PROSPEROUS INDIA 21

India does not depend on foreign investments

We often listen to the experts from within the country and outside, policy makers and economists telling us that the economy cannot grow at faster rates unless investments are attracted from foreign countries. Their argument is that economies like India should make all-out efforts to get capital from the other countries, as it would not be possible for them to raise the required resources domestically to achieve higher growth rates. 

After the globalized approach became the drive in policy making, India began to invite foreign investments seriously from the early 1990s.  Many of the restrictions that were in place were slowly removed over time, so that foreign investments could enter into our territories easily.  In fact the foreign players are being given all sorts of concessions and allowed to enjoy special privileges. 

As a result foreign inflows have increased manifold during the past two decades. Reserve Bank of India notes that the inflows have increased from Rs.1, 713 crores in 1992-93 to Rs.2, 81,897 crores in 2010-11. Broadly the foreign inflows are under two categories, namely Foreign Direct Investments (FDI) and Foreign Portfolio Investments (FPI).  While the FDIs involve creation of assets with a longer life, FPIs are into the financial markets with a shorter duration. 

Even twenty years after the country started easing policies welcoming foreign investments, the clamour for outside funds has not ended. It has increased more during the recent periods. This leads us to the question as to whether we really require foreign funds. India remained the most powerful economy with superior levels of prosperity for many hundred years without any outside financial support, before the Europeans started ‘investing’ in the country. Subsequently after independence, the economy has been moving forward for forty years with its own funds. One can say that the growth was slower during these years, but that was due to the structural issues and faulty approaches. 

India was a poor and underdeveloped country in 1947 with lack of opportunities to save and invest for most of the population. But soon after independence, people started using all the available opportunities to prove themselves. The rate of Gross Fixed Capital Formation was 8.4 per cent of the Gross Domestic Product during 1950-51, while the saving rate was 8.6 per cent.   Capital formation increased steadily over the years to reach 26 per cent during 1990-91 enabling the economy to consistently move forward. It is no small achievement for the country, when policy making was being guided by the socialistic ideology. Subsequently after about twenty years of opening up of the economy, capital formation stands at 35.1 per cent during 2010-11, with the savings being 32.3 percent. 

The main argument for foreign funds is that the requirements for investments are more than the actual savings. It is called saving-investment gap. Between 2004-05 and 2010-11, the gap has raised from 0.4 per cent to 2.8 per cent. Why this gap? One major reason is the lower savings of the public sector. The public sector savings as a percentage of GDP has decreased from 2.3 per cent to 1.7 per cent during the above period.  Hence it is the mismanagement of the state owned sector that propels experts argue for foreign flows. Why don’t the governments take steps to make them work better and save more? 

India is one of the countries that save more. Apart from the ‘official savings’ for which the government publishes details, there are many other types of savings that people undertake. People save through indigenous methods and make huge investments in gold, which are not taken into the official savings. Hence the actual savings would be much more than the official rates. The major part of official savings, about two thirds or more, is contributed by the household sector, with the balance coming from the corporate sector and the government sector. Studies show that the investments made by the non-corporate sector through the family-based enterprises are totally funded by local finance, with almost the entire requirements mobilized by entrepreneurs through their own efforts. 

The non-corporate sector that contributes about 57 per cent to the national income does not depend on foreign funds. Experience proves that the society is capable of generating the required funds when they need it. How do people  generate funds for buying around one fourth or more of the global gold output annually? How is it that the ordinary entrepreneurs operate successful clusters with turnovers and exports worth thousands of crores, with only domestic funds?

It is relevant to remember that the household sector, apart from its own investments, contributes to the major part of investments by the public sector and a significant share of investments in the corporate sector. Of course the corporate sector is also contributing a reasonable share to national savings. Realizing the capacity of India to generate funds, the Report of the Working Group on Savings for the Eleventh Five Year Plan underlined: “On the whole, the overall macro-economic environment in the country is fairly conducive to generate and sustain high level of savings and investments that might provide the resource base for attaining a higher growth trajectory as envisioned in the Eleventh Five Year Plan Approval Document.” 

