. Ultimately this practice results in reducing their cost of capital which in turn reduces the cost of production, helping them to fix lower rates for their products.

In many of the industrial and business centres of Gujarat, the entrepreneurs revealed that they received financial support from their community men and villagers, when they expressed their desire to promote their own ventures. They noted that the contributions came spontaneously without hesitation as people wanted to see their own men in business and prosperity. Such kind of helping tendencies could be noticed in other parts of the country also.

When people find that the help from near and dear ones are not sufficient, they try to go for loans. Here also the informal mechanisms play an important role. People prefer to get loans from their acquaintances, as they are more personal and less cumbersome. There are many instances in which friends and relatives also provide loans for interest, either at market rates or even lesser. Then there are local financiers, who are almost everywhere to provide finance to the needy.

People prefer the local financiers over institutions for reasons such as personal acquaintance, convenience, approachability, quick response in times of urgency and lack of rigid formalities. These reasons outweigh difficulties such as higher rates of interest. As a result the local financiers play an important role in the promotion of businesses. Karur, the famous textile exporting centre in Tamil Nadu known for home made textiles, was also known for its finance entities operated by the local people as partnership firms. A study revealed that two third of the total funds required by the Karur industry was mobilized from the local finance entities. That was in spite of the presence of more than fifty branches of banks in the centre. Incidentally Karur was the birth place of two banks namely Karur Vysya Bank and Lakshmi Vilas Bank, both promoted by the local people decades earlier. The study showed that almost the entire financial transactions were taking place on the basis of faith and goodwill. Financiers were not worried about getting documents from the borrowers as they believed the people. The businessmen also reciprocated and as a result the bad debts were almost not there.

Thus relationships play a dominant part in mobilizing funds for businesses. This is one of the major reasons why the economy has been growing steadily, in spite of lesser penetration of banks and financial institutions among different sections of the society. Relationship is an important factor for much of the initiatives in the Indian economy, particularly those that belong to the family based non-corporate sector, as they facilitate easy mobilization of funds. Hence we have to realize that the relationship base of the society has been helping the economy to grow.

References:

1. P.Kanagasabapathi and Senthil Reddy, “A Study on Entrepreneurship among Reddiars”, Unpublished Report, P.S.G College of Technology, Coimbatore, 2004

2. P.Kanagasabapathi and M.N.Arunkumar, “A Study on Sankagiri Transport Industry and Thiruchengode Rig Industry”, Unpublished Report, P.S.G. Institute of Management, Coimbatore, 2005

3. P.Kanagasabapathi and I.Menakha, “A Study on Powerloom Textile Export Industry of Palladam”, Unpublished Report, P.S.G.College of Technology, Coimbatore, 2005

4. Sharad Patel and P.Kanagasabapathi, “A Study on Gujarat Diamond Export Industry”, Unpublished Report, P.S.G Institute of Management, Coimbatore, 2005

5. P.Kanagasabapathi and A.R.Ramanathan, “A Study on Butter and Ghee Industry in Kangayam with Special Reference to Sozhiya Chetty Community”, Unpublished Report, P.S.G. Institute of Management, Coimbatore, 2006

6. P.Kanagasabapathi, Unorganised Finance Sector: The Engine for Economic Growth – A Study with Reference to Karur, Tamil Nadu, Swadeshi Academic Council, Coimbatore, 2002

7. World Development Report 2001, World Bank, Washington.

(Published in Yuva Bharati, Vol.38 No.11, Vivekanana Kendra, Chennai, June 2011)

Indian Management Model- Leadership Perspectives

Abstract

India is an ancient civilization with thousands of years of history and continuity. The civilization could not have continued for so long without strong economic systems remaining as the foundation for its functioning and progress. Evidences indicate that India remained vibrant with economic activities from the earliest times. Moreover India was a pioneer in diverse walks of life, with original contributions of the highest order. As a result India remained a world leader till the nineteenth century. For all her prosperity, India had to suffer from the invasions and alien rulers for many centuries continuously. Later the English domination resulted in a systematic destruction of the time tested native systems. As a result the native management and leadership models suffered. Hence when India attained independence, she was a poor and underdeveloped country. During the recent years, the country has been fast emerging as a global power, in spite of lack of proper understanding of the functioning systems and the resultant neglect of nurturing and developing India-centric approaches. But all is not well as we have many serious things to do. At the same time, the western countries have been facing major problems at different levels. It is high time we recognized the functioning Indian models and developed new ones based on the ethos and realities of the country. This paper discusses management models based on Indian ethos with prime focus on leadership.

