Ideas for the Indian Economic Summit
Posted on November 6th, 2014

By Garvin Karunaratne,

Many high powered authorities including celebrated economists are deliberating at this very moment how the economy of India can prosper. It is a crucial task that requires the total attention of  everyone concerned. It is hoped that this exercise can usher in development for India.

I humbly submit that to my thinking the Theme Redefining Public Private Cooperation for a new beginning to discuss how India can restore investor confidence and achieve a greater equity in social economic progress”  is a non runner. This is because foreign investors do not come to develop the country. Instead they come to cash in, to invest, make the maximum money  as fast as they can and run away with the profits. They do not care about the local economy. Therefore achieving equity and economic progress goes out of the window.

Many economists will disagree with me, but this is the basic fact which we have to face. It is important to note that most economists do not hold practical experience. My ideas are not based on theories but on stark facts, sheer experience.

Many economists advocate foreign investment and Third World Countries wait for them with open arms, offer them tax holidays- periods when they pay no taxes out of their profits, but are allowed to take their profits away. Cash trapped Governments think of the money that these foreign investors bring in as an asset.

Let us see the role played by foreign investors in the 1997-1998 East Asian Financial Crisis. Let me quote from my own book:

In 1993 the World Bank in their publication East Asian Miracle highlighted Thailand as a country that illustrated how openness towards  foreign investment combined with export orientation can contribute to a dynamic export push strategy.  In 1995 the World Bank said  that Thailand was the world’s fastest growing economy in the past decade…. Annual inflows  of foreign funds doubled but simultaneously the total external  debt also doubled. There was heightened economic activity but the fact remains that it did not benefit Thailand. As stated by Phongpaicht and Baker, ‘ In 1996 export growth slumped from over 20% to zero. The stockmarket lost two thirds of its value. In 1997 the country was battered by speculators into a sharp depreciation: the biggest  finance company collapsed.. The IMF was called into arrange its largest ever bail out’(From: Boom and Bust)

When the East Asian Financial Crisis shook Thailand the IMF had to bail it out with a loan arrangement of $ 17.2 billion.”(How the IMF Ruined Sri Lanka(Godages)

Let us look at what happened to Indonesia, despite the fact that its economy was cared for by the prestigious University of Berkeley. There, in similar circumstances the IMF had to bail it out with a loan  of $ 23 billion in 1997 and again with  $ 43 billion in 1998!

South Korea then crashed and had to be aided with a loan of $  58 billion.

And so the bails outs continue todate.

What happens to all this money is also important. Again let me quote my writing:

In the case of each of these crisis the IMF solved it by pouring in more money. In every case  it was insisted as a condition that the  local economy should  be prise opened more to foreign investment… What happens to the money that was poured in? . This money is paid back to the US, the creditor banks and the World Bank as interest and capital repayments The rich and the affluent in the country are allowed  foreign exchange for cruises and luxury travel which money too end up with the Donor Countries.  The hard cash that was given actually leaves the shores. The country is ultimately left more exploited and its indebtedness inevitably increased.”(How the IMF Ruined Sri Lanka)

What happens is that foreign investors move their money to safer and more rewarding pastures and the countries are left in the lurch with an increased foreign debt. No less a person than the Indonesian  Foreign Minister, Ali Alatas the Chairman of the Group of 77 said that the Crisis was due to the unbridled liberation of markets and action taken by the Developed Countries to create openings for their investors.  In my own words:

The reason for the East Asian Financial Crisis was the sudden withdrawal of short term speculative capital amounting to as much as $  230 billion within a few weeks. The countries come to depend on the free flow of capital- this is called ‘investment’ by the countries.  The investors have different intentions- theirs is to make a quick profit and they move the money depending on  their own thinking as to where they can get a better return. When large sums of money that is invested in a country is moved- withdrawn, the economy of that country gets into a tail spin of bankruptcy and the value of the currency drops. The moved currency is then brought back and re invested and it gets better value. This is not investment. It is aptly expressed in the Wall Street Journal:’ It may come as a shock; the shaky foreign bank credits of Venezuela, the Phillipines and Mexico have offered investors some of the best capital gains. Those who bought Venezuelan bank loans at  27 cents for each dollar in early March now find prices hovering around 40 cents on the dollar offering them a 48% gain in some four months.(WStJ. 19/7/89) This is profit for the investors but for the locals they have lost their money.

It is important to note that this creation of money by investors from the Developed Countries keep the prosperity of those countries intact. It is the exploitation of the Third World that enables this prosperity.  Most of the countries of the Third World did not have a foreign debt in the early Seventies. They were having sustainable economies, guarding their export incomes with strict exchange controls and this caused stagflation- a combination of unemployment and inflation,  in the Developed Countries. This situation of bankruptcy had to be stopped and the IMF came up with its famous Structural Adjustment Programme to structure the economies of the Third World to make them indebted so that they can be controlled. That is the predicament of all Third World countries today. As the Minister of Finance in Zambia said in 2004, We are running the country but the budget is controlled by the Donors.”.(For Whom the wind falls: Winners  & Losers in the Privatization of Zambia’s Copper Mines)

We have seen in the past few years the Presidents and Prime Ministers of the G7 countries visiting India and urging that the resources of the country be opened up for investment  and even retail marketing be allowed for multinationals.

