Before Modi Bubble Bursts
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Before Modi bubble bursts

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See interview of Ashok  Kothare

We saw grand victory of BJP under Modi charisma. I am of the opinion that the unbelievable success they got not because of Modi alone but because people were very much afraid of Congress party's work. Particularly, the way they were destroying Rupee and causing price rise in all commodities. Modi took advantage of the situation and got the windfall victory. During his several rallies and speeches in them he was shrewd enough to talk of development but never promised to lower prices of commodities. He told voters that his government will do development and added that "good days are coming"! His talk of development was taken by average voter as an indirect promise that he means by development he wants to create jobs and when he assured them that "good days are coming", voters consider that is a promise for fall in prices of all commodities and services. Nevertheless, what Modi meant by these two vague promises is yet not clear.

Actually, development does not mean that he will try to create jobs. However, people have construed it that way and now they are looking forward to new BJP government with expectation of fall in prices of commodities and a lot of jobs. If you carefully listen to his many speeches, you will find that he has not given any concrete promise but has made all ambivalent promises. At the end of the day, he gave no promise at all. Nevertheless, people voted for BJP only to get out of Congress party's clutches. People of India are breathing sigh of relief that at least we are out of that clutches. BJP boys feel that they have got mandate from voters and that is for good; but it is only a temporary effect much like that of AAP party's success in Delhi. They could not stand up to their promise and now they are on road. If BJP also fail in the expectation, I will not be surprised if they go the way AAP went. People will hold and watch for some time and in the next election that is coming up in a few months BJP will face the music which they will not like. At the same time we should look out for what Congress party has planned to sabotage BJP government by its many conspiracies. That is a completely separate topic for discussion and I shall take it up in due course for my readers.

Modi never gave any specific idea as to how his cabinet will do developments. Looking to what development he seems to have done in Gujarat state, that type of development is not going to solve problems of our economy. We know many small units have closed down during his rule. Before we may go into what he means by developments we should see what are the types of developments suggested by economics. They are three main types and they are Micro development and Macro development in industrial and commercial fields; in addition to that, there is development in agriculture. For present discussion I prefer to stay on only two types of developments those are concerning industry and commerce. They are Micro and Macro developments. Micro development refers to small scale industries, who could not be registered on stock markets and Macro refers to large scale industries, who could be registered on stock markets.

At different times definition of small scale and large scale keeps on changing as per the whims of government. For our discussion I take all industrial and commercial activities under two crores as small scale activity and so coming under Micro development. Modi government in Gujarat invited large scale industries to come and open their industries in the state. This is one reason why most critics admire him and say that he has done development of the state. The question is what is the position of Micro development in any state? Does it have any place or not? Whenever any government talks of development it is always about Macro development. There is no discussion on how Micro development is taking place in the state. All attention is on Macro development and most so called experts of economics are no exception to this. Why they do not talk of Micro development while discussing development of the state? Do they take Micro development for granted?

If we view of our father of the nation M. Gandhi's stand on this, we see that he had insisted to give higher priority to Micro activity and had explained that ours being a poor nation we must first build our Micro capacity before enter into Macro activities. However, Nehru had different views and things went his way and we began to plan giving higher priority to Macro activities.

Why most are interested in only Macro development and less bothered about Micro development? These questions often bothered me for much time and on discussing this subject with many economists and experts in the subject, what I learned I wish to put here for the benefit of my dear readers.

First of all I asked them if there is any relation between Micro and Macro development. This question opened a Pandora's box that showed to me that what Modi has done in Gujarat is not enough to solve economic problems of the country. Experts told me that even in Gujarat, effects of Macro developments will not last for long unless matching development in Micro activities is undertaken by the new government of Mrs. Patel. If Modi thinks that he is all successful in developing the state, his happiness will not last for long. Advantages of Macro development are very obvious, large sums of money comes in the market through these activities. Macro development helps stock market and so very useful for speculative development. This last effect is considered as the most attractive to most gamblers who control stock markets. They also control much of media and papers and also many so called economists are in favor of this effect and so they encourages any government to promote Macro development. Other small but important advantages are, they create employment of high pay packet. Even though the number of jobs created are not many this type of development creates a new higher middle class community. All effects are very attractive and so most political parties appear to be more interested in only promoting Macro development. Some argue that when Macro development takes place it automatically causes some side effects and that results in development of Micro development. However, experience shows that not always Macro development will cause resultant Micro development. It all depends upon the business policies of those big businesses. Over all picture appears to be very rosy but it does not really help solve problems of unemployment.

