The Cosmetic Growth

September 10, 2015

Viral Pathak

This blog has nothing to do with cosmetic products and yes, it is a long post!

Cosmetics help in improving a person’s beauty. It can make you beautiful and more attractive but if you are not confident, you will not be able to survive your presumed stature. To gain confidence you first need to develop skills in whichever domain you tend to work, be it acting, engineering or even Human Resources (HR). Your outlook/ cosmetic make up will only enhance your personality but will not make your personality. Having said that lets move towards ‘growth’. Growth has different connotations – if doctor says about the growth of a child then certainly he means physical growth. The requirement for growth in different age group is not the same. A one year old child requires breast feeding while a 12 year old needs a balanced diet. And yes, this blog is not even about the biological or physical growth of a child. Keep this paragraph in mind while reading on economic growth of India further in this blog.

India is a diverse country and needs different doses of development in different parts. During the British era, regions around Kolkata and Chennai were relatively developed. There were lots of colleges in that region and people from those regions got employment opportunities. Similarly, parts of erstwhile Western India like Mumbai, Karachi, Sindh and Punjab were good in business and continue to be good even today.

Finance ministry is too serious a ministry to be left to political populism. In fact if we need to grow at higher rates then, every party should seriously ponder on economic issues with leading economists. Just like a child needs different nutrition at different age group India too needs different policies after every few years. In India for e. g. certain domestic industries are protected from foreign companies, but it is the duty of domestic industry to rise up to the international level or perish. So which ever government tries to tighten the screws draws protests from the corporate sector! This is one of the many cases.

Unfortunately, we are not revising our policies in tune with the needs. When there was IT boom we were so much awed by its success that we forgot to look after the manufacturing sector. We had 7%+ growth but we forgot to do structural changes while enjoying the COSMETIC GROWTH.This cosmetic growth leads to boom in housing sector which lead to boom in steel industry. People started investing in housing sector and this led to huge speculatiions in real estate market. Even in IT sector we relied more on the low cost service that we provided to our foreign clients due to cheap labour than build expertise. For instance, Taiwan is now World’s #1 Plastics provider. They have completely dominated this field and are growing in leaps and bounds in Value Added Computer Hardware. On the other hand, in India, as people started gaining experience and low cost party started losing its lustre. This vacuum was filled by new tech startups which promised better solutions. The key take away here is COSMETIC GROWTH that led to a huge surge in real estate and it is due to this reason that we are having millions of empty apartments in Bengaluru, Delhi NCR and in Mumbai. Growth was inflated without producing any actual work.

The government has promised smart cities which is a welcome step. Remember the first para when I said about growth and I explained how since colonial era we saw selective growth of a few regions. India will continue to have cosmetic growth if we don’t develop eastern UP, Bihar, Odisha and the North East. Sadly many regions from these areas are neglected in smart cities. Some more cities need to be included in it. These cities should be clubbed under different groups based on population, area and the kind of industries that it can cater. The requirement of Visakhapatnam is not same as that of Patna or Varanasi. Funds should be allocated according to its needs.

About 3 million young people are added every month to the workforce. These smart cities will provide jobs to them, but aren’t we again looking for cosmetic growth? People have already started speculating land values in respective cities and real estate prices have shot up. So what is the solution? Solution is to reduce red tape and let the country grow at its real potential, break shackles, let people innovate and work easily. In Uttar Pradesh (UP), if you happen to open a shop then you will have to get it registered in Sales Tax Department, which is fine. The problem is that govt needs three guarantors who are already sales tax payers! If you have a brilliant idea and want to open shop in Varanasi and you are new to the area, then you won’t be able to do it! This is red tapism. Similarly if you want to open a bank account in Punjab National Bank (PNB) you need an “introducer” i.e. someone who knows you and has bank account in that branch! Despite all fancy slogans such things exist. If you have an Aadhar card or a PAN card, should that not be enough? It is still a nightmare to start manufacturing in certain parts of India. If you dare to do so you will be bombarded with so much red tape that you will prefer to go into the business of buying and selling land! I hope you remember NOIDA’s chief engineer’s case, if not then google it. The industrial land has been used for making money without producing anything. Without dismantling such red tapism you may see growth and may be even awed by it but mind you, this cosmetic growth is not sustainable. Sooner or later we will face the heat.

By the way, who are the biggest losers? It is you and me. We continue to pay high prices for real estate with shabby infrastructure. Raghuram Rajan recently said that even a family earning 200, 000 rupees ($3,000) per month can’t afford a nice flat in metros. In spite of millions of empty apartments, builders are not willing to sell it at a lower cost. It’s a vicious cycle. Builders are willing to sit on properties rather than sell it for the market price. One wonders where they got their financing from. Banks Non Performing Assets (NPA) is increasing, presumably because loans were disbursed based on reasons other than merit. By 2017, for conforming to Basel III norms our banks will need more than INR 200,000 crores ($30 billion). In spite of this certain Public Sector Banks continue to have ‘’introducer’’ column! India can have double digit growth for a least a decade provided we reform our Babus!

Another example of ‘cosmetic growth’ is our new found love for metros! It is another white elephant. It is not the metros which are symbol of development but the ease of doing business. Metro is needed on a war footing in Mumbai, Bengaluru, Hyderbad and Chennai not in Jaipur, Lucknow, Kochi or Patna. As a result, you will find that metros in these cities will suck tax payers’ money even when the city bleeds for proper infra. For the first few decades after independence PSUs sucked up huge funds and now in round 2 we have metros!

The road ahead is to unleash the entrepreneurial talent in small cities by providing single window clearance and access to credit. Everyone talks about single window clearance for big industrialists but none for small entrepreneurs. This will certainly help in reducing income disparity. All these factors will make a city smart.

Our growth story today is led by only a few metro cities. Imagine with hundreds of cities what miracles we can do!