NREGA – Good politics Bad business

While the government is basking in the success of the NREGA (National rural emaployment Guarentee Scheme) and the opposition is crying fowl from the rooftops,the real  impact of this scheme on the economy is something no one seems to be bothered about.

Many years ago IBM computers was in the dumps and it had to do something drastic to turn around its dwindling fortunes.They had a huge workforce which they could neither fire right away nor could keep for always in its current form.Driven to the wall the team at IBM told its employees that we would like to retain everybody so long as they can prove themselves to be employable.This simply meant that there are no free lunches and whoever contributes can be a part of the party.This simple idea turned out to be one of the most important case studies in HR history as it brought back IBM computers from the brink of bankruptcy to the centre stage of IT revolution as we know it.

Professionals like us  have no issues with sharing our destiny with our less fortunate brethren but the only worry is that can we sustain it for long.If the dog starts biting the hand that feeds or in softer words if we cut the branch on which we are perched its going to be sad tale of foolhardy for all of us.On one hand the money is being ill spent and on the other the sources from which it came are being attacked at the same time.

http://www.indianexpress.com/news/in-opposition-camp-too-delays-mismanagement/259701/0

Lets look at some very compelling situations which I am putting here not for starting a debate but to sound a red alert for ‘fools’ who keep living in their own  paradise :

1.Today you go to any of the Industrial cities such as Ludhiana , Moradabad, Tirupur ,Kanpur,Cochin etc and there’s one thing you will find common on all factory gates – a sign declaring labour required for packing,polishing stiching,cutting,weaving and so on.So what’s new ? well there is no labour !

And where have they all gone ?? Nowhere.They have just not turned up.Who would bother to lead a harsh life of hard work when you can enjoy the fruits of someone else’s labor for free at home.A share has to be given away in bribes but that’s OK.I did not do anything do deserve it anyways.

2.NREGA may be a great scheme but its implementation is seriously flawed.Has the government come up with a white paper on how the country has benefited by keeping the nations working hands tied up to their place of origin.Displacement to urban centers could have been a problem but is this the right solution.What are the metrics applied and how the performance of the workers,supervisors and babus is being measured.NREGA is supposed to build check dams,community roads,wells etc but how have the parameters for achievement been set against the work being done by a private contracter.

3.In order to be ’employable’ by world markets our industry needs to be competitive.But we have floating exchange rates compared to China’s fixed ones,we have all kinds of industrial policies that hinder free flow of men and material,we have excise duty which encourages export of raw material and discourages export of finished goods,We have labor laws that were fit for the 1950’s but no one has bothered to change them,we have the lowest productivity of workers and highest cost of transport and duties.

4.India is touted to be on the growth path as more than 70% of its population is under 35 years of age and we have the largest pool of working population.But with schemes like NREGA we must question if the working hands are getting utilized optimally.Whats the differential when you have a skilled tailor work on a machine producing merchandise for exports vs. the same guy working in his village and digging a canal.

5.Those who earn much more that what NREGA offers and have skills which are far beyond will continue to rise on the economic path but what is the government doing to upgrade the skills of those who work for NREGA ??What about those who have under utilized skill sets.I am sure their numbers far exceed those of the few software engineers we keep talking about.

6.If the factories cannot produce goods for shortage of labour or become uncompetitive in world market place who will take the responsibility and how will the deficit in export earnings be made good.What are our options and what are we doing about mechanizing processes that are labor intensive.Is the government giving incentives to SSI’s and Exporters so they do not suffer due to lack of cheap labor which has been their competitive advantage for so long.

I am not predicting a doomsday scenario here but if you go to one of the centers of export excellence above you will be as aghast as I was when I saw half the units either closed already or on the verge of it.

When last season our supplier in Ludhiana told us that he can’t supply the goods due to shortage of labour we went to an importer and bought Chinese sweaters.I wonder what will hold the buyers in other countries to act any differently if we in India continue on this path of self destruction.

The Link below to NREGA website does not measure any of the stuff I have mentioned but interestingly shows the lowest levels of Funds utilization and sanctioned in states like Goa,Himanchal  and Uttarakhand which have done far better on the industrialization and improving quality of life for their people.

http://nrega.nic.in/netnrega/dologin/MPR_fin_rep_cmp.aspx?state_code=24&fin=2011-2012&Digest=9sBuBxgG+sPk1eZzpM7%2foA

Fortune at the bottom of the pyramid?

