Touching the horizon

 Touching the horizon

By Gopal K Agarwal,

GROSS domestic product (GDP) is the broadest measure of the health of the economy. Real GDP is defined as the total money value of final goods and services produced by labour and property located within a country during an accounting year. Gross value includes that part of fixed capital also which is consumed during the year that is, depreciation. It does not include net factor income earned abroad. GDP is a measure of domestic production, it includes production within national borders regardless of whether the labour and property inputs are domestically or foreign-owned.

 By 2050, India is projected to become the third-largest economy in the world, behind China and the US, according to a recent report by Goldman Sachs. By another estimate, China, India, Russia and Brazil could outrank the combined economic might of today's Group of Six (G-6) and the UK by the middle of this century. According to the Organisation for Economic Cooperation and Development (OECD), in its latest issue of the Science, Technology and Industry Scoreboard, India has spent about $19 billion on research and development in 2000-01, putting it among the top 10 countries with the highest R&D spending. The World Bank says India can achieve economic growth of 8 percent during the Tenth Plan period only if it undertakes comprehensive reforms and reduces its internal debt and fiscal deficit. The International Monetary Fund forecast says India's economy is on an upward trajectory and its GDP is expected to record "close to 7 per cent" growth this year, and the target is 8 per cent growth in future.

The 11 per cent growth in exports and 19 per cent growth in imports clearly indicate an economic turnaround in the country. The export growth rate is the second highest in the world, next only to China, and hoists India's share of world trade to a high of 0.8 per cent. Foreign exchange reserves have reached an all-time high of $91 billion.

Experts, however, caution that some "pressure points" still exist in the economy, largely on account of subsidies on food and some petroleum products. Moreover, in order to achieve a high growth rate at the national level, it is important to identify areas of high growth potential both in terms geographical as well as sectoral. In India, being a huge country with vast inter-regional and intra-regional disparities, decentralisation of resources, planning and decision-making should be the main strategy.

The government adheres to the view that the private sector and the market must play an important role. There are areas, such as infrastructure development, where gaps are large and the private sector cannot be expected to step in significantly.

The government assigns the highest priority to agricultural development, because growth in this sector is likely to lead directly to the widest spread of benefits, especially to the rural poor. It is pointed out that the first generation economic reforms had concentrated on reforms in the industrial sector and now agriculture should take its place. Second, the growth strategy of the Tenth Plan must ensure rapid growth in such sectors that are most likely to create high-quality employment opportunities- sectors such as construction, tourism and transport deserve support. We need to sincerely examine whether the  resources used for poverty alleviation schemes and for various types of subsidies in the name of the poor may be more effective in alleviating poverty or if they are directed to various types of asset creation programs in rural areas.

In the expenditure control area, two areas need focus first is subsidies, both direct and indirect, and the second is the pension liability of the government, which is the fastest growing component of current  expenditure. Currently, these liabilities are unfunded and signify a claim on the general revenues of the government. If the government is successful in strongly moving towards its goal of economic prosperity, India is bound to emerge stronger. The goal is in sight, the path is clear, the rest is up to us.

(The writer is a member of the BJP's central economic cell)

Wealth: agriculture plus services

 Wealth: agriculture plus services

By Gopal K Agarwal,

RACHEL Carson, in her R landmark landmark book Silent Spring, has stated that the power of an idea can be greater than political power. In the economic development of country, there are two factors at the creation of wealth and its distribution. Distribution is without doubt very important but unless we create wealth, distribution has no significance.

At present there are a lot of discussions on the direction India's economy should take. We have so far failed to develop a model suited to our needs. The Nehruvian model emphasised development through centralised planning. The emphasis was on industrialisation, to the relative neglect of agriculture, This process was continued by subsequent Congress governments. There was an over-emphasis on socialism culminating in the 1969 bank nationalisation. This opposition to capital and private ownership led to situation where we started sharing and distributing poverty. The country has to provide work opportunities to everybody but not jobs. Providing job security may only breed lethargy and inefficiency. The government's responsibility is not in the distribution of the acquired wealth of some individuals but equality of opportunities and distribution of resources.

Economic activities are generally classified into three categories: the primary, secondary and tertiary sectors. India's developmental module should emphasise the primary and tertiary sectors. This is because 70 per cent of our population live in villages and depend on the primary sector. Agricultural produce accounts for a major portion of our GDP. The overall economic development depends on the purchasing power of our people, which in turn relates to agricultural production. In other words, the demand push developmental model depends on agricultural production. We know that the backbone of our economy is agriculture. The standard of living of people here has to be uplifted. It is agriculture alone which can provide employment to millions of rural youth and help arrest rural-urban migration.

