PROSPEROUS INDIA - 18

Indian economy is not dependent on the state

The greatest strength of Indian economy is her self-dependent approach. The economies in different parts of the world, including the developed and the richer countries, largely depend on the state and state mechanisms. But the Indian economy is different.

Indian culture teaches people to stand on one’s own legs and not depend on others, however close they may be. As a result the Indian society imbibed the values of self-dependence in the lives of its people and saw to it that they practiced them.

People have been taught to choose and engage in one or the other productive activities. Dedication to one’s own work is considered a higher quality. Hence people take up work as their basic duty and privilege.

Family is the foundation of life in India. It is mandated that the sacred duty of the householders is to take care of the dependents in the family. Hence they engage in different activities to earn an income and protect the well-being of their family members. They also take up new initiatives so that they could earn more for their families. As a result different economic activities are continued and new ventures get started without waiting for others from outside.

Simple living and saving for the future are two important characteristics of the Indian life. Indian life discourages wasteful expenditures. Hence people save money even when their incomes are less. Such habits enable the society to mobilize funds for purposeful initiatives.

Indian families are closely knit and society oriented. The parents help their children in all possible ways. They bequeath their assets, pass on their savings and make their services available to the next generation. As a result it becomes easier for the younger members to grow, as their basic facilities are already fulfilled and resources are available for further growth.

Since families lead community oriented lives, they take it as their duty to help their near and dear ones. As a result of the network of relationships, promotion of new ventures and economic development becomes easier and faster. Prevalence of social capital in the country makes it possible for the people to live in a peaceful atmosphere and it helps people to concentrate on the developmental activities.

All these features of Indian lives with the age-old culture and tradition as the foundation, makes the economy move on without much expectations from the state. People take to activities on their own as they consider it their duty to engage in useful activities, earn resources, nurture their families, lead useful lives and achieve success in their fields.

It is true that in the ancient periods the rulers were advised to frame suitable policies and provide the required facilities for the proper functioning of the economy. Studies on the economic history of India show that the states and their agencies facilitated the economic activities very actively by making policies for different segments at different levels, establishing the necessary facilities, providing the required support and encouraging people to involve in different kinds of work. The states were also engaged in a few of the activities considered significant.

Systems were established in such a manner that even during the times of war the economic activities continued without any interruption. This is the reason why India remained a prosperous nation for many centuries with achievements in different sectors, till the Europeans interfered with the native systems.

The alien domination resulted in the state playing a totally negative role. With the societies losing their control and people getting disturbed, the native arrangements were destroyed. As a result people could not do much and the economy had to suffer seriously.

The independence gave the people a feeling of security and confidence. They felt immediately that they could pursue economic activities without the fear of an oppressive alien power. Studies show that without waiting for the state, they started working on their own. The seeds for development were sown in the 1950s, without even the state fully realizing it and it continues to go on. Since then irrespective of the ideologies of the state, the economy has been growing as the people remain pushing it.

It is unfortunate that the ruling classes of independent India have failed to evolve a suitable policy framework for the all-round development of her people and provide the necessary support, though the people are willing to work hard and undertake the required steps to make the country progress in the right direction. It is in this context that we have to appreciate the Indian people, who continue to toil and do whatever is possible for development.

In this connection it may be worth remembering the words of John Kenneth Galbraith, himself a noted economist and, the ambassador of the US to India in the 1960s. He made these comments when he visited India in 2001. To quote: “ I wanted to emphasize the point, which would be widely accepted, that the success of India did not depend on the government. It depended on the energy, ingenuity and other qualifications of the Indian people. And the Indian quality to put ideas into practice. I was urging an obvious point that the progress of India did not depend on the government, as important as it might be, but was enormously dependent on the initiative, individual and group, of the Indian people. I feel the same way now (as i did some forty years ago) but i would even emphasize it more. We’ve seen many years of Indian progress, and that it is attributable to the energy and genius of the Indian people and the Indian culture.”

Many times the state does not have a correct view of the functioning economic systems. It results in slowing down and even hindering progress. But people through their will power and persistence, continue to work and achieve success. Writing in the context of the entrepreneurial qualities of the Gounder community who dominate the western part of Tamil Nadu, Sharad Chari writes: “ To paraphrase S.Neelakantan, an economist from western Tamil Nadu, familiar with these environs, Gounders have succeeded despite the state and it is this success under inhospitable conditions that highlights the central role of the entrepreneur.”