Moreover the share of foreign funds has always remained lower in the total investments of the country.  Quoting official figures, Mihir Rakshit shows that during 1992-93 to 2004-05 the proportion of foreign investments was less than one percentage of GDP on an average. Even when the inflows increased later, it was not much. Reflecting the position, Reserve Bank of India notes: “Domestic saving financed more than 95 per cent of investments, and the remaining by capital flows.” 

Macro-levels studies show that the portfolio investments are speculative in nature and move out of the country any time causing damage to the domestic financial systems. Nagesh Kumar notes: “As there are sharp movements in these inflows linked to developments, they become channels of transmission of instability to the country’s financial system.”  Even in the case of FDI, the results are not positive. Writing in the context of South Asia, he mentions: “The empirical studies suggest the region has received FDI inflows of mixed quality and the developmental impact has been uneven.”

An analysis of data over the last sixty years shows that the rate of increase in investments during 1990-91 to 2010-11 is lesser than the increases during the previous two twenty year periods namely, 1950-51 to 1970-71 and 1970-71 to 1990-91. Has the free flow of foreign funds dampened the spirit of Indians to invest more? It is true that there are instances in which the local industries and domestic players, especially the smaller ones, are put in a disadvantageous position with the entry of foreign players. Thousands of units have already been wiped out in different sectors. It is relevant to emphasize that the foreign investors get enormous state benefits that are denied to the domestic players. Instead of encouraging the vibrant domestic entrepreneurship, the policy makers are paving way for their slow destruction. 

In this context, the words of the leading non-resident Indian industrialist Swaraj Paul come to mind: “ It always pains me to see that there is a feeling in India  that development can only take place with foreign investments. India is far more richer and it can contribute a lot to the world economy.”

References:

1.     Economic Survey 2011-12, Government of India, New Delhi

2.     Handbook of Statistics on Indian Economy 2010-11, Reserve Bank of India

3.     Mihir Rakshit, ‘ On Liberalizing Foreign Institutional Investments’, Economic and Political Weekly, Vol.41, No.11, 2006

4.     Nagesh Kumar, ‘ Capital Flows and Development: Lessons from South Asian Experiences, MPDD Working Papers, Nov.2010

5.     Report of the Working Group on Savings for the Eleventh Five Year Plan ( 2007-08 to 2011-12),  Planning Commission, Govt.of India, New Delhi, 2006

6.      ‘ India does not need foreign investment for growth’, Lord Paul, Business Standard, June 13, 2004

(Published in Yuva Bharati, Vol.39, No.10, Chennai, May 2012)

PROSPEROUS INDIA 20

Women are the strength of Indian economy

Most of us have a feeling that the role of women in the Indian economy is limited and they play only a marginal role in the economic and business activities. One can see the pink media and business journals highlighting the lower representation of women in board rooms and executive positions in the corporate sector, making comparisons with selected western countries. This creates an impression that the Indian women contribute less to the economy.

Such a view is based on a narrow limited perspective, just like many other views without much substance. Field level and empirical studies conducted in different centres across the country indicate that much of the Indian economy revolves around women. Their role and influence in the economic and business activities is much more than what we think.

Like their counterparts in the west, they do promote and run businesses successfully. The Third All India Census of Small Scale Industries released by the Ministry of Small Scale Industries, Government of India, 2004 noted that there were 10, 63,721 women enterprises, accounting for 10.11 per cent of the total units functioning in the small scale sector. The Fourth All India Census of the Micro, Small and Medium Enterprises sector, 2009 notes that around 19.20 lakh women enterprises are functioning in the country. There are many women who occupy the middle and senior levels in the corporate sector, playing leading roles in management.

Numbers alone are not very significant in the Indian context, as many a times they do not reveal the full picture. Any objective student would know that the Indian economy cannot be understood by a few figures and percentages alone, however important they might be. This applies to the role of women in the economy also.

Women perform a variety of functions that help the growth of the economy, apart from maintaining a peaceful atmosphere in families. One has to remember that the maintenance of order in families is crucial for the smooth functioning of societies and nations. Businesses can flourish and economies can be sustained only when conditions are favourable.

The functions that our women perform for the development of their families and the initiatives they take vary from generation of savings, to the mobilization of funds for businesses, counseling and guiding people in business, to sharing of responsibilities in the ventures directly. One has to acknowledge the role of mothers and grandmothers for their frugal ways of life enabling families to save more. It is these savings that encourage the family members to take up risks by promoting enterprises and helping the banking sector accumulate higher deposits, which in turn is lent to the private and government sectors for various activities.