Micro development needs to be specially encouraged to have its effects but I have seen that in none of our five year plans any specific efforts were made by the planners to make Micro development in the country. All Micro developments we see are due to efforts of small scale entrepreneurs. Advantages of Micro over Macro if we see anybody will admit that special efforts should be put to encourage Micro development. Micro development creates very large number of small pay packet jobs. Small scale industrial activity does not need large capital and so possible to start with small funds. Micro development is not limited to just an industrial growth but all small economic activities come in it. Shops, retail vendors, small scale repair shops, spare part making units, restaurants and tea shops, theaters, doctors, panbeedi shops and such almost all small business activities come in it. This shows that the over all expanse of Micro development touches all spheres of economic activities in the state. One should also note that Macro development needs support of Micro development but Micro development does not necessarily need support of Macro development. This means Micro development is more basic and needs to be taken more seriously. However, because each unit involved in this activity invests a very small amount of money this basic economic activity appears not so important to many so called economists. Banking for Micro economics is slightly different from Macro economics. Modi government need to help improve that micro finance banking which remains totally neglected today. Every body wants big budgets but not all big budgets create sizable employment. What Modi wants is some economic activity that gives succor to many people and for that Micro activity is the answer.

The point of issue is, why Modi should look into this seemingly unimportant type of development? Let us find out why only Macro development is not enough to solve economic problems of a country. The issue is important because Micro development concerns voters directly. This type of development does not attract stock market since, funds required are negligible as compared with Macro development. Therefore, so called experts in economics are not much interested in talking about it. They may even at times discourage any government from taking interest in this type of development. And often they do it and as a result most governments have actually neglected this development. What is important in this Micro development is about the employment it creates. Statistics show that next to agriculture Micro activity is most employment creating activity. Pay packet is not big but good enough for the small man to live by. Agriculture creates maximum jobs but those jobs are not throughout the year. Most jobs created by agricultural activities are seasonal and not good enough for a family to depend upon. Micro activity continues for all the year and so wages people earn out of that is generally good enough for small people to depend upon. One survey shows that in a society 90% people are not ambitious financially. They are happy if they get just enough to live by. Only a 6% people may be ambitious at average level and some 4% could be very ambitious financially. Macro development is mostly supported by these 10% people and 90% are literally dragged into that. I am here referring to these 90% people who are voters. The other 10% are not necessarily voters! The bottom line is that if Modi makes these 90% happy he can become successful as a PM; and his party's future is also guaranteed. What I want to suggest with this presentation is that, if Modi takes interest in Micro development he will be able to solve problem of unemployment. And through that keep one promise to voters. Other points favoring this activity is that labor problems are not very serious because all labor are directly in contact with the boss. Many Micro units do not have any labor problem as they are operated by family members. As compared to this we know how troublesome labor problems are with Macro units.

Macro activists often try to take over some micro activities such as retailing. Our experience is that because overheads of Macro activities are very big; they cannot compete with Micro activity unless some artificial support given by government by introducing some oppressing conditions on Micro competitor. Very often we find they delay or simply refuse payment of salaries of their staff to keep overheads low but that results in labor unrest. Measure retailing companies in US are notorious for not making payment of salaries in time. As a result we see that Macro activity cannot compete with Micro in its Fields of Operation if all play is fair. This observation proves that Macro activity cannot replace genuine Micro activity.

What he should do to encourage Micro development?

Generally all activities of any Micro economics are initiated by individuals, but they need finance from banks, various licenses and other permissions from local and central bodies. By making all these processes easy, automatically Micro development will take its shape. Not much, government has to do, as compared with Macro development. All its requirements of power, land, water and other needs are so limited that it is very easy to help it. Making many very small activities license free so that youth can enter in it without any difficulty. Many Micro activities culminate in Macro activities. For example, Larsen & Toubro industry began in a garage, a very negligible activity but because its founders were ambitious they developed it into what we see today, a giant industrial Complex.

So far governments were not much interested in it because, Congress was not interested in it as Micro activity is not so much paying to politicians as well as bureaucrats. During elections Macro activity pays big sums of money to political parties; that is not possible for any Micro activity even collectively. That government was more interested in corruption and all methods of corruption are not well suited for these small activities. The earning out of these small activities do not earn much money and greedy politicians as well as bureaucrats were not happy with that and so as a result Micro development is neglected even though it is the answer for our employment problem.

What I suggest at the end is that Modi government should encourage both Micro and Macro developments so that a balanced development of the country will take place. In addition to that if his government removes "personal income tax" altogether that will give boost to Micro development because Micro development is mostly a personal activity. The earning out of that is not so much that after paying tax they can have excess money to think of future expansion of the activity. Government earning from personal income tax is not even 3% of total revenue. Therefore, without making issues of this tax if he removes it he shall see the growth of Micro activity expanding and by that creating additional jobs for young people. Increase in revenue at sales tax, professional tax, central sales tax etc, will more than compensate for that loss. I wish to point out to him that most successful countries do not have personal income tax. In recently passed budget he has not considered most of my suggestions, particularly about Income tax; it appears advisers of Modi and MMS are of similar mindset and that means, Modi may not be able to deliver what he promises to give. Modi bubble will burst soon.

There is another aspect of development that often interferes with the above mentioned three basic developments. A parasite development, I am talking about Speculative development or share market vested interest or gambler's lobby. Strong lobbies of these people do not allow rightful attention to Micro development since industries coming in it are not big enough that they get into stock market. I am here on this post suggesting some thing so that employment problem is solved and Modi government at least fulfills one commitment. I am afraid that Amit Shah, Modi's best man is a stock broker and so he may not approve of it! But all the same, Modi has to solve employment problem and so he should take my suggestion seriously.


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