The following is the link for the paper.

http://www.smsvaranasi.com/purusharth_journal_abstract_vol_III_2.htm

( Published in Purushartha,  Vol III, No.2, Sept.2010, School of Management Sciences, Varanasi)

Prosperous India-12

Family orientation leads to higher savings and safer investments

Indian life emphasizes restraint on consumption. From a very young age, Indians are inculcated with the habit of spending less and saving more. Over- consumption, excessive usage and wastage are treated as sins to be avoided. Indian tradition teaches her citizens to be very careful with regard to the usage of resources. Hence there is a natural tendency to conserve resources.

Sacrifice for the near and dear ones and surrender of personal interests to that of the family is considered the foremost duty of the householders. As a result it is normal to see parents foregoing their own comforts for the sake of their children. Every father and mother feels that it is his or her duty to save as much money as possible inorder to give a better environment and education to their off-springs. Entrepreneurial ventures are initiated with the hope of leaving profitable enterprises to the succeeding generations.

Cutting down expenditures to a bare minimum and saving the maximum amount of money for the betterment of families remain the mantra of Indians. As a result the savings of the country has been continuously increasing over the years. The total amount of gross domestic savings was Rs.871 crores during 1950-51. It reached Rs.18, 11,585 crores during 2009-10. The official saving rate that stood at 8.6 per cent of GDP in 1950-51 has reached 33.7 per cent during 2009-10. Table 1 below presents the growth in gross domestic saving rate from 1950-51 to 2009-10.

Table 1 Gross Domestic Saving from 1950-51 to 2009-10

( as percentage of GDP)

Year	Gross Domestic Saving
1950-51	8.6
1960-61	11.2
1970-71	14.2
1980-81	18.5
1990-91	22.8
2000-01	23.7
2009-10	33.7

Source: Economic Survey 2010-11

The table shows a continuous increase in the rate of saving in the country during the past sixty years. It is important to note that the household sector has been contributing the maximum share in the total saving. It means the ordinary people of our country have been engaged in saving higher amounts of their earnings. The share of the household sector in the gross domestic saving was 70 per cent during 2009-10. The private corporate sector and the government sector have contributed the balance of 30 per cent.

Indians make savings in a variety of avenues. It is difficult to list all of them here as there are many indigenous avenues preferred by people in different localities. Some of them may not even be known to the third parties. For the sake of convenience, all of them may be classified as the official and other avenues. Details and figures are published by the governments for official savings. But such details and figures are not fully available for the other avenues of savings, including the indigenous methods. Hence the official rates of saving do not cover different types of savings that are in vogue. Even investment in gold, which is a highly popular mode of savings across the country, is not taken in the list of official savings.

But even when we take the official rate of saving, it remains high. India has one of the highest rates of saving in the world. When compared with the saving rates of the richer countries of the world, the rates of saving in India are many times higher. It is relevant to note here that in the recent past, the saving rates of the developed countries such as the US and the UK went below zero per cent in some of the years.

Indians prefer to invest in safer avenues as compared to the riskier ones. Bank deposits remain the most popular type of official saving in the country. Table 2 provides the percentage shares of different financial assets of the household sector between 2006-07 and 2008-09.