At the national level, rural infrastructure has to be developed by the government, which includes a functioning road network, organised markets, cold storage and warehousing facilities, the availability of capital at low interest rates, and so on. The time has also come to end the subsidies on fertilisers and encourage organic farming practices. This may result in a reduction in yields but research has shown that over a period of four years yields from organic farming increases while that from the use of chemical fertilisers and pesticides decrease. This switch will save subsidies of approximately Rs 1,72,000 crore every year.

In the international arena, we need to protect our agriculture, retail trade and small-scale sector from the onslaught of international manufacturers. With growing food production, burgeoning food stocks, the poor storage facilities along with the demand for increasing minimum support prices, if we are also forced to remove tariff barriers in agriculture we could find ourselves in a spot. Our negotiators should, therefore, insist on a minimum import quota based on GDP as prescribed under the Agreement on Agriculture earlier. Reduction in tariff and non-tariff barriers has to be linked to reduction in trade-distorting subsidies by the developed countries.

Where India does have a comparative advantage is in the tertiary, or services sector. India has a cost-cum-competence advantage in professions like law, accountancy, design, engineering, tax consultancy, financial and IT services. Doctors, MBAS, chartered accountants, nurses, lawyers and many other professionals are available in India at a much lower cost than elsewhere in the world. This is a major strength. Many multinationals are setting up their R&D centers, business process outsourcing facilities and product development centres in India. Indian IT firms can provide world-class services at one-tenth the cost that an US company, for instance, would incur. At the international level, we have to push for the opening up of services sector under Mode 3 and Mode 4, ie, there should be free mobility of manpower across countries and complete reciprocity with developed nations. Mutual recognition agreements should be put in place so that our professionals get recognition and opportunities in those countries.

What about the manufacturing sector? Building the infrastructure required entails capital expenditure and is risk-ridden in a world where technologies get obsolete very quickly. Take the case of BSNL, which has the world's most extensive networks of copper wire. But this may no longer be an advantage since people are switching rapidly to wireless telephony. It makes sense, then, to concentrate on developing the agriculture and services sector.

(The writer is member, Central Economic Cell, BJP)

What's in WTO for us?

 What's in WTO for us?

By Gopal K Agarwal,

During the 18th century, imperialism had a physical form. Countries which had military power colo- nased other countries and exploited their resources. Today developed countries exercise control over poorer ones in a more subtle way. International financial institutions act as tools in the overall game plan. The situation is, however, fast changing.

If the WTO is to be true in its objective of opening and liberalising international trade with free market access and without domestic and export subsidy, India would stand to gain. We have to keep in mind that the WTO is about negotiations in international trade. It is not a unilateral charter of demands; it is not our wish list. In any trade negotiations we have to proceed from the present stage keeping in mind our long-term objectives. To accomplish our goals, we should enter into strategic alliance with developing countries with similar concerns. Our emphasis should be on translating the spirit of the Doha Declaration in order to protect the interests of these countries.

We have to protect our agriculture, retail trade and small-scale sector from the onslaught of international manufacturers With growing food production and burgeoning food stocks in India, if we are forced to remove tariff barriers in the agricultural sector, it could create problems. Our negotiators should insist on a minimum import quota based on GDP as prescribed under the Agreement on Agriculture earlier.

The true benefit of the WTO will be achieved in the services sector. We have to push for the opening up of the services sector under Mode 3 and Mode 4- that is, there should be free mobility of manpower across countries. There should be complete reciprocity with developed nations in areas such as accoun- tancy, health services, legal services, tourism and travel services. Mutual recognition agreements should be put in place so that our professionals get recognition and opportunities abroad. In addition, India should negotiate to place agriculture workers on the Mode 4 list.

The basic problem with the WTO is that it is talking of liberal ising international trade through reduction in tariff and non-tariff barriers without emphasizing on reduction in trade-distorting subsidies by developed countries. Another major concern before the WTO is the misuse of TRIPS, or intellectual property rights. There are several cases where patent rights have been given to firms over existing traditional knowledge by the US Patent and Trademark office. This problem is exacerbated by the fact that many developing nations, including India, have not yet managed to document their traditional knowledge

In the area of public health, we should insist on major diseases being brought within the ambit of compulsory licensing. The US, thankfully, has dropped its demand that disease coverage be limited to HIV/AIDS, TB and malaria. This expansion is important from the point of view of India's health needs as well as the development of our pharmaceutical sector and its exports to other developing countries

Recent attempts by developed countries to push additional agenda issues called Singapore issues such as a multilateral agreement on investment, competition policy, transparency in government procurement procedures, industrial tariff, trade and environment, and labour standards, too, should be resisted.

