Blogspot – Page 24 – Gopal Krishna Agarwal

Procurement policy for MSME

December 8, 2014

In the Report submitted by the Prime Minister’s Task Force on MSME in 2010, one of the key recommendations was to put in place a Public Procurement Policy for MSMEs at the earliest. Approved by the Cabinet in 2011 the procurement policy for MSME was instituted in 2012, followed by a serious governmental effort to overhaul the policy in 2013. The contribution of the MSME sector to the country’s GDP stands at 8% but is reckoned to have a potential to reach 15%.Employing close to 40% of India’s workforce and contributing 45% to India’s manufacturing output, SMEs play a critical role in the economy.

However, structural deficiencies in MSMEs in India and the nature of their participation (mainly as an informal sector) significantly undermine their potential to contribute further to the economy.The goal of an annual procurement of minimum 20% from Micro & Small Enterprises including 4% from MSMEs owned by SC/ST entrepreneurs is yet to be realised, even as a complete integration of the rural, backward and unemployed populace waits. And this is also limited to Public Sector Enterprises, there is a strong case for taking it to private sector and State PSU’s. Due to a high degree of variance in the spread of MSME units across the states of India and because of differing production/consumption patterns, a state-level revision of the procurement policy is required.

Needed, a Saarc financial market platform

December 2, 2014

The South Asian Association for Regional Cooperation was set up in 1985 with the belief that cooperative action among the member countries would usher in an era of shared prosperity.

Thirty years down the road, it is now widely accepted that Saarc has failed to achieve the objectives for which it was set up as a result of which the organization does not carry much heft at the international level. This, however, is expected to change with the current government’s focus on its immediate neighbourhood, most importantly Saarc. It is believed that India will lead the charge to change the organization’s hitherto insipid performance.

Economic integration between member countries is a prerequisite for a strong and vibrant Saarc. Not much headway has been made in intra-regional trade despite the South Asian Free Trade Agreement (Safta) and South Asian Preferential Trade Agreement (Sapta). Intra-regional trade hovers at around 4-6 per cent. It is in this context that the ‘Integrated Financial Market Platform for Saarc Countries’ is important.

This needs initiatives on several fronts, the first and foremost being the creation of an integrated financial market platform. This initiative has to be taken up at the government level. As the name suggests, the Integrated Financial Market Platform would be an exchange where companies of the member countries would list their shares. The platform would provide companies an option to reach out to a much larger number of potential investors and provide them with a more diversified stock owning option.

Facilitating flow

India has the most sophisticated financial market in the Saarc region with world class regulation and effective compliance. The markets of other member countries are plagued by a multitude of problems, lack of liquidity being one of them. An integrated platform would enable investors to invest in their own domestic companies with less risk as the shares would be more liquid and the listed companies better regulated.

This set-up would have its own independent trading, clearing and settlement platforms, professional management and risk management practices. It would facilitate easier intra-regional flow of capital.

India manages to attract significant foreign portfolio investments, but the accruing to India from the proposed platform would not be any less compared to other member countries. Therefore the initiative has to be looked at through a politico-strategic prism too. The platform would necessitate a settlement mechanism which might lead to the emergence of the Indian rupee as a preferred mode of transaction in the Saarc region.

Other Saarc countries not only have a small financial market, they are poorly regulated as well. Harmonisation of regulatory standards and uniformity in enforcement of rules and regulations would benefit these countries greatly. The purpose of the platform would be to make the capital market of member countries more efficient and serve their development needs more effectively.

Combined clearing, settlement and risk management corporations can be promoted, with equity participation by member countries. Here the role of the regulator and self-regulatory organisation (SRO) of the respective countries is very important, including the central banks. They can also form part of the equity ownership of these corporations.

A federation of market intermediaries association, that is, the South Asian Securities Association (SASA) needs to be created. SASA would be a federation of brokers’ associations in the member countries. It would formalise and institutionalise a process of interaction among members to share best practices and try to achieve harmonisation of rules and regulations pertaining to their sector. The sector regulators would meanwhile enter into an agreement with one another to recognise a market participant registered in any member country to be eligible to participate in any other member country and in this integrated trading platform.