Table 2 Financial saving of household Sector (2006-07 to 2008-09)

( percent to total gross financial saving )

Item	2006-07	2007-08 (P)	2008-09 #
Currency Deposits with banks Shares and debentures Claims on Government Insurance Funds Provident and Pension Funds	10.2 47.8 9.0 3.0 17.7 11.1	11.4 50.4 12.4 -4.0 18.0 9.9	12.5 54.9 2.6 -3.1 20.1 9.5

P: Provisional #: Preliminary estimates

Source: Annual Report 2008-09, Reserve Bank of India

Table 2 shows the preference of the Indian public towards bank deposits, insurance funds and provident and pension funds. While investments under the category of bank deposits have been increasing over the years, claims on government which used to attract a higher proportion of funds during the earlier periods have been declining in the recent years. The table shows the overall preference of the public towards secured investments. The proportion of funds invested in shares and debentures showed an increase during 2006- 07 and 2007-08, from the lower rates during the earlier periods, only to decline again in the following year. Investments in shares and debentures of companies are not in the high priority list of the Indian public, though the stock markets have become popular in recent years among certain sections of the society.

The total deposits in all the scheduled banks stood at Rs.1, 99,643 crores during 1990-91. The deposits increased over the years reaching Rs.52, 28,920 crores in February 2011. The per capita bank deposits have increased from Rs.15,357 to Rs.20,146, thereby registering a growth of more than 31 per cent during 2005-06 to 2008-09. One has to keep in mind that the world witnessed the global economic crisis during the above period, with its ripple effects giving troubles to the Indian economy. The western countries faced severe financial crisis resulting in the collapse of many banking companies, particularly in the US. But at the same time the per capita deposits have risen in India to higher levels.

Three different studies conducted by Kanagasabapathi among different sections of people belonging to the educated and professional/ business groups in the industrial city of Coimbatore reveal that people prefer investing their savings in safe and secured avenues such as the bank deposits, jewellery, house and insurance schemes. The reason mentioned for making such investments was the family orientation. The study showed that most of the respondents including the finance professors who teach stock market theories to the students do not like to invest in securities as they are complicated and risky.

References

1. Economic Survey 2010-11, Ministry of Finance, Govt. of India, New Delhi

2. RBI Monthly Bulletin, April 2011, Reserve Bank of India, Mumbai

3. Annual Report 2008-09, Reserve Bank of India, Mumbai

4. P.Kanagasabapathi, ‘ Does family culture drive investments in bank deposits?’, JIMS 8M- The Journal of Indian Management & Strategy, Volume 15, No.3, Jagannath International Management School, New Delhi

( Yuva Bharati – Voice of Youth, Vol.38, No.10, May 2011)

PROSPEROUS INDIA 11

Economic policies of Independent India borrowed from the West

The independence of India was the dream realized after the struggles and sacrifices of millions spanning around two centuries. For about eight centuries earlier, India had been facing difficulties due to invasions and governance by rulers from alien backgrounds. Hence Indians were looking for independence which would provide them an opportunity to frame ‘their own’ policies based on the background, experiences and ethos of this age-old nation. There was also an urgent need to set right the distortions that had set in during the regime of the alien rulers during the previous centuries. The British domination had already reduced India to ‘the poorest country in the civilized world’ from the long-held status of the most developed nation in the world.

More than any other personality in the contemporary period, Mahatma Gandhi articulated the need for India-centric economic policies for her overall development, much before independence. Even during his early years of public life, he firmly believed that the western ideas would not suit our country. In his much celebrated work “Hind Swaraj” written during 1909 while he was travelling from London to South Africa, he underlined that the western civilization was doomed for failure and the Indian civilization, with her unique background and fundamentals, should opt for native approaches. In fact even earlier, from 1880 to 1905, some of the Indian leaders advocated nationalistic economic policies. 

Later even while he was completely involved in the freedom movement after his return to India, Gandhiji wanted to initiate a discussion with regard to the type of economic policies that would be suitable to the country after Independence. He was aware that mere transfer of political power from the Englishmen to the natives would not able to improve the conditions in the country, unless economic policies suitable to the country were evolved. Everyone was sure that the policies of the Britishers would not be suitable as they were designed to benefit them. Hence Gandhiji’s initiative assumed significance, as he was really concerned with the situation in the post-independent India. However the leadership of the Congress scuttled his efforts. As a result there was no discussion or debate about the economic policies of free India at the national level.