Studies in different economic and business centres across the country indicate that people take up economic activities on their own and have achieved success even when the attitude of the state is not favorable. Reports and surveys continuously point out that the entrepreneurial activities at different levels are promoted by people with most of the funds mobilized through their own efforts, even when the support from the institutions are very less.

The Indian economy remains self-dependent to a large extent in spite of the lack of proper understanding from the policy makers and disturbances to her native ways of functioning. It is this quality that has enabled India to move forward even when the rest of the world has been facing serious difficulties with their states groping for solutions to get out of the crisis.

References:

1. John Kenneth Galbraith, Interview, Outlook, August 20, 2001

2. Sharad Chari, Fraternal Capital, Permanent Black, Delhi, 2004

(Published in Yuva Bharati, Vol.39 No.5, Dec.2011)

Bharathiya Economic Model

Published in Dialogue - A quarterly journal of Astha Bharati , July-September 2011, Volume 13 No. 1

http://www.asthabharati.org/dialogue.htm

PROSPEROUS INDIA-17

Values pervade Indian economic systems

One of the most remarkable aspects of our economy is the pervasive influence of values and ethics in the economic and business systems. It is because the Indians were taught to follow the ethical principles in all their activities of life since the ancient periods. Evidences indicate that our forefathers strongly believed that means were as significant as the ends.

The sages and saints of our country emphasized higher values and the scriptures and texts exhorted people to follow them in all their day to day activities, including those that are related to economics and business. Thiruvalluvar allotted an entire chapter entitled ‘means of wealth’ to advise people as to how the higher ideals should guide them while creating and dealing with wealth. He cautioned people to avoid making wealth through wrongful methods and underlined that earning wealth without human principles would be a disgrace.

The ancient Indian texts and teachings of the gurus also emphasized fair business practices. As a result the traders and businessmen were guided by the higher principles. Hence people practiced higher values not only in matters involving ordinary economic transactions between them, but also in activities relating to businesses and trade, where profit making was the main purpose of the entire exercise.

Ancient India had various types of business organizations. The most common among them being sreni, which was similar to the modern corporate form of organization. There were rules called sreni dharma for those organizations, covering a number of topics including production practices, prices and quality controls. Arthasashtra prescribed clear rules for fair business practices.

A large number of traders in western India during the eleventh to thirteenth centuries were from the Jain community. The Jainese texts advised their community men ‘to follow truthful and peaceful means of earning wealth’. Jineswara Suri, in his Satsthanakaprakarana discussed the code of conduct which the merchants were expected to follow.

Records show that the foreign merchants preferred to do business with the Indians for their good character and helpful nature. Writing in the context of western India, Jain writes: “The character and conduct of traders in western India generally receive high acclaim from foreign travelers. Al Idrisi tells us that a large number of Muslim merchants visited Nahrwara ( Anahilavada) because the people of the town were ‘ noteworthy for their excellence of their justice, for keeping up their contracts, and for the beauty of their character’, and adds that the people of the region practiced truth and abhorred falsehood. Marco Polo bestows yet more generous praise on the merchants of Lata, …….. He says, ‘you must know that these Abraiaman are the best merchants in the world, and the most truthful, for they would not lie for anything on earth,’……. These observations of the foreign travelers may reflect the general ethos of the mercantile community in western India.”

The businessmen were advised to follow ethical principles not only in earning money, but also in using them. There was a moral compulsion to distribute wealth for good purposes and share it with the less privileged, instead of using it only for the self. Rabindranath Tagore noted: “In the old time when commerce was a member of the normal life of man, there ruled the spirit of Laxmi who with her divine touch of humanity saved wealth from the unseemliness of rampant individualism, mean both in motive and method”.

It is unfortunate that the social and administrative systems that were put in place to help practicing the traditional value systems were seriously disturbed by the Britishers during their period of domination. As a result the recognition and support required for their effective functioning from the state and the society became scarce. Subsequently India had to lose much of her well established systems during the past two centuries. The state apparatus of independent India had failed to recognize this aspect and rectify the mistakes.

But in spite of the severe disturbances to our native economic model, the basic value systems still dominate the economic and business transactions to a reasonable extent. Studies conducted in different parts of the country reveal that higher features such as goodwill, faith, norms and fair practices remain the basis of business transactions across the country.