The notion that India stands to lose under the WTO regime stems from an underestimation of our abilities. We always talk of our glorious past; this is an opportune time to realise it. India today is not what it was some twenty, twenty-five years back- a weak nation at the mercy of superpowers, ruled by a diffident leadership. We should sit together, apply our minds, identify our strengths and weaknesses and negotiate accordingly. The WTO can be a catalyst in the process of reverse imperialism.

(The writer is member, Central Economic Cell, BJP)

A National, not communal, issue

 A National, not communal, issue

By Gopal K Agarwal,

A Ram temple at Ayodhya will restore national pride

The Ram Janambhoomi issue is not a religious but a political issue. The moment we consider it a religious matter, it becomes a conflict between Hindus and Muslims. Hindu philosophy talks of being universal, omniscient, omnipotent and omnipresent. It tells us that all forms of life are manifestations of the same divinity.

Babar was not a religious leader. He invaded India and enslaved us. The rulers took pride in calling themselves idol-busters (bud shikast). They forcibly converted the local population to their religion and destroyed monuments of our cultural heritage. Anything associated with them causes humiliation; it fills our heart with shame. This has nothing to do with Islam, any outsider doing the same would provoke similar feelings

Shri Ram was a person of high character, the mani- festation of great human values, an ideal raja who destroyed evil forces. Everything associated with him fills our heart with reverence. Ayodhya is historically and mythologically Ram's abode. In the past, in many countries, mosques have been shifted to different locations due to various reasons.

The majority of Indians identify themselves with Ram. When Ramayana was telecast on television, almost the whole country came to a virtual standstill during the airing of the episodes. But a small minority, due to ignorance, wants to be associated with Babar.

In a democracy, if there is a difference of opinion, the will of the majority will prevail. The will of the majority cannot be suppressed in the name of protecting the minority. The current propaganda has sidetracked us, we begin defending ourselves within the parameters defined by them. We don't need to prove ourselves as secular in their definition. Ignoring the national aspect of the issue and making it a religious matter, some people are trying to tarnish the RSS and allied organisations as communal.

Take any social field, and the RSS cadres have worked relentlessly there. The Vidya Bharti in education, Seva Bharti in social service, Bhartiya Mazdoor Sangh in labour, Bhartiya Kisan Sangh among farmers.

Vanavası Kalyan Ashram in tribal and remote areas, Vishwa Hindu Parishad among Hindus of the world, Bharat Vikas Parishad, Akhil Bhartiya Vidyarthi Parishad, Swadeshi Jagran Manch, BJP, the list goes on. Almost forty na- tional organisations and hundreds of organisations at regional levels-all working to take our country to the pinnacle of glory.

Nobody is competent to teach Hindus universal brotherhood and equality of all religions. We revere Allah as we worship Ram. All religions coming to India were welcomed with an open heart. We want peace with honour.

The temple of Ram will be built at the janambhoomi. If this is done with consensus, very good. If it is done by legislation, it is not that good. And if it is done by force, it will be bad. We are not begging for a temple at Ayodhya. It is our right and we shall have it. India is a great nation and we shall have our pride restored.

(The writer is member, Central Economic Cell, BJP)

Indian Capital Market: A Global Benchmark

 Indian Capital Market: A Global Benchmark

By Gopal K Agarwal,

The government should know that speculation is an integral part of the capital market. It has to control speculation and not remove it. If speculation is bad, then the government should understand that currency is the biggest promoter of speculation and we have to move towards a barter system.

Technological advancements and extended reach have catapulted Indian capital market in a different league altogether. The vast geographical network created by stock exchanges along with brokers and sub-brokers throughout India, is unparalleled in the world. More than 900 members of NSE cover (as on April 2003) a total of 353 cities through a network of 2,765 VSATs and about 886 leased line connections.

Add to this the network of 213 depository data participants of National Securities other Depository Ltd (NSDL) with their branches at 1,718 locations, other members of Regional Stock Exchanges, approximately 750 members of Bombay Stock Exchange (BSE) and 122 Depository Participants of Central Depository Services Ltd (CDSL), together these cater to an investor base of more than 4 million accounts. If we also take a conservative estimate of 20 sub-brokers per broker we get more than 30,000 sub-brokers all over India.

The total capital employed by the 770 corporate members of NSE (for whom the data is available). It is more than Rs 12,603 crore as on March 2001. Add to this the employment generation through servicing of 4 million investors' DP account and broking, subbroking offices Electronic network has provided trans- parency to investors with regard to price and time parity. Every investor in the country has instant access to online trading, providing him liquidity for his investments. Almost 100 per cent delivery transactions at stock exchanges are carried out electronically and are instantaneous. The infrastructure of NSDL has achieved so much success that even Finance Ministry is looking towards it for its ambitious project of creating National Tax Information Network (TIN).