After independence, when India got the opportunity for the first time after many centuries to plan her economic policies, there was no clarity. Unfortunately many in the policy making circles were not aware of the ground realities of the Indian situation and her history of sustainable economic systems, as they were guided by the western ideas due to their education and understanding. Gandhiji also died within a few months after independence. Subsequently, the Congress under the leadership of Nehru, adopted socialism as the guiding ideology of the party. 

As a result the socialistic policies were imposed on this great country, which had had her own time-tested economic systems that had sustained her as an economic power and prosperous nation for centuries. One has to remember that socialism was born in the west as a reaction to the conditions prevailing there during the nineteenth century. It was based on their outlook and approach. History shows that the ideas and approaches of the western world remained too narrow. Their history itself is very short compared to ours. 

For more than thirty years from the 1950s, India’s destiny was driven by the economic policies based on the socialistic ideas. The license-permit raj with the neta-babu syndrome was obstructing growth. The results were disappointing and the country was not able to achieve even the basic objectives. When the communist USSR collapsed in 1989 and was broken to pieces, socialism was reduced to a text-book theory. Even a decade earlier, the other powerful communist country at that time namely China opted to move away from the ideology of their party. It was only after socialism was widely accepted to have failed that the Indian establishment slowly woke up to the realities. Moreover the serious conditions that the economy was facing during the beginning of the 1990s compounded the situation, and as a result socialism was abandoned. 

History gave another chance to the country to discuss and frame a policy frame work suited to the experiences and aspirations of her people. But the people were let down once again by the elite and the policy making circles. This time the market driven capitalistic model, born and developed in the west, was adopted as the state policy, again without serious debates and discussions. As a result for the second time in independent India, another alien ideology not suited to the culture and ethos of the country began to be implemented. The market centric model is the latest version of the western capitalism whose roots lay in individualism. 

As a result, beginning from the early 1990s, the economy began to be opened up , with many of the controls being removed. Liberalization, privatization and globalization became the mantra for the proponents of the new ideology and the United States became the model. Foreign participation and investments were being freely encouraged in different sectors. 

Now after twenty years of experience with the market ideology, more than one fourth of people go to bed with an empty stomach. The most critical sector of the economy namely agriculture is in serious trouble. Farmers’ suicides have been increasing; in many places the country sides wear a deserted look with villagers opting to go out in search of jobs to make their ends meet. Rural industries are facing extinction. There has been an increase in unemployment resulting in social problems. At the same time the ‘consumer culture’ is spreading fast especially among the higher income, urban and younger sections of the society. Moreover the gap between the rich and poor has been increasing. 

The market ideology has failed to deliver the desired results in India. In fact it is failing even in the west, and many of its supporters have started raising serious doubts about the very theories that govern the ideology. The global economic crisis has revealed to them once again the true nature of their favorite ideology. Paul Krugman, Professor of Princeton University, US and the winner of the Nobel Prize in economics for 2008 notes: ‘much of the past 30 years of macro economics was “spectacularly useless at best, and positively harmful at worst.” 

Thus the economic history of post-independent India shows that the ruling establishments and the policy making circles have let down the country each time an opportunity was presented to them to frame suitable policies for the country. With the result, the country is not able to fulfil even the basic minimum requirements of her citizens, after sixty years of planning. All these years, we have been only aping the west; applying their policies and waiting to listen to their sermons, without the expected results. 

It is another matter that in spite of all confusions and contradictions at the policy making levels, India is emerging as an economic power overcoming many hurdles that lie before her. 