Special economic zone

To give further fillip to the concept, a special economic zone can be set up in India, developed on the lines of Global Financial Hub, housing offices and all intermediaries such as brokers, banks, exchanges, regulators, corporations and technological infrastructure for connectivity, technology, software and hardware vendors, and so on.

This will lead to several beneficial outcomes, including harmonization of regulatory standards, rules and regulations, a freer flow of capital and investment among member countries and doing away with compulsory registration/licensing of financial market participant in order to operate in a member country.

It will also lead to an increase in financial intermediation, increase in the saving ratio, development of niche financial markets, lower cost of borrowing for companies and governments, and will provide investors with wider investment options both in terms of number of products and risk-return profile. Other benefits include increased financial literacy, specialised financial product development and sharing of knowledge and expertise.

Challenges include overcoming the fear of capital flight from smaller countries to better regulated and better managed financial markets, and opposition to an integrated platform from vested interest profiteering from the current fragmented and inefficient market. Managing currency settlements will also need to be suitably worked out.

BJP Changes of Guard: Impact on India’s Economic Fortune

November 8, 2013

By Gopal Krishna Agarwal,

Gopal Krishna Agarwal analyses the rise of Narendra modi and its impact on Business sentiments, trade and investments in India.

Narendra Modi chief minister of Gujarat was appointed a member to the parliament Board the highest decision making body of Bharatiya Janata Party in March this year. Later in September, He was declared the Prime Minister Candidate of the National Democratic Alliance (NDA). In 200, He Became Gujarat’s CM and after reelection in 2002, 2007 and 2012, heads a corruption free, transparent and an efficient administration in the state. Though regularly attacked for the 2002 Gujarat riots. Modi is also praised for outstanding administration in turning Gujarat into an economic powerhouse. He has been successful in bringing the development plank as an election agenda.

Will India Shine Under NaMo?

Though Modi’s appeal cut across all classes, regions and age groups, it would not be an exaggeration to say that the Indian business community, youth and burg coning middle class are the biggest votaries of Narendra Modi. The fact that the Indian business community, generally obsequious and fawning before government of the day has risked the wrath of the present regime in doing so speaks volumes.

The economy is going through done of the most difficult times in recent memory. The UPA II government instead of navigating the economy through the turbulence caused by global factors, has exacerbated it through clumsy policies, entitlement schemes without proper budgeting and the worst kind of kleptocracy. There are both political and economic factors affecting business sentiments, trade and investments. Politically, we have a situation where there are different centers of power and responsibility. A cabinet in which ministers pull and different directions and a government that a lacks conviction in its own policies. The present macro economic situation is rife with sticky inflation, rising fiscal as well as current account deficits falling rupee slow pace of reforms and an overall policy paralysis. These two sets of factors have dealt crippling blow to business sentiment and trade and investments. We are in a situation where the finance minister of the country is trying to convince global capital to come to India of a time when even Indian capital is looking for markets abroad.

In order to crystal gaze the impact of the rise of Narendra Modi on Business sentiments, trade and investments. It would be pertinent to analyze the philosophy underpinning the policies of the Gujarat Government headed by him. While there is a small but vocal group backed by rival political parties and other vested interest that questions every figure that show Gujarat in positive light, their efforts have failed to hide the state’s inexorable rise under the leadership of Narendra Modi a fact that is now also acknowledged by the international community. This also relegates to the background the claim that figures are being manipulated to present a positive picture

Modi Mantra in Gujarat

So what are the defining characteristics of Narendra Modi’s style of managements that is relevant from the macro-economic points of view? He has focused on ‘less government and more governance, which broadly means unobtrusive but effective government. His e-governance model with decentralized decision making and power is his major forte. He has also emphasized on a transparent corruption free, consensus oriented good governance model with emphasis on inclusive participation, timely clearance of project proposals focus on infrastructure improvement and revival of agricultural sector. The government follows the rule of law with