 Again let me quote from my book:

Despite the overtures of President Clinton on his current visit to Bangladesh, the Prime Minister of Bangladesh has refused to change Bangladesh’s long held stance  against the liberalization of gas exports until local needs were met and a fifty year reserve was assured. President Clinton had announced $ 976 million in food aid and $ 84 million in clean energy initiatives and $ 8.6 million to reduce abusive child labour, a debt for nature swap  and forgave $ 6 million in Bangladesh’s external debt but Prime Minister Sheik Hassina stood her ground, ‘we would like to lead a life of dignity’. It is said that this decision disappointed the US and British companies as well as the World Bank.”

Thus depending on foreign investors for the development of a country is wishful thinking.

What can be done?

The leaders and administrators of India  have throughout the decades tried to bring about development. We have to fine tune the programs of development, carefully assess what is wrong and make changes to enable the local people to get employment and incomes.

Let us take the Integrated Rural Development Programme(IRDP) and the Training of Rural Youth for Self Employment(TRYSEM) These are gigantic development programmes offering aid and training.  The IRDP is the larger programme of rural development while the TRYSEM is its technical training component.  At the initial stages the IRDP  planners were meticulous in instructing the officers that implemented,  to plan in detail- planning for the economic development of the poor.  Planning should include resource survey, resource anaylsis, family plans, cluster plans, village plans, block plans, credit plans. But as Kuriyan himself;f says no planning was ever done.

Grants were offered for the local people to own an asset under the IRDP. In my own words:

The absence of a definite system of disbursing loans and grants with follow up action based on technical assistance and training led to a bizarre situation where the same asset, e.g a cow changed hands with the subsidy being given over and over again for the same cow. As Kuriyan says the  same cattle moved from household to househo;d  satisfying aggregate demand in the absence of matching supply. Professor Nilakanth Rath calls this  circulating capital. There was no planning to ensure that  every beneficiary continues to hold the asset( a cow for e.g.) for which they had got the loan. That was the aim of the programme. There was a demand and the asset was sold again and again of course at a higher price. A cow worth Rs 1000 was offered at Rs 1,500. … the inflow of loans and grants  led to an increase in money flows with the prices being bid upwards. There was no increase in production. People fool the Government when they get the chance, Actually by selling the cow they made money.

What should have happened was to tie up loans with training under the TRYSEM. which was not done.( From:Alleviating Poverty in India)

An interesting study in comparison would be the Youth Self Employment Programme of Bangladesh which was established by me in 1984 where youths who were getting vocational training  were guided to establish employment ventures by the training lecturers and the Deputy Directors of Youth Development. Here vocational training was coupled with an extension programme to guide all trainees that established commercial ventures,. They were guided closely, loans offered where necessary and the programme expanded apace, All Training Centres had to undertake guiding the trainees when they commenced commercial ventures. The national economy was researched to find areas where there was a potential to create production and  all youth officers were trained in economics of production. The Ministry of Youth Development that earlier attended to youth work today spends 90% if its time on guiding youths to become employed. The result has been that by 2011 February the Government of Bangladesh was able to report to the IFAD(FAO) that this programme has guided over two million youths to become commercially viable entrepreneurs. Annually 160,000 are being guided to become self employed.

There are the Rural Employment Guaranty Schemes where the Government undertakes to provide 100 days work to poor people to enable them to get paid the minimum wage. Unfortunately in all these work programmes  nothing has been done to ensure that the work done by the people has led to anything more than  the earth work that has been accomplished  and the paltry minimum wage that has been doled out. It can be suggested that if the planning and the administrative tasks including the motivation for the people to attend to such tasks had been also done by the poor people in groups taking the administrative tasks in rotation then the people would have also got the chance to develop their abilities and capacities in the process. Perhaps the ideal would have been to teach people to fish instead of providing fish. Though farfetched an aim it would be ideal if  the tremendous expenditure incurred on the schemes can be reoriented to provide self employment to the people.”