Waiver of small and marginal farmers’ loans amounting to Rs 60,000 has been termed path breaking  by the government.The budget, however, offers little to address the larger problem of agricultural recession, the main reason behind severe indebtedness of farmers .

Official data shows that areas with the maximum concentration of small and marginal farmers will not benefit from the waiver. The Economic Survey that preceded the budget had suggested: “A second Green Revolution, particularly in the areas which are rainfed, may be necessary to improve the income of the persons dependent on the agriculture sector.” . It clearly suggests that farming has become almost an unviable option owing to increase in input costs and lower realization from produce which has unleashed a viscious cycle of indebtness amongst the farming community.

Unsustainable
Small, marginal farmers make loss
Source: National Sample Survey Organization, Situation Assessment Survey of Farmers, 2003

As per Mohan Guruswamy, chairperson of the Delhi-based Centre for Policy Alternative “Seventy per cent of farmers who own less than one hectare do not opt for commercial credit. So the waiver bypasses them,”

Finance Minister P Chidambaram waived all ‘overdue’ loans due till December 31, 2007, of farmers with landholdings of up to two hectares (ha). For other farmers, the government has offered a one-time settlement: a rebate of 25 per cent if a farmer pays 75 per cent of the loan overdue. The waiver does not cover loans farmers are regularly paying—only 20 per cent farmer households are paying loans regularly. Only those who borrowed from government institutions will be covered so those who borrowed from moneylenders and other informal sources will not get any relief. And this is where a big portion of debt lies.Being illeterate farmers do not approach the banks due to lengthy procedures and paperwork – apart from all the paperwork a farmer has to get a letter from all banks operating in his area that he does not owe them any money before a loan for him can be considered.
The government claims the proposal will benefit 40 million farmers.Every second Indian farmer household is indebted. Of the 89.33 million farmer households estimated in 2003, 43.42 million were indebted. The average debt per farmer household was at Rs 12,595, and per indebted farmer household at Rs 25,902. Of late, farmers with more than two hectares of land are increasingly availing agricultural credit. The outstanding loan amount too has grown faster in case of farmers having more than 2.5 ha as compared to marginal (holding less than 1 ha) and small (less than 2 ha) farmers. On the other hand, the share of marginal farmers in formal credit distribution has come down from 28 per cent in 1981-82 to 25 per cent in 2003-04. The share of large farmers (with landholding above 2 ha) has remained at around 51 per cent since 1981-82. These figures demonstrate that farmers with large as well as small land holdings take credit but are not able to repay them due to adverse economics of the agricultural sector.

The current proposal will cover less than 50 per cent of the total debt of farmers in India. In 2003, the government estimated the total debt of farmers at Rs 1.13 lakh crore. Farmers owed Rs 65,000 crore to formal institutions and Rs 48,000 crore to non-institutional agencies. The debt has gone up since then.

Smaller the landholding, more the farmer depends on non-institutional credit
Out of relief net
Source: National Sample Survey Organization, Situation Assessment Survey of Farmers, 2003

The bigger picture
According to the Economic Survey, the growth rate of food grain production is 1.2 per cent, lower than the annual population growth rate of 1.9 per cent. Creation of additional irrigation potential has come down from 3 per cent annually in the 1990s to 1.8 per cent in 2007. Agricultural growth is expected to be around 2.6 per cent against 3.8 per cent in 2006.In such a scenario it will take a long time before we can see disposable incomes which will boost consumption for discretionary items on a farmers shopping list such as apparel,footwear,toiletries etc.

Fortune at the bottom of the  Pyramid ?

While a romantic idea,with the above in view I fail to recognize how the Indian farmer can be described as :

The world’s most exciting, fastest-growing new market? and fortune where you least expect it: at the bottom of the pyramid. Collectively, the world’s billions of poor people have immense entrepreneurial capabilities and buying power(??).

The book talks about Co creation and  challenges readers to re-evaluate their pre-conceived notions about the commercial opportunities in serving the relatively poor markets of the world.Somehow I cannot understand how someone who is already not able to repay his debts will transform into a profitable customer to serve and how those who are not even able to distribute the largesse effectively will make it possible.

The website further describes the book as :

“The Bottom of the Pyramid belongs at the top of the reading list for business people, academics, and experts pursuing the elusive goal of sustainable growth in the developing world”

I sincerely feel that that’s exactly where it will remain for a long long time to come at least in the context of India,if things do not change at the grassroot level.