India's Port of Calling: Perils of welfare state- lessons for Vibrant Gujarat

parijataka

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Interesting facts on freebies model of TN where 20% of PSU income comes from the liquor vending state PSU TASMAC which then goes to fund cheap rice compared to Gujarat which offers no freebies but has 24- hour power supply vs 10-12 hour power cuts in TN.

India's Port of Calling: Perils of welfare state- lessons for Vibrant Gujarat

At the outset, I must say that it took me some time to get back to this epic series on India's port of visit, I was compelled to pen down my thoughts on Japan's new found love and respect for Gujarat and I hope to do a sequel to the Article Swagatam .

So far on the series, we tried to see how under-reformed India had seen power moving to periphery and two places Gujarat and Tamil Nadu with gateways to outer world are poised to take advantage. While both followed separate path, they tend to be on the list of and end up being first port of calling for investors in India. While everything seemingly going right for Gujarat, it was imperative to think what if. And Tamil Nadu's example by walking a separate path did provide a good reflection mirror that Gujarat can see herself in and learn. With my last article I thought of concluding series. But something disastrously strange started to happen in TN and with impending elections; the same fear could linger on Gujarat. The harmful of economics of Freebies has haunted TN to irreparable state and the same is being offered by various political parties in poll bound Gujarat.

Except current leadership every so called mainstream party in Gujarat is offering freebies without even realizing the fiscal impact on the state coffers. This article tries to examine the impact of such steps on economic fortunes of people and state. Gujarat in last decade has reached a stage where anyone defending India Growth Story tries to showcase Gujarat example. There is lot of hope associated with Gujarat Story and expectations to lead India further. When MontekSingh Ahuliwalia offered little more money than Gujarat asked for this years' annual planning exercise, there is reason. He and all the mandarins know that even at high base, Gujarat's disciplined growth is necessary for India to grow. How Gujarat is able to do such things and where others are failing. I would like to fall back on TN to seek answers again.

Gasping Elephant: Distribution without Creation

There is something common among regional parties and Congress they tend to be Aggressive proponent of welfare policies that do little for growth. While there was no middleclass, aggressive redistribution of wealth could have been justified but only thing it has done so far is to increase the state control (and corruption). Lately this tool is being used for wooing voters, state after state.

When HSBC Bank in its now infamous report called India a Gasping Elephant, the metaphor was very telling. The loads of subsidies, Freebies and neglecting core sector are making our economy gasp that it cannot take load any further. The comparison at State level might be more appropriate. Lets check the case of TamilNadu which is the core of our series.

TN CM Spent 25 Crores in announcing achievement of one year of government through newspapers across India on 16-May-2012. Ironically it titled "One year Achievements hundred years Leap Forward". While most of the so called achievements were in the form of freebies and welfare, the so called achievements with respect to Industry and Infrastructure are actually a big non-starter. The Roads in Chennai are pathetic with long traffic Jams. Water for people, agriculture and industry is perennial problem and the worst is the state of electricity.

Darling for industrial base with port proximity and right human resources, why would TN fail so miserably in infrastructure that small-medium industries in peak time suffer almost 10 hours power cut. I waited for budget analysis and to my astonishment found that budget is getting diverted to Welfare and Freebies at the cost of growth creating mechanism. How it can sustain. As our PM had just enlightened us that "Money Does not Grow on Trees".

Predictable Cycle of Five years Rule: Chennai Style

I asked one veteran local consultant on what runs in the mind of the politicians in Chennai and how come someone miss such obvious thing. He said something very interesting explaining me this.

First year of win is thanksgiving and that could explain the freebies with both hands. Next two goes in vendetta, filing cases on the opposition leaders, digging out new ones, at the end of the third year, they realize they have to do something for industry, hence fourth year of the term sees hectic activity in hurry, announcement for some extremely ambitious schemes (Any comparison with Man Mohan Singh's 4th year UPA-II reforms rush is just coincidental). The fifth year, the parties are ready for election hence everything else poses. The cycle is so predictable you can almost predict the events he chuckled as I shivered. How can you then have a sustainable growth creation? I was also told similar things (defocus on Industry, infra) happen in other states too.