This also brings us to the famous Community Development Programme of India  on which Premier Nehru doted. The aim was to build up the community and the individual and make the latter the builder of his own village center and of India in the larger sense.” (Kurukshetra3/10/70) This Programme was implemented throughout India.  Later on, the Balawantra Mehta Report said, Though planned well and meant to kindle a new sense of community and assist in  launching the take off in economic development, but instead it had been diverted into an officially controlled bricks and mortar programme of public works” In the words of Mukherjee one of the chief implementers. Not enough thought was devoted to the process of community development.”. In my own words, In  the manner it was implemented the people saw community development as a task oriented programme. Although the people were involved by their contribution of labour they were never real participants” (The Failure of the Indian Community Development Programme)_

It is necessary to look at what can be done to develop the economy in India in terms of employment for the people- incomes for the people and  the production of the country to be increased. In the case of the Youth Self Employment Programme of Bangladesh which can be accepted as a starter because it has had a record of achievement of having created over two million self employed jobs so far, a record un paralleled in the annals of development in any country, what we did could perhaps offer some ideas. The salient points were:

Teaching basic economics to all trainees. This included costing material and labour, calculating profits, commercial viability and strategies for maximizing production,

Studies in the economy, both local and national to ascertain areas  of activity where there was a high potential to create employment opportunities..

Follow the concepts of (1) import substitution (2) self sufficiency, (3) Self Reliance

All Training Institutes were altered to handle  training as well as employment creation. The latter was to be done  by providing technical assistance to youths that commenced enterprise projects

All projects involved family members. This brought in resources as well as expanded the scope of employment creation projects to include family support and family members

No subsidies were given . Intensive non formal education guidance was given to enable the youths to develop their projects to become commercially viable within six months”

Controls by the IMF and the WTO

Currently India is at loggerheads with the World Trade Organization(WTO) which urges India to relax the rules to hire and fire  workers. India has also rightly defied the WTO on stock piling- i.e. on paying farmers to produce food. India has also rightly refused WTO calls to scale back  a scheme to buy wheat and rice.

I have not had the occasion to make a study but one thing I must state is that the WHO is like the IMF not on the side of creating jobs for the Third World Countries. It was the IMF that through its Structural Adjustment Programme made all self reliant and countries that did not have a foreign debt  indebted by merely advising the countries to abolish national planning and to relax foreign  exchange controls and also allow imports without charging any tariffs. The advice was to raise foreign loans when the countries did not have sufficient funds for this lavish expenditure.  For full details please read my paper: on the IMF.”The Financial Missiles of the IMF that made sovereign countries indebted’ in Lanka Web.(www. Lanka  Web.com)

The IMF advice is that the Private Sector is the engine of growth and that the Public Sector should have nothing to do with development.  This is a recipe for disaster. The Private Sector has as its aim making Profit and it would not consider the well being of the people and national development goals. To enable development the Public Sector has to support the Private Sector and at times even control the private sector because left without any control; the private sector  will charge massive profits.

From the Forties Sri Lanka had developed a Vegetable and Fruit Marketing Scheme which was implemented islandwide. The method was to offer reasonable prices to producers, purchase vegetables and fruits at market fairs bring them overnight to the conurbations and sell them keeping a small margin to cover handling and transport.  When this was done it was found that though the Marketing Department did purchase only around five to ten percent of the production it was possible to control unofficially both the prices at which the traders purchased the produce as well as the prices at which the traders in the connurbations retailed the produce. This was a boon to the producer because they were paid a price higher than what the traders gave them and the city  dwellers also benefited by being able to get produce at cheap rates.  The Department also had Cold stores and a Cannery that enabled it to make jam, fruit juice etc.  This enabled Sri lanka to become self sufficient in fruits and vegetables preparations- tomatoe sauce, jam juice.  At the instance of the IMF this Marketing Department was abolished and  its result has been that Sri lanka today imports fruit preparations.

It is urged that India should consider establishing a vegetable and fruit marketing and processing scheme. This can be done through cooperatives.

This also proves that the Government has to step in to guide and help and when necessary to control the Private Sector  not charging undue profit creating poverty.

Poverty has to be tackled through getting people into employment and production and also through ensuring that the prices of produce and goods are available at a reasonable level.

Though after my initial work as an administrator in Sri lanka for  eighteen years ending as a Government Agent of a District( a District Commissioner) and having worked in Bangladesh, the Bahamas and the UK I have never worked in India. I have traveled fairly widely in North India  by car and have been struck with  the poverty of the people amply illustrated by seeing children fighting for cow dung on the roads and seeing women walking miles with firewood headloads.  There is teeming poverty  The Rangarajan Committee says the number of poor is 363 million while  the Tendulkjar Committee puts it at 269.8 million.(EconomicTimes:7/7/14). It is necessary that a progarrme should be floated to provide employment to everyone.

It is hoped that my rambling thoughts  may provide  some ideas to enable the Government to bring about employment and alleviate poverty. My Papers are available at www.lankaweb.com and www.nation.lk

Garvin Karunaratne, Ph.D. Michigan State University

6 th November 2014

 

Quotes from:

Garvin Karunaratne;

How the IMF Ruined Sri Lanka and Alternate Programmes of Success(Godages, Colombo)

One Response to “Ideas for the Indian Economic Summit”

  1. Christie Says:

    Nehru did this and that. He also continued on militarizing the Indian Union while millions died from starvation. Did he honor the Nehru-Kotalawala agreement.

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