References:

1. Bipan Chandra, The rise and growth of economic nationalism in India, Anamika Publishers, New Delhi, 2004

2. Paul Krugman quoted in ‘What went wrong with economics’, The Economist, July 16, 2009

( Yuva Bharati – Voice of Youth, Vol.38 No.9, Vivekananda Kendra, April 2011)

1

PROSPEROUS INDIA 10

Indian economy at the time of independence

India did not get independence easily as the colonial masters were cunning and brutal. Millions of men and women had to undergo severe pains and endure constant sufferings. Thousands of people had to lose their properties and lives. Even after the first war of independence in 1857, Indians had to struggle for another nine more decades spending all their energies to free our motherland from the clutches of the aliens.

Even before India got independence, her economy remained shattered. The fine balance that existed among the major sectors of the economy namely agriculture, industry and services had collapsed much earlier. Kennedy notes that India’s share of global manufacturing had declined drastically from 24.5 per cent to a mere 1.7 per cent in a period of just 150 years, between 1750 and 1900. India had already become an importer in the nineteenth century, losing her long held status as a premier exporting nation. The destructive policies of the British, their tactful diversion of funds outside the territories and the continuous drain of wealth had made the nation to accumulate debt for the first time in the recorded history of the country. Ultimately, Will Durant notes that the national debt of India stood at 3,500,000,000 in 1929.

Much of the population who were driven out of their vocations became either landless labourers or had to take up menial jobs. As a result there was a heavy dependence on agriculture and allied activities. Maddison notes that at the end of the British rule, the percentage of the labour force dependent on the village economy was 75 per cent for a share of 54 per cent of national income after tax. 17 per cent of the labour force was working as landless labourers and scavengers for a share of just 4 per cent of national income.

The industrial and business sectors were weak. Native industries of different types were deliberately destroyed over the years. Hence the employment opportunities for people in productive avenues were limited. Bimal Jalan notes that the share of workers in agriculture and industry was 75.7 per cent and 11.9 per cent respectively in 1951. As the British denied good opportunities for the natives in services and profession, Indians could not go up in large numbers in these areas.

The quality of life was pathetic. The economic indicators compiled by the Government of India reveal that the life expectancy at birth was just 32.1 years during 1950-51. The death rate (per 1000 persons) remained as high as 27.4. The literacy rate was only 18.3, with the female literacy being 8.9. Education was beyond the reach of the major sections of the society. Most of the English educated Indians were conditioned to think like the westerners aping their ways and means, without a proper understanding of the fundamentals and background of the country.

The economy was very poor and underdeveloped. Gross Domestic Product (at factor cost, at current prices) was Rs.9719 crores during 1950-51. Food grains output was 50.8 million tonnes, for a population of 35.9 crores. The availability of food items for the citizens was much less than the actual requirements. Exports from the country were a mere Rs.606 crores, with imports being Rs.608 crores. The foreign exchange reserves of the country stood at Rs.911 crores.

Thus the Indian economy remained in a very bad condition at the time of independence. One has to keep this in mind to understand the background and study the functioning of the economy in the post-independent periods.

References

1. Paul S Kennedy, The Rise and Fall of Great Powers – Economic Change and Military Conflict from 1500-2000, Fontana Press, London, 1988

2. Angus Maddison, The World Economy- A Millennial Perspective, Overseas Press India Limited, New Delhi, 2003

3. Bimal Jalan quoted in Daya Krishna, Golden Age to Globalisation – 7000 years of Indian Economy, Swadeshi Jagran Prakashan, New Delhi, 2002

4. Will Durant, The Case for India, Simon and Schuster, New York, 1930

5. Economic Survey 2009-10, Ministry of Finance, Government of India, 2010

( Yuva Bharati, Vol.38, No.8, Vivekananda Kendra, Chennai, March 2011)

Emerging India Failing State – Economic lessons from the first decade of the twenty first century

Historically speaking, the twenty first century is important to India in more than one way. Beginning from the eighteenth century, for around two hundred years of the second millennium, the country was under the domination of the British. Indians could not do much on their own under the oppressive alien forces. India was suppressed cruelly and her citizens had to face untold miseries. The native systems that had made India a unique nation since the ancient days, with contributions of the highest order in almost all the fields of human activity, had to suffer and die. The country was compelled to do away with and forget the knowledge and expertise gained through experience over many centuries. 