Let us continue with TN story further. It is very surprising to find that TN electricity board (TNEB) is almost suffering from Cancer. The compound losses are 40,000 Crores and Debt is almost equal to that at 38,000 corers. Last year RBI banned lending to TNEB. With no money pumped in generation, there is no sight of improvement. The irony is Govts give free TVs to Free Grinders and people cant use them. Less than One third of power generation is under state control.

And the best performing State PSU is TASMAC the Magic Wand

The irony for TN does not end here. They needed revenues to boost the freebies without investing in infrastructure. How they are doing it. When Praful Patel took over the reins of Heavy Industry Ministry which also covers the PSUs across India, he decided to find out if there are best practices among PSUs that could be shared. Everyone went on "High" literally when a result showed that TN's Star PSU is TASMAC – a highly controversial PSU in the business of wholesaling and retailing liquor. On further analysis, it was found that TASMAC revenues contribute close to 20% of TamilNadu budget. It is an epitome of irony that revenue earned by selling liquor goes to fund free poor quality rice. A sad negative spiral, that goes from evil consumption to under-consumption without creating avenue for wealth creation.

How Gujarat Differs:

Obviously Gujarat does not even have the luxury of earning from alcohol. In spite of that, draught prone and resource constrained state has painstakingly taken a huge leap to be called "Credible India" within Incredible India. Whenever I am asked what is Gujarat model or why Gujarat can do things differently, first thing that comes to my mind is that CM does not have to nurse any constituency for political reason. Neither his birthplace (Janmabhoomi) nor Maninagar (his karmabhoomi) gets any special treatment. Everything happens from the yardstick of "Interest of Gujarat'. Hence if world's largest Solar Park is built it is erected at the place where maximum solar irradiation is captured near tropic of cancer and not at some minister's constituency. If Asia's largest Water Desalination plant is announced in the presence of global company heads, this does not happen closer to election but on world water day. This discipline and commitment from top has its own trickledown effect in the most profound way. The State officers are free to apply their mind and energy on how efficiently tap the potential of state rather than worry about losing their job by refusing any politician a favor. What almost all states of India are failing in curtailing losses of their SEBs, Gujarat makes sure SEBs are profitable with zero tolerance towards inefficiency. The reputation of Gujarat is very high among agencies like World Bank, Asian Development Bank, Japan Bank of International Cooperation, that they are ready to consider Gujarat case even without sovereign guarantee. That's no small achievement in world of global finance.

We are Cautious but Ready SIR!

One may argue that every state had their own dream run either by favourable economic condition or location advantage, Karnataka and Andhra had IT, Chennai Automotives but things changed. Why then things may not take adverse turn for Gujarat? It's quite possible. It was thus very heartening to hear Mr. Saurabh Patel minister for Industry and mines, instead of gloating in success of State's leadership was heard ringing warning bells saying, State will have to think how frugally to use water, both by industry and by Agriculture for future. The Krushi Melas (Farmers Meet in summer) held by his govt has seen record results in Agriculture. The Green-house farming is also now quite prominent in villages for value-add results. While state is surplus in power and plans road ahead of time, but how do you make sure a sustainable development shall take place going forward. The answer lies in SIR: Special Investment Regions. SIR is the framework under Independent India's most ambitious project till date the DMIC an acronym for Delhi-Mumbai Industrial Corridor.

The CEO of Delhi Mumbai Industrial Corridor (DMIC) Mr. Amitabh Kant always says DMIC is India's largest Urbanization project ever. The project designed on the blueprint of Japan's industrial Cauterization approach is gathering stem. With active Japanese participation and commitment by Indian Govt, there is lot of excitement among states as well as global companies. The core ingredient of this project is to create SIR. Again Gujarat leads the pack, being the first state to pass SIR Act to take care of holistic development in the line with Indian Govt guidelines and global standards.