Studies undertaken in the well known textile export centre of Karur in Tamil Nadu showed that even in the high-risk business of finance, funds are advanced by the financiers on the basis of faith and goodwill. They do not require documents from the borrowers. A study conducted among the entrepreneurs from the ghee and butter industry in Tamil Nadu showed that they do not enter a locality where already one of their persons operates.

Entry of new persons into the businesses are encouraged and facilitated by the existing entrepreneurs. Studies in different places show that the majority communities provide encouragement and support to the people from the most-backward and scheduled communities for promoting new ventures.

It is common to see people coming from different backgrounds - such as castes, region and religion - doing business by sharing norms and practices that are unwritten and common for everyone. Kanagasabapathi notes: “Studies of business practices in different industrial and business centres show the prevalence of higher human values and unwritten norms in the contemporary Indian business systems, especially at the non-corporate sector levels.”

Even at the corporate levels where the western systems have a wider sweep, the undercurrents seem to be dictated by the Indian thought process. The competition is not as bad between companies at the top levels, as it exists in the western economies such as the US. Indian businessmen do not prefer to take over the businesses of others in a hostile or secret manner.

The corporate sector is increasingly being recognized and appreciated by the west and the rest of the world in the recent years for its ‘Indian-ness’. A team of professors from the United States under Peter Cappelli of the Wharton Business School interviewed the senior executives of about hundred largest India based companies to find out how they drove their organizations to higher performance. The researchers found that the approach of the Indian companies were much superior to that of the western corporations and urged the leaders of the western corporate sectors to understand and adapt the managerial approaches followed here. While presenting the reason for the superiority of the Indian approach, they note: “The Indian leadership approach arose from the unique circumstances of the Indian economy and society.”

In fact the emergence of Indian economy as a global power during the recent years has been fuelled and facilitated by the values systems prevalent across the country among the people as a whole.

References:

1. V.K.Jain in Ranabir Chakravarty, Trade in Early India, Oxford Univeristy, New Delhi, 2001

2. P.Kanagasabapathi, ‘Ethics and Values in Indian economy and business’, International Journal of Social Economics, Special Issue on India, Part I Vol.34, Issue 9, 2007

3. P.Kanagasabapathi, Unorganised finance sector: the engine for economic growth – A study with reference to Karur, Tamil Nadu, Swadeshi Academic Council, 2002

4. Peter Cappelli and others, ‘Leadership Lessons from India’, Harvard Business Review, March 2010

(Yuva Bharati, Vivekananda Kendra, Vol.39, No.4, Nov.2011)

PROSPEROUS INDIA 16

Clusters are significant to Indian economy-

A cluster is a geographical area or a location around which a number of enterprises engaged in the same or related industry or business function. Usually there may be tens or hundreds of similar or interconnected enterprises in and around an area. Sometimes there may be thousands of units in a particular cluster and it may be spread across a few kilometers also. 

Surat, Namakkal, Ludhiana, Agra are examples of clusters. Clusters exist in different parts of the country, though their presence varies across states and regions. The clusters are of different sizes and types, as also their products and services. The nature and reach of the clusters also vary. There are completely village based clusters and there are urban clusters. Some of the village based clusters even supply their products to different states. Due to the unique background of the clusters in the country, the state agencies find it difficult to identify them properly and collect details.

The United Nations Industrial Development Organisation (UNIDO) had noted earlier in the late 1990s that “there are approximately 350 small scale industrial clusters and around 2000 rural and artisan based clusters contributing to almost 60 per cent of the manufactured exports and 40 percent of the employment in the manufacturing industry.” Later the Ministry of Small Scale Industries, Government of India in its All India Census of Small Scale Industries 2001-02 had estimated that there were 2042 clusters functioning in the country. 

Due to reasons such as the smallness in size of the enterprises, lack of contact with institutions and the state apparatus and operations from remote and underdeveloped areas, many of the enterprises and clusters remain not formally registered with the government. As per the official details, 1223 clusters were in the registered sector functioning across 26 states and 819 in the unregistered sector covering 25 states and union territories.