Evidences show that the habit of saving comes naturally to the Indian women. The role of ladies belonging to the rural farming households of the Gounder community in the Coimbatore region in accumulating savings has been recorded and appreciated by the foreign experts who undertook studies during the British period. The tradition seems to continue among most of the households across the country.

A study conducted at the Coimbatore flower market among the lady flower vendors coming from very ordinary backgrounds showed that they were saving money through chit funds on a daily basis, though they were conducting businesses with funds borrowed from the financiers every morning. The study showed that they were saving even after paying high rates of interest and taking home a part of their return to meet the day to day expenses of the family.

Many entrepreneurs in different centres revealed as to how they were supported by the womenfolk in their families – mothers, wives, sisters and even grandmothers – in different stages of their businesses. There are many instances in which the sons who got their seed capital for businesses from their mother’s personal savings, went on to become successful businessmen. Some of them reported getting funds from their housewife-mothers who had savings accumulated through simple methods such as selling milk.

Writing in the context of western Tamil Nadu, Sharad Chari notes that even dowries have played a role in the development of businesses. It is relevant to understand that housewives also take part in the family vocations when situations require. Mentioning about the success of Patels in business in the U.K, Patel and Rutten note: “It is observed that in many cases both husband and wife run the shop in rotation. Some of them are not very fluent in the English language though their clients are mostly whites, blacks and non-Gujaratis. However, they manage to communicate with their customers pleasantly with limited command over the English language.”

It is generally felt that the ordinary people without educational backgrounds are not productive, especially in their old ages. But this is not true, more so in the case of ladies. They contribute a lot to the building of families and making of future businessmen and women through their ways of life, approaches and activities.

To give an example. It happened in a village situated about twelve kilo metres from Tirupur, the well-known textile centre. About sixty years back, a boy of around eleven years fails in third standard. The father shouts at him. ‘How are you going to lead your life? We don’t have enough water for cultivation. I have a younger son to look after.’ After pausing for a while, he tells his son: ‘I will do one thing for you. There is that tea stall in the nearby temple town Avinashi. I know the proprietor who runs it. From tomorrow you go there and learn the business. After three months, we can set up a stall in the main road near our village. You can run it and manage your life.’ The boy did not like the idea of the tea shop but was afraid to tell his father.

He runs to his maternal grandmother living in the nearby village. He narrates everything. After listening, grandmother asks: ‘What will you do?’ Grandson says: ‘I will walk to Tirupur every day, work in a hosiery factory and manage my life.’ Convinced, the grandmother takes him to her daughter’s place. She persuades her son-in-law to allow the boy to go to Tirupur.

The boy goes for work and struggles hard. After about ten years, he accumulates some money and wants to start his own business. Since he lacked education, he takes one of his acquaintances possessing a degree and working as a manager in a company as his partner. The business goes on. After about three years when he reached his establishment in the morning, he learns that his partner had run away from Tirupur, taking the firm’s money. The youngster, who has now matured from boyhood, is full of grief. He goes home. Father shouts at him. He runs to his grandma. She says: ‘Don’t worry. I have my jewellery. You take this. Sell it and start your business again.’

He starts a new business and works very hard, wanting to prove himself. After having earned money during the next few years, he decides to enter exports. To his luck he gets a good order. He invests all his funds, makes the best items and sends them abroad. But alas, the ship carrying his goods gets destroyed in the seas and he loses everything. He goes home and again father shouts. As usual he runs to his grandma’s home. Grandma pacifies: ‘Why are you worried? I have four acres of land. Anyhow I am going to give two acres to your mother. You take that now. You either sell it or pledge it. But start your business again.’

The grandson starts his business once again. Ultimately he goes on to become the largest domestic seller in the country, as the promoter of the Viking group providing employment to hundreds of persons. Currently he is the President of the South India Hosiery Manufacturers Association, Tirupur. This is how the very ordinary mothers and grandmothers turn their ordinary children into very successful entrepreneurs. We have many such instances in different places across India.