The renowned economist Mr. Gurucharn Das's latest book is titles "India Grows at Night". It's a satire on non-reforms of last 8 years. In his own words, "It has three pillars: One, the ability to take quick and collective action; two, that action is bound by the rule of law and three, that action is accountable to the people. In India's case, these three pillars often act against one another. It is the mark of a weak state." However surprisingly one part of India excels in all these aspects and that's Gujarat. The State has managed to keep away from the subsidy culture and still seen higher agriculture growth. The institutional reforms which are almost stopped at center is improved to much efficiency at the periphery level.

In his first avatar of reformist Chiadambarm used to quote a Tamil proverb which loosely translated means, Reforms are like jumping over a mud swamp or well, you have to jump completely can't stop in between. The lower growth of India, rising inflation, dissatisfaction among people is the outcome of non-reforms for 8 years? Gujarat on the other hand showed how a policy of Sauno Saath Sauno Vikas could make difference even within India.

Here comes poll and the seasonal Santa Clauses

With poll season around, from land to laptops to what not is being offered. What amuse me is the myopic desires that only focus on winning election at the cost of growth of State. If one wants to learn synonyms of FREE in all form, the classic documents could be poll bound parties manifestos. Free, Subsidy, Waive, Write-off, the list goes on. In the end all these populous scheme come back to haunt state budget. One example of this myopic sensational scheme could be Ghar nu Ghar. The only explanation given is it will be provided via Gujarat Housing Board at normal rate. Thanks to our enlightened economist at the helm, we are seeing unprecedented inflation. I first of all could not understand what is normal rate? Also what kind of Magic wand GHB holds that it will procure reliable material at cheaper rate? Building houses should not be Govt job. It creates more controversies, be it Delhi or Mumbai, why do they want to create one more system to favour or increase corruption?

The difference between Nehru and Sardar many argue was on one major point. Nehru like Brazilians (as pointed out by Ruchir Sharma in his book Breakout Nations) was keen to distribute wealth even before it is created. Sardar Patel belonged to different league leaders such as, Tanaka Kakuei, Deng Xio Pings, Lee Kwan Yu who knew that creating Equitable Growth first brings better prosperity all around.

The political parties in their lust to regain power are playing with fire without even realizing how harmful it could be for state. When the mission focuses only on winning election and enjoying fruits for next five years, biggest casualty is state economy and her people. Every day the parties call out for press conferences to announce freebies, without even explaining how they will fund it. Ironically the perception on the street is that the opposition party is a rich one as they have amassed a huge wealth over a period of years. When one of their ministers says that 71Lakh is too small amount for ministers to even indulge. It's a slap on the face of people but reinforces stereotype. The cartoon here tells the story.

When DMK had also gone overboard by announcing freebies and doling cash, Party thought the greed of people is won over. But when it came to election, people punished them for their corrupt practise and non-performance. And there lies the biggest problem for political parties who think they can buy voters with freebies.

Somehow I was amused by the wise words of UPA chairman Sonia Gandhi, when she came to Rajkot. She said Guajarati are wise and know what the best is for them. I for once could not agree more by these words filled with wisdom. Guajarati do not have to look much further. Looking around other states should give them fairly good idea on what is good for them.
 
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parijataka

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India's port of calling: Credible Gujarat and Diligent TamilNadu

With so much support from the enlightened and interested DG readers on previous posts on Gujarat's Economic Development, I have decided to write a series of articles on comparing Gujarat and Tamil Nadu.