There were more than 15 lakh units in clusters contributing to a gross output of Rs.42, 169 crores in the small scale industries sector during 2001-02. As a result these clusters have with them, more than one third of the total enterprises functioning in the country, covering 521 different products. Uttar Pradesh has the largest number of clusters with a total of 288 clusters, having more than 3 lakh enterprises. One could notice clusters that are engaged in the same or similar activities throughout the country. For example, there are more than 150 furniture and fixture, wooden clusters with 100 or more units in 22 states from Tamil Nadu in the south to Jammu & Kashmir in the north, and Gujarat in the west to Mizoram in the east. 

Studies on clusters reveal important facts that are relevant to the understanding of our economy and businesses. Almost all these clusters are the initiatives of the local people, largely without the support from the governments and their mechanisms. Many surveys, including those by the international agencies, vouchsafe this fact. About a decade back Chadha noted this: “A recent UNIDO survey of 138 industrial clusters in India shows that only 13 of these clusters were induced by government policy while the remaining 125 grew spontaneously at the initiative of entrepreneurs themselves.” 

So the efforts of the governments and their expenditure to develop the industrial and business centres called clusters are almost nil or very minimal, especially during the initial stages. On the contrary, most of the time the clusters undertake the responsibility of the state and creates the facilities required by people who live in and around them. As a result schools, colleges, temples, marriage halls, recreational centres and such other facilities needed for public utility are developed by the people belonging to the clusters. 

Coimbatore is a multi-cluster centre with different clusters such as pump manufacturing, foundries, wet grinders etc., It is entirely home grown, without any investments worth mentioning by the state. Its entry and growth in several fields, connected to each other in different ways, is truly amazing. In the recent years, Coimbatore has emerged as a major educational centre in the south attracting students from different parts of the country. What is the background to it? Earlier some of the philanthropic people from among the entrepreneurial class from this cluster took up the responsibility of establishing institutions to provide education to their own local population. What were started as poly-techniques to train youngsters as mechanics and operators for the local workshops and foundries, have over the years become reputed engineering institutions turning out graduates for bigger organizations across the country. 

It is interesting to note that some of the clusters have been promoting their organizations to take up tasks that the governments have failed to do for decades. For example, Siruthuli in Coimbatore has been taking steps to preserve water resources, while Valam in Tirupur is undertaking public infrastructure development. There are numerous initiatives at the family and the society levels in many of these clusters across the country, to provide what best they could to the society. 

Most of the clusters are major players at the state and regional levels, while many of them have emerged at the national level and a good number at the international level. Namakkal and Sankagiri, situated in the rural backgrounds, are the top two transport clusters in the country, while the neighboring town of Thiruchengode is known across the length and breadth of the country for its rig industry. Clusters such as Surat and Tirupur have already become established global business centres. 

There are two clusters namely diamond and textiles in Surat. The turnover of Surat diamond business alone exceeds Rs.80,000 crores. The contributions of different clusters in Gujarat to diamond business have helped the Indians to dominate the international diamond market in Belgium. Ludhiana is the largest centre for bicycles and spares in the world, while Bastinow in Jullundar is one of the biggest sports lanes frequented by sports personalities from all over the world. 

It is important to understand that the economic development of India, to a significant extent, is driven by the clusters. Contribution of clusters is one of the major reasons for Gujarat emerging as an economically advanced state growing at a higher level. Clusters such as Rajkot, Morvi and Jamnagar, apart from Surat, have been contributing enormously to the economic and business development of the state. Studies conducted in states such as Gujarat, Tamil Nadu and Punjab show that they owe their economic progress due to the successful functioning of clusters.

What is more striking is that the regions where clusters function successfully are economically advanced, while the other regions in the same state remain without much development. The western part of Tamil Nadu is the most prosperous region of the state as it has many well functioning clusters. Parts of the state in the southern region are also richer as there are well known clusters such as Sivakasi and Virudhunagar. The regions that do not have successful clusters have not come up economically. 

It is hence no exaggeration to state that the contribution of clusters to the development of economy and businesses in different parts of India is noteworthy. In most of the places it is the clusters that have driven the local economies towards progress. Therefore the clusters remain critical to the effective functioning of the Indian economy.