The economic development of India is propelled by the love, affection, dedication and sacrifice of our women folk who remain the backbone of our families. It is impossible to measure all their contributions in terms of money. We can only salute them for they are the real strengths of our economy.

References

1. Annual Report 2010-11, Ministry of Micro, Small and Medium Enterprises, Government of India, New Delhi

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

3. Kanagasabapathi, P., ‘Study on the lady flower vendors of Coimbatore’, Unpublished Report, 2005

4. Pravin J Patel and Mario Rutten, ‘Patels of Central Gujarat in Greater London’, Economic and Political Weekly, Vol.34, Nos.16 and 17, 1999

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

( Published in Yuva Bharati, Vol.39, No.8, Vivekananda Kendra, Chennai, March 2012)

PROSPEROUS INDIA -19

Higher social capital helps the growth 

of the Indian economy

Social capital is an asset that exists in societies, but cannot be seen directly. It can only be understood. It is critical for the smooth functioning of societies. So what is it? It may be defined as the state of a society conditioned by the relationships and understanding among the members who constitute it.

Positive relationships, understanding and approaches among the members of the society lead to a mutually beneficial and peaceful atmosphere in the society. When there is higher social capital in a society, then it is better for it as the members derive lots of benefit out of it. On the other hand, societies with lesser social capital encounter serious problems as there will be distrust and negative feelings among the members.

It is important to understand that the benefits that accrue to the societies with higher social capital are not just confined to the family and social matters, but extend to the economic issues also. So we find more economic development in societies where there is mutual understanding and appreciation among people.

Francis Fukuyama notes: “A healthy capitalist economy is one in which there will be sufficient social capital in the underlying society to permit businesses, corporations, networks, and the like to be self-organizing. In default of this self-organizing capacity, the state can step in to promote key firms and sectors, but markets always work more efficiently when private actors are making the decisions.”

India is a family-based and community-oriented society. Close- knit relationships remain the basis of lives of people in the country. Hence going beyond oneself, living for the near and dear ones, reaching out to others and expanding relationships are natural to Indians. As a result there is plenty of social capital among different communities in the country. It helps them in different ways for their economic development. When the families and societies develop economically, the country also grows automatically.

Studies on the Indian economy amply prove that the prevalence of a high degree of social capital has been responsible for the faster and smoother development of our economy. In fact the social capital is responsible for initiating, propelling and even sustaining development in many places across the country.

Research studies among the successful business communities of India reveal that their social capital has helped them enormously in their entrepreneurship and growth. Many successful communities such as the Marwaris, Patels, Nadars and Gounders owe a lot to the higher social capital for their development. In fact the entry of so many people from these communities into different businesses was facilitated by the network of relationships.

There were only few Gujaratis in the diamond business during the initial periods. But gradually their numbers increased. Now it is they who dominate the diamond markets at the national and international levels. They have more than two- thirds share in the international markets. With the result they relegated the Jews who were controlling the business to the second position. Similarly the motels of the US are now almost totally in the hands of Patels who are of Indian origin.

Social capital helps in the growth of business in many ways. The net- work of relationships influence people to take bold initiatives, make them engage in activities with confidence and helps them in case of setbacks and failures. The fear of failure is the biggest thread to entrepreneurship. Communities countered this through social capital even from the earlier days. Quoting sources, Sudipt Dutta notes there were one lakh merchants belonging to the Agroha biradari of the Agarwal merchants in Agroha town. When one of their businesses fails, each of the remaining 99,999 businessmen would donate one rupee and a brick to help the insolvent person so that he could build his house and start business again.

Social capital innovates mechanisms to help people enter businesses when they have serious short comings. For example, when the enterprising people from the Nadar community found it difficult to invest funds and start business, the community developed a native financing mechanism called ‘mahamai’ which helped them with the necessary financial support by mobilizing it from within the community. As a result more number of people entered business.