Both these states are high on radar of global investors and usually become first call for one reason or another. Today when any investor looks to India, very soon they realize that Golden India as hyped outside is just a mirage and no longer exists at least at New Delhi. The so called architects of reforms have gone into a deep slumber and what was highly rumored among investors, Mr. Kaushik Basu finally confirmed that reforms are on holiday may be until next general elections. The leadership vacuum and precipitous decline on the part of current leadership of India as pointed out by US analysts is seen as final straw on the credibility (http://www.firstpost.com/economy/us...-about-leadership-vacuum-in-delhi-281892.html). Not that our own stalwarts like Deepak Parekh and many concerned industrialists have not raised voice earlier but policy Paralysis is so acute that it hurts the world which is having great expectation from our young and democratic country. Ironically the "Incredible India" word comes to haunt us back as Incredible also means Unbelievable.

Searching for Credible India

By having vibrant and thriving ports, both Gujarat and TamilNadu face outside world more than Delhi does literally. Chennai with proximity to South East Asia and Gujarat with Europe Middle East Africa (EMEA), both are led by strong leaders but their economic growth trajectory is triggered by different reasons. We will try to examine what keeps them ticking and what attracts and what could be improved further. What are the mutual lessons? However before getting into those details, first let's go through briefly on the contemporary history of independent India's tryst with development. Kindly excuse my brevity and simplified explanation for want of space.

Macro Economic analysis of India post reforms. Move from Center to the Periphery:
Since student days two things I could never very well understand was why we were called a mixed economy and why a low growth rate was known as Hindu rate of Growth. In reality the whole nation was at the mercy of power center of Delhi. Control of industrial development in country in the guise of License Raj was enormously suffocating; it encouraged many inefficient and corrupt systems. To add insult to injury, the low growth then was attributed to the identity of India and clubbed with religion. The contradiction had to cease at some point and as iron curtains of the Communism/Socialism melted, New Delhi too was found exposed, wanting for shelter. The gulf war only added to woes and there was no other way but to liberalize.

It is almost 20 plus years since India took first step in the direction to get genuinely integrated with world economy. A lot is written about the desperate time. How boldly the then Prime Minister cut though all the contradictions of contradictory policies and decided to take firm path of reforms. The man credited though was his deputy (then finance minister) who worked very hard to make sure the vision was implemented. Followed by many more committed FMs, the reforms continued. I have analyzed the period purely from the economic and investor's angle.

(1) Uncertainties till 1998:- In Search of Level Playing Field: However socially and politically it was a big huge CHAOS. The political chaos was evident from the fact that no government could survive their five years term. The opinion makers getting divided and man on the street confused. The oxy morns were in its play at best and it was a classic case of one step forward and two steps backward. None the less the external forces made sure India continued on reformist path. The control regime of Delhi also had to first time share their powers with periphery as many states decided to take decision making their own forte. The straight Jacket policies of Centre still continued, but States started taking their own calls on what is good for them. This was the time when Gujarat made Petrochemicals as growth engine and Tamil Nadu chose Automotive. This was also a time where domestic industries were crying in single tone "Level Playing Field". The License Raj had weakened their structures and they found onslaught of global competition unbearable.

(2) (1999 to 2004):- Attaining PoNR:- Finally Indians got over the hangover of the Reforms phobia and chose a Government with clear mandate. The Industry by this time also realized there is no looking back and got their act together. Most of them chose their core area of growth and were ready to take the world. Those who could not survive without controls naturally found themselves at disadvantage. These five years in the hindsight look the best years for reforms. Genuine and concentrated efforts were made in Infrastructure building. Roads, Power, Ports they all grew. More important according to me was formation of Disinvestment Ministry. For India, with perennial deficit finance this was the right step in that direction. It is said that a country like India or China, when they reform, it takes at least 12 years to reach Point of No Return (PoNR). The PoNR means that both internal and external stakeholders get convinced on country's willingness to change. While China had their PoNR in 1991, for India the moment arrived at 2003. It is not coincidental that BRICS report should come out in this year celebrating India as the only long lasting growing economy of the block. One better thing of this period was States became quite free in defining and designing their own growth plans. In pre reforms era, all the investment from Government in particular state was decided by how much the state leaders can please high command, this was indeed a welcome change.