In fact, the Indian economy had to face difficulties from the invading forces for many centuries even earlier. Beginning from the end of the first millennium, the second millennium saw a continuous stream of outsiders pillaging the country and interfering with the native practices that made the country prosperous and peaceful at the same time. Hoards of wealth were swindled out. Different parts of the country were ransacked and many regions came under the domination of outsider- rulers, inflicting serious pain on the native population. 

Indians withstood all the onslaughts with courage and rebuilt the systems to the maximum extent possible, though scars remained all over their bodies. As a result, as the OECD economist Maddison has shown, India was the largest contributor to the global economy even in 1700 with 24. 4 per cent share. It is relevant to know that India’s contribution to the global economy was an astonishing 32.9 per cent during the beginning of the first millennium. The share of India stood at 28.9 per cent a thousand years later, maintaining her position as the most powerful economy in the world throughout the period, followed by China. But things began to change drastically during the British domination, initially through the East India Company and later under the British sovereign rule. 

The native systems that had sustained the economy continuously for hundreds of years were systematically destroyed by the colonialists. Hence at the time of Independence, India was reduced to a poor and underdeveloped country. 45 per cent of the population was living below the poverty line around that period. The industrial and business sectors were very weak. India’s share of trade was very low. The agricultural sector was over populated. Literacy rate was around 17 per cent. This situation led to loss of respect for the country at the international level. 

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With Independence, the country got the opportunity to frame her own economic policies based on the priorities and preferences of her people. It was necessary to formulate an independent policy framework as India had prospered as the most successful economy possessing superior systems of functioning for most of the time in the history. After the country fell into the hands of the alien elements, she could not continue her style of functioning making use of her time-tested native systems, as the motives of the rulers were different. Hence Independence presented the country with a historic opportunity to set things right, rectifying the mistakes of the alien classes that ruled us during the previous centuries, and move forward with a clear vision. But unfortunately the ruling sections did not have a proper understanding of the history of this ancient nation, and so looked outside for ideas to frame policies for deciding the course of action to be followed. Ultimately they chose the socialistic model, conceived in the west less than two hundred years back as a reaction to the circumstances then prevailing there, based on their limited experience and turbulent history. 

Later when the socialistic ideology was discarded even in its own favorite grounds such as the USSR and China, it began losing its appeal. Meanwhile the Indian economy was facing serious difficulties on certain grounds. Hence after about forty years of experiments, the establishment realized that they would not be able to fulfill the objectives with policies based on a flawed economic idea. Circumstances compelled them to look for a change. At that time, history presented another opportunity for the country to formulate policies that would make use of all her potential and make people participate in the progress and share the benefits with joy. 

But alas, the ruling segments once again believed that only the ideologies borrowed from the west would make the country better off. This time they chose the free market ideology as the panacea for the ills affecting the country. It was again adopted without any serious discussion or debate at the national level. The decision on such a vital subject concerning the future of one sixth of the humanity was decided by a few at the top, with the tacit acceptance of the elite and educated. Hence the nation was forced to follow another philosophy born and brought up elsewhere, based on their own narrow views and outlook about the society and the economy. 

As a result, the country still has more than one fourth of the population going to bed without food three times a day. The agricultural sector, which is critical for us, has been facing severe crisis. It is a shame that no tangible steps are taken to revive the sector, even when farmers have been committing suicides. The easy entry of the multinational corporations has forced many of the traditional, small and medium scale industries to close down. Financial markets are increasingly controlled by the foreign institutions. The establishment does not have any clue to decide the future course of action, as the dependent mindset still dominates its thought process. 