References:

1. Chadha,G.K., Rural Industry in India: Policy Perspectives, Past Performance and Future Options, South Asia Advisory Team, International Labour Organisation, New Delhi, 2003

2. Fabio Russo, Strengthening Indian SME Clusters: UNIDO Experience, Case Study Project, July 1999

3. Final Results: Third All India Census of Small Scale Industries 2001-02, Ministry of Small Scale Industries, Government of New Delhi, 2004

( Yuva Bharati, Vivekananda Kendra, Chennai, Sept.2011)

புத்தகமதிப்புரை- வேணியின் நூலகம்

உங்களையும் என்னையும் போன்ற சாமான்யர்களின் மனத்தில் எழுகின்ற கேள்விதான். ஆழ்ந்து படித்துப் பட்டங்கள் பெற்ற பொருளாதார மேதைகளிடம் கேட்டால், “பத்தாம்பசலி” என்று சொல்லி நம்மை ஒதுக்கி விடுவார்கள். இதே கேள்வியை ஒரு பொருளாதார மேதை தைரியமாக எழுப்பும்போது ஆச்சரியமாகத்தான் இருக்கிறது.

கேள்வி இதுதான்: ”பெரும்பாலான மக்களின் பசியைக் கூடப் போக்க முடியவில்லை என்றால் பொருளாதாரக் கோட்பாடுகளின் உபயோகம்தான் என்ன?”

கேள்வியை எழுப்பியிருப்பவர் பேராசிரியர் ப.கனகசபாபதி. நிதித்துறையில் முனைவர். மேலாண்மை இயல் பேராசிரியர். இந்தியாவின் பொருளாதாரம், வியாபாரம் மற்றும் மேலாண்மை முறைகள் பற்றி களத்தில் இறங்கி ஆராய்ச்சிகள் மேற்கொண்டுள்ளவர். பல புத்தகங்கள் எழுதியுள்ளார். கல்லூரிகளில் பாடமாக வைக்கப்பட்டுள்ளன.

இந்தக் கேள்வி எழுப்பப்பட்டுள்ள களம், “பாரதப் பொருளாதாரம்-அன்றும் இன்றும்” என்ற தலைப்பில் அவர் எழுதியுள்ள புத்தகம். ரூபாய் 125 விலையில் 216 பக்கங்களில் கிழக்கு பதிப்பகம் அழகாக வெளியிட்டுள்ளது..........

http://veniyinnoolagam.blogspot.com/2011/02/blog-post_25.html

பிரச்னை அங்கே.... பாதிப்பு இங்கே..தினமலர் கட்டுரை (21.08.2011).

Prosperous India-15

Non-Corporate Sector Dominates Indian Economy

Traditionally the economy of a country is classified into agricultural, industrial and service sectors for purposes of study, analysis and decision making. The rise of the western economic systems, particularly the US model, with all its modern theories during the recent decades, nurtured the corporate system with mega size and multinational companies stretching their activities beyond national boundaries.

As a result the corporate segment has come to occupy a significant place in countries such as the US. Even in the highly dispersed agricultural and service sectors, the corporate organizations have a much larger role in their system. Based on this approach, the economy is viewed as comprising of the organized part consisting of the corporate and the government sectors and the unorganized segment covering the rest of the entities. The unorganized part of the economy is also referred to as the informal sector.

The use of the expressions such as the ‘unorganized’ and the ‘informal’ for the non-corporate segment is based on the assumption that activities outside the government and corporate sectors are not organized. This view is based on the assumptions from the narrow western experiences. So it will not be appropriate for the family based and community oriented economies, especially the one such as India.

Non-corporate sector includes partnership and sole proprietorship forms of organizations, self-employed persons and cooperative organizations. It excludes the company forms of organizations in the private and public sectors and the government set-up.

India is a unique nation with strong foundations in the family, community and their net work of relationships. The origin and survival of almost all the organizations or arrangements in India could be connected to one or more of these institutions. It is the impact of these institutions that runs through the nerves of the society and the economy. As a result we have an impressive presence of the non-corporate sector in the Indian economy. Earlier Vaidyanathan noted that this sector has the largest share in our national income, manufacturing activities, services, savings, investments, direct and indirect taxes, credit market, employment and foreign exchange earnings.

The following table presents the percentage shares of the non-corporate segment in net domestic product through different economic activities during 2002-03.