It is interesting to note that the social capital helps the faster growth of industries by supplying the required capital even while the state institutions are weak, and enable businessmen to compete in the international market successfully. The World Development Report published by the World Bank acknowledges these aspects: “Since 1985, Tirupur has become a hotbed of economic activity in the production of knitted garments. By the 1990s, with high growth rates of exports, Tirupur was a world leader in the knitted garment industry. The success of this industry is striking. This is particularly so as the production of knitted garments is capital-intensive, and the state banking monopoly had been ineffective at targeting capital funds to efficient entrepreneurs, especially at the levels necessary to sustain Tirupur’s high growth rates. What is behind this story of development? The needed capital was raised within the Gounder community, a caste relegated to land-based activities, relying on family and community networks. Those with the capital in the Gounder community transfer it to others in the community through long-established informal credit institutions and rotating savings and credit associations. These networks were viewed as more reliable in transmitting information and enforcing contracts than the banking and legal systems that offered weak protection of creditor rights.”

Social capital results in higher efficiency and provides cost advantages in economic activities. It enables mutual trust among members and when there is trust in a society, the transaction costs get reduced. Yujiro Hayami notes this: “………… trust accumulated through personal interactions in the community increases efficiency and reduces costs…….” The economic growth of different regions of India has been facilitated by easier availability of funds and the cost advantages enjoyed by people due to social capital. We have to remember that the native Indian attitude of communities go beyond all the narrow considerations such as castes, creeds and religions.

Most of the western countries are faced with serious social and economic problems, as their individualistic beliefs and practices disturb community lives and destroy social capital. Harvard economist Stephen Marglin notes that their economic systems and theories undermine communities. To quote: “ ….. over the past four hundred years, the ideology of economics has fostered self-interested individual and the market system, and has undermined, and continues to undermine, the community.” With the result there is a huge lack of trust among members in their societies. Hence people remain without the support mechanisms that they need and lead disturbed lives. It ultimately affects social peace and hinders economic development. The richer countries of the world are thus compelled to spend around 20 per cent of their GDP to maintain societies and families.

One important reason as to why India has been emerging as a very important nation at the international level is the social capital that prevails in our country. It enables people to withstand difficulties, to maintain peace at the family and social levels and to take constant steps for progress.

When many of the countries are faced with serious social and economic difficulties, India remains a unique nation. The higher social capital that prevails in our country has been helping us to move forward in spite of many problems that are confronting us.

References:

1. Francis Fukuyama, Trust, Free Press Paperbacks, New York 1996.

2. Stephen A Marglin, The Dismal Science – How thinking like an economist undermines communities, Oxford University Press, New Delhi, 2008

3.Sudipt Dutta, Family Business in India, Response Books, New Delhi, 1997

4.Yujiro Hayami, Development Economics- From the poverty to wealth of nations, Oxford University Press, New York, 1998

5.World Development Report 2001, World Bank, Washington

( Yuva Bharati, Vo.39, No.7, Vivekananda Kendra, Chennai, Feb.2012)

Emerging India, Declining Agriculture and Disturbing Inflation

India is emerging as one of the most powerful economies at the global level. World Bank notes that India is the fourth largest economy in the world with an output of $ 4.17 trillion, based on 2010 figures measured in Purchasing Power Parity terms. India continues to remain the second fastest growing nation in the world. More and more businesses have been moving out of the country during the past few years to different parts of the world, expanding markets and establishing units.

India was a poor country at the time of Independence. During that time about 45 per cent of the people were living in poverty, with around three fourth of the population depending on agriculture. The industrial and business sectors were weak. The Britishers had already destroyed the social infrastructure, along with the well-functioning native economic systems. As a result the literacy rate in 1950-51 was only around 18 per cent, while the average age of life of people was little above 32 years.

The growth of economy after independence has been noteworthy. From being a poor country, India has emerged as one of the top four economies in the world, with lot of potential to move further forward. No other country in the world has made such a turnaround in a period of just sixty plus years in the contemporary history. India is now being increasingly looked upon as a model nation by the rest of the world, including the US and the Europe. A glance of the rates of growth during the past six years will indicate the higher performance of the economy.

GDP Growth Rates of India (2005-06 to 2010-11)

(percentages)

2005-06	2006-07	2007-08	2008-09	2009-10	2010-11
9.5	9.6	9.3	6.8	8.0	8.5

Source: Handbook of Statistics on Indian Economy 2010-11, Reserve Bank of India

The decline of growth rates during 2008-09 was due to the impact of the global crisis. It is important to note that the economy started recovering quickly since then and has returned to the growth path, even while the western countries are not able to come out of their difficulties.