(3) (2004 till now):- Oxymoron Called Indian Reforms: When Kamal Nath, then Commerce minister decided to sell India; he aptly chose the title "India Everywhere". This was indeed the mood in matured market as companies around the world believing BRICs report were all vying for their space in this happening place. For India's luck the Lehman crisis did not affect much and domestic demand continued to swell only fueling the rush. This however had a very adverse impact on the Indian Administrators. The leadership and administration took FDI and global investors for granted and thought Industry will invest irrespective of Govt reforming further. One international banker told me in 2008, "You cannot miss preaching by Govt officer on how India managed its affair well. Once he is done then only he may pretend to listen to you". But the message to International community was "we will not reform any further as you will come in spite of that". Investors were given scuttle hint, when The Ministry of Disinvestment was scrapped. The situation started getting worse as reforms got replaced by key word called CONTROL. In the guise of clearance, central agencies started creating many hurdles to the level where every industry started crying for reforms again. The urge to indulge in populist measures on one hand and control induced corruption on another, the governance and reforms were sacrificed in broad daylight. The so called architect of Indian reforms are proving to be in no control as various power centers within the Government or administration are running the show. With tongue in a cheek the words "Indian Reforms" started to sound like Funny Oxymoron.

In this backdrop, global investors are trying to figure out how to solve this India riddle. If USA, Japan or European countries are cozying up with the leading State leaders, there is not without any reason. If CEOs are spending more time at States than Center, there is a clear coded message in it.

Periphery Push to Center:
One thing that is in stark contradiction with Center's inability to persuade investors is the successful Vibrant Gujarat summits held by State of Gujarat. It is very ironic that more the central Government tried to control things; more Global and Domestic Industry lauded the CM of Gujarat. When TIME wrote an article on Modi, it ended with sentences and I quote, "If he succeeds, India may never be the same." In the ten years of his rule, he has beaten Indian growth figures by big margins and continues to do so with the participation from his people. The shout and cry for Modi to play major role for India is only going to go louder in days to come. And as one Australian paper mentioned Gujarat is the Credible India within Incredible India. And I quote "With economic growth averaging about 10.5 per cent over Modi's decade, the state is increasingly looked upon as the model for a "credible India" – a play on the "Incredible India" slogan of the national tourism agency – where bureaucratic and political obstacles are cleared for sustained high growth." I could not agree more. (Role model for a nation on the march)

The silent coupe from South:
When on January 10, 2012, Japanese minister of Economy, Trade and Industry (METI) snubbed his counterpart Mr. Anand Sharma and made a trip to India only to meet Jayalalitha the writing was clear on the wall. Even the most protocol sensitive Japanese realized that talking to people in Delhi is a waste of time. The delay in DMIC (except for Gujarat) is testing their nerves and they decided to take things on their own far away from Delhi. The other countries are also not far behind. The docile nature of people and the hard-working entrepreneurs are surely Chennai's strength. In spite of ever rotating government, the state still remains high on the investor's radar thanks to her people and place advantage. If today every third car in India is made in Tamil Nadu, the state has also reached in coveted top 10 destinations for Global Automotive space.

Considering India's Global trade is miniscule, the role these two states will play in integrating India with world is significant. In coming series, I shall humbly and candidly try to explore these states from Global investor's perspective. Some of them are stark reality, some of them pure obvious things investors would look.
 

Zebra

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double post, sorry. :frusty:
 
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Zebra

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.....why Gujarat can do things differently, first thing that comes to my mind is that CM does not have to nurse any constituency for political reason. Neither his birthplace (Janmabhoomi) nor Maninagar (his karmabhoomi) gets any special treatment. Everything happens from the yardstick of "Interest of Gujarat'. Hence if world's largest Solar Park is built it is erected at the place where maximum solar irradiation is captured near tropic of cancer and not at some minister's constituency.
Now it is up to Indian voters, what they wants.......they love to see these words like, "Interest of India" rather than "Interest of Gujarat".

If yes, then very simple vote for Modi. You will get that which you love.
 

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