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In a period of six decades, India has emerged as the fourth largest economy in the world, with the second highest growth rates. The global economic crisis that devastated most of the richer parts of the world, could not affect India much. Indian businesses have spread to different parts of the world. The corporate sector is in an expansion mood diversifying its activities in distant lands and buying foreign entities, wherever possible. The family based non-corporate sector has silently been contributing a dominant share to the growth of the economy. The Indian economic and business systems are increasingly being recognized the world over as worth studying for emulation. No other country in the world has seen such a turnaround in a period of just sixty years. The country which remained neglected during much of the second half of the twentieth century is now being looked upon as a model for the future. 

What is the reason for such a progress in such a short period of time? How could a country that was decimated by the aliens with brute force make a comeback and emerge as one of the top two promising nations in the very first decade of the twenty first century? How is it possible for a country to move up continuously at a steady and fast pace, even when her policy makers remain confused to identify a suitable policy framework? The answer lies in the functioning Indian systems. 

The economy is family driven, society dominated, highly entrepreneurial and self dependent. The family orientation of Indians makes people save as much money as possible so that the future would be secured. India’s rate of saving was 8.6 per cent of GDP during 1950-51, even when about half of her citizens were starving for food. Compare this with the negative and near zero saving rates of many of the richer countries today. The rates of saving have been continuously on the rise throughout the last six decades, contributing enormously to the growth of the economy. As a result capital formation took place at a faster rate without much difficulty, leading to investments in productive activities. It is only in this context that the Reserve Bank of India has recently noted that 95 per cent of the Indian economy is being financed by the domestic finance. 

The family orientation, combined with the self dependent attitude and the entrepreneurial spirit of Indians, compels them to promote different ventures, however small they might be. As a result, new initiatives are continuously being taken at different levels, making India as one of the most entrepreneurial nations in the world. The types of enterprises that are functioning in the country are of different sizes and varieties. Economic Census 2005 estimates that there were 41.83 million establishments operating under the category of the unorganized sector, providing employment to more than 100 million persons. We have to remember that these are all the units promoted by people from the ordinary and under privileged sections of the society through their own efforts. 

On the other end of the spectrum, there were more than 7, 86,000 companies during 2009, as per the details provided by the central Government. In between these two smaller and the bigger types of organizations, there are millions of small and medium units spread across the country. Earlier the Government of India estimated that there were 2042 clusters engaged in a wide variety of industrial and business activities. The contribution of these clusters in terms of entrepreneurship, employment, output, innovation and turnover is very significant to the economy. It is important to remember that these clusters were developed by the local entrepreneurs themselves, without the involvement of the state and state machineries. Many of these clusters such as Surat and Tirupur are synonymous with their products at the global level. 

For more than a century before independence, India’s rate of growth was either around zero percent or negative. Starting from a very low base, the economy picked up quickly with an average growth rate of 3.5 per cent during the first three decades beginning from the 1950s. The rate steadily increased thereafter to 5.5 per cent during 1980-90, and 6 per cent in the next decade. It averaged more than 9 per cent during 2005-06 to 2007-08, before going down to 6.7 per cent in 2008-09 due to the global economic crisis. The economy started recovering quickly with the growth rate touching 7.4 per cent during 2009-10. There has been a continuous growth over the last six decades, in spite of the confusions and contradictions in the policy making circles. 

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We are in a paradoxical situation now. On the one hand, there are serious problems threatening the stability and future of the economy. The ruling establishment does not seem to understand the gravity of the situation and take immediate steps to address the issues. On the other hand, all the international bodies, research firms and think tanks unanimously agree that the Indian economy would continue its growth momentum in future to ultimately over take China and move forward. India is increasingly being looked upon by the rest of the world as a performing economy with a lot of potential for further progress. 

What does this signify? It clearly shows that while India is emerging, it is the state that is failing. This is the lesson we learn after the close of the first decade of the twenty first century. India, with her abundant energy and native strengths, has been constantly struggling to move forward through the hard work and commitment of her citizens, whose roots remain firmly in the tradition and culture of this great nation. But the state, with its colonial mindset and borrowed thinking, continues to fail the country even after sixty years. Is it not time for the state to take stock of its role and rectify its mistakes? 

(Swadeshi Patrika, Vol.16, No.2, New Delhi, February 2011)