There have been significant achievements in different fields of economic and social activities after independence, though there are many deficiencies and shortcomings. Earlier the London Business School estimated that there were 85 million entrepreneurs in the country, perhaps the largest number in the world. The figures relating to the latest Census reveals that the country is progressing fast in the field of education, particularly education for women.

India is not just another country. She is a civilisation, an ancient civilisation, acknowledged by many experts as most probably the longest living civilisation in the world. Ancient India’s contribution in diverse fields of human life has been truly remarkable. As a result she remained the most productive and prosperous nation for most of the time in the history. India could achieve so much as she had developed well – functioning systems suited to the ethos and experiences of her people.

But all that changed when the aliens started dominating and interfering with the native systems with the ulterior motives. The Indian economy declined fast during the British domination, as they distorted the functioning systems and looted the resources. As a result India had to lose her long-held supremacy in different fields. The agricultural sector with a history of more than 8000 years remained a noble profession in India and was admired throughout the world for superior practices and very high levels of productivity. The British policies destroyed this sector beyond comprehension. In a period of just fifty years during the first half of the nineteenth century, one third of the farmers had to move out of agriculture in the Madras Presidency due to their wrong approaches. Hence India that remained the most prosperous and sustainable economy for several centuries was made poor by colonial forces.

We can understand the progress of the country during the post-independent period only when we study India from a historical perspective. Hence the rise of India during the recent periods is considered by many as the ‘re-emergence of an ancient power’ that dominated the global economy for many centuries with her superior performance. Many scholars have pointed out that the western countries could emerge richer during the last five hundred years, only due to their narrow policies such as colonialism and globalisation. But in the case of India, it was always on the basis of her better performance and strong fundamentals.

Neglect of agriculture

It is unfortunate that our policy-makers have continuously failed to understand the ground realities and evolve a suitable framework for the all-round development of the economy after independence. Attempts are being made only to copy the western systems and models, without realising the need to understand the strengths and backgrounds of this age-old nation and her history. As a result there are serious failures in certain critical sectors, even while the macro-economic performance has been improving due to the initiatives of the people and character of the society.

Agriculture is the most important sector for any country. It is critical for a country like ours, where one-sixth of the humanity lives. But it is disappointing to see that the major failure of independent Indian economy is in the field of agriculture. It is true that the country has been witnessing reduction in poverty levels and increase in food production. At the same time, it is equally true that many hundreds of farmers have been committing suicides every year and more than one-third of people are living below poverty line even today, after eleven five-year plans.

Agriculture is fast losing its respect as a profession. Farming families are moving out to other vocations, with children of many agricultural families leaving their villages to cities and towns in search of better opportunities. Hence the future of agriculture looks bleak. Fortunately we have the man-power, resources and natural advantages that other countries do not have. But we have failed to properly plan and develop this sector, which is very important for us. Food security is a strategic aspect of national life. Unfortunately the required steps are not being initiated to improve the sector in the right direction.

Even now the per capita availability and in-take of food by citizens in India remain low. Hence it is necessary to increase production so that it could be made available to the required extent. Moreover it is the foremost duty of a civilised state to see that all sections of people in the country get food at reasonable prices so that no one goes to bed with a hungry stomach. It is imperative that the production of food grains and basic items are increased to the extent necessary, thereby making it possible for every man and woman in the country to take the required calories on a daily basis.

Disturbing Inflation

It is important to note that food prices have been going up continuously during the recent years. The prices of certain items goes up higher suddenly as witnessed during last year, making it difficult and even impossible for the common man to buy them. Continuous increase of food prices and unreasonable fluctuations make the life of people miserable. As a result the standard of living of people suffers. In a populous country like ours where the per capita income of the citizen is not high, it is essential to see that the prices of food items do not reach unreasonable levels.

Higher inflation rates are identified as one of the major factors affecting the growth rates of the country in the ensuing periods. Food inflation is a serious issue in more than one ways and it is the responsibility of the policy-makers to take the necessary steps so that food items required for life are available at affordable rates. A multi-pronged approach is necessary for solving the problems in the long run.

( Published in the Vellalar College for Women, Erode Souvenir released during the UGC sponsored two day national level symposium on “Food Inflation- A Perspective”, organised by the PG and Research Department of Commerce, Jan.19-20, 2012)

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)