In a short span, the derivatives market has achieved a turnover of Rs 4,398,548 million in the year 2003. The success of futures market in the derivatives segment has encouraged the government to open up commodities futures and provide similar trading mechanism to intermediaries involved in agricultural products, thereby bringing reforms to the commodities market.

The capital market has now become a catalyst to overdue banking sector reforms. Although Electronic Fund Transfer (EFT) or Real Time Gross Settlement (RTGS) is not in place as claimed by the RBI, the apex bank and its associates are working overtime to adapt to online networking and implement anywhere banking.

Another revolution which is taking place in the market is Straight-through-Processing (STP). It is a move to automate trade processes from initiation to execution to settlement. It involves electronically capturing and processing transactions in one pass, from the point of first "deal" to the final settlement.

Current practices involve costly multiple data reentry from paper documents and other sources that are susceptible to errors, discrepancies, delays and possible fraud. STP enables orders to be processed, confirmed. The government should know that speculation is an integral part of the capital market. It has to control speculation and not remove it. Currency is the biggest promoter of speculation and we have to move towards a barter system cleared and settled electronically, in a shorter time period, more cost-effectively and with fewer errors than under traditional methods such as phone, fax, email etc, that require human intervention. Once this is fully implemented, the Indian capital market will have no parallel in the world.

However, there is a caveat. Technology in itself cannot contribute to the development unless it reaches the masses. This role has been effectively played by a strong force of professionally-qualified market intermediaries who are adequately capitalised and are technically savvy with entrepreneurial zeal. With the implementation of SEBI Act 1992 and recent amendments giving it vast powers, the regulatory framework is strong enough to take care of compliances and investors' protection.

With all these things in place, the market is poised to take a quantum jump only if Government takes care of the problems of the market with all its subtle aspects.

The problems being faced by the markets are enumerated below:

Over-regulation is the main problem. Of course, effective regulations are a must. However, if regulations are so rigid that its compliance becomes impractical and impossible in normal circumstances then instead of reforming the intermediary, the government will end up killing it. In the process, well-intentioned intermediaries as well as investors will prefer staying away from the system. Also, there is a multiplicity and overlapping of regulators like Sebi, RBI, Ministry of Finance, Stock Exchanges, Depositories etc. Regulation is through multiple regulations like Securities Contract (regulation) Act 1956, Companies Act 1956, Income Tax Act 1961, Service Tax, Indian Stamp Act 1899, The Limitation Act 1963, The Negotiable Instruments Act 1881, Benami Transactions (prohibition) Act 1998, Indian Contract Act 1872, and Indian Penal Code.

Intermediaries have to bear high costs including establishment, infrastructure and employees cost, technological cost which include networking, equipment and software cost, cost of capitalisation and most important is the high cost of compliance and regulatory fees like Sebi fees, NSE turnover tax, stamp charges, service tax, compulsory insurance and annual membership fees. The government and the regulators have to understand that if they want investor services at a reasonable cost, they should work with the intermediaries.

Absence of banks and other modes of financing like margin trading, is leading to a shortage of liquidity to the intermediaries. Non-involvement of intermediaries in the decision-making process is another major problem. Further, the Government has not given sufficient importance to market intermediation- tion by giving it an industry status. The plea bargaining mechanism which avoids lengthy court battles and allows early settlement of disputes, is also not yet implemented.

There is absence of self-regulatory organizations (SRO) which can understand the problems of the market in a better way and can give practical and effective solutions. There is no uniform Stamp Act across various states and the government has not come out with clarifications regarding digitally signed documents.

Recently, the Company Law has proposed to levy cess under section 441 on turnover at the rate of 0.05-1 per cent, where the beneficiary is the manufacturing sector but the cost will have to be borne by the service sector also, and that too on the basis of turnover at a rate which is higher than the commission being charged by intermediaries from their clients.

Recently, SEC chairman William Donaldson said that a regulator has to con- sider the proper role of market intermediaries and self-regulatory organisations, participants to ensure that their views are heard on how markets should work.

Back home, Sebi has appointed an eight-member committee of eminent economists who will file a report on the regulations of the capital market. It now hopes that the view of this committee will help design a proper framework for ensuring smooth and successful operations of the market and give Indian markets an international perspective and make it a global benchmark. It is time intermediaries are understood in the right perspective. Only then can the practical problems be solved properly.

The author is Member, central Economic Cell, BJP