Share of Non- corporate Segment in Net Domestic Product by Economic Activity

Industry	Share of non-corporate segment
Agriculture, forestry and fishing Manufacturing Construction Trade, hotels and restaurants Transport, storage and communication Financing, insurance , real estate and business services	95.9 36.6 62.8 74.2 62.9 39.6
Net domestic product at factor cost	56.7

Source: Central Statistical Organisation, Government of India

The above table reveals that the non-corporate sector has a share of about 57 per cent of the Indian economy. It is important to note that the shares of the non-corporate sector are high in the fastest growing activities of our economy such as construction, trade and transport.

Vaidyanthan notes that the non-corporate sector consisting of the partnership and proprietorship firms has the largest share in our national income with nearly 38 per cent of contribution, followed by the government and the agricultural sectors. The Indian corporate sector is estimated to contribute only 14 per cent of the national income, though it is generally believed that the corporate sector dominates the economy. In fact the share of the non-corporate sector in the Indian economy would be more, if there is a proper valuation of the family based activities. The non-corporate sector remains undervalued due to different reasons.

It is relevant to mention here that the share of the corporate sector is high in many of the activities in western economies such as the US, as the small and medium sized firms owned by families have been wiped out by the “corporate culture”. In retail sector, for example, more than 90 per cent of the business in India is carried out by the traditional family run small stores spread across the nook and corner of the country. But in the west it is a major industry dominated by big companies. Walmart, the US retail chain running departmental stores, is the largest corporation in the world terms of revenue. Its revenues are about $421.85 billion. The company is able to generate so much because it dominates the retail business after throwing out thousands of small stores.

The attitude to do something meaningful for the future and hard working nature of the Indian families compel them to take up economic activities resulting in the continuous growth of the small and medium enterprises. With limited amounts as investments and support from their people around, the entrepreneurs from these categories come up fast through dedication and involvement. Promoted mainly by local people, they use local resources and provide employment to the locals.

Many of us do not know that the non-corporate sector plays a major role in both the industrial and service sector activities in India. Vaidyanthan points out that the non-corporate sector constitutes a large portion of eight activities namely, unregistered manufacturing, construction, wholesale and retail trade, hotels and restaurants, transport other than railways, storage, real estate ownership of dwellings and business services, and other services. National Sample Survey Organisation (NSSO) data reveals that during 2000-01, there were 170.2 lakh units in the unorganized manufacturing sector employing 370.8 lakh workers.

Services sector is the largest in the Indian economy accounting for 65 per cent of the GDP. This sector has been contributing significantly to the fast growth of the Indian economy during the past few years. The growth in the services sector in the last decade has been much higher than that of the industrial and agricultural sectors. The role of the non-corporate sector is very significant in service sector activities such as construction, trade, hotels and restaurants, non-railway transport etc. The contribution of these activities in the Net Domestic Product of the country has been consistently high during the previous four decades.

Vaidyanathan notes that eight major activities in the non-corporate sector have grown by more than 14 per cent CAGR between 1993-94 and 2001-02. This growth is much more than the growth of the GDP and the services sector during the above period. This shows that the contribution of the non-corporate sector is a major reason for the growth in the economy since the 1990s. It is interesting to see that the non-corporate sector entities are not listed in stock exchanges; they are not even companies. They are mostly proprietorship and partnership businesses. But it is they who dominate the fastest growing activities of the economy.

Many of us are under the impression that the corporate sector dominates our economy. This is not true. Government of India notes that the non-corporate sector provides 92.38 per cent of employment in the country, while the rest constituting 7.46 per cent alone is provided by the organized sector. The share of the non-corporate sector in total savings and capital formation in the country is very significant. The share of the non-corporate sector in domestic savings is nearly 24 per cent, while the corporate sector contribution is about 8 per cent.

The non-corporate sector does not get the importance that it deserves, as it is run by the ordinary families and its role in the economy is not highlighted. But it is this sector that dominates our economy, making a silent but solid contribution to its functioning and growth.

References:

1. Statement of NAS 2005, Central Statistical Organsiation, Government of India

2. Vaidyanthan, R , ‘Understanding the Unorganised Sector’, The Hindu-Business Line, June 3, 2004

3. Vaidynathan R, “ Success of Unorganised Services, The Hindu-Business Line, July 1, 2004

4. Eleventh Five Year Plan 2007-12, Planning Commission, Government of India, New Delhi, 2008

PROSPEROUS INDIA part 15

( Yuva Bharati, Vol.39 No.1, Vivekananda Kendra, Chennai, August 2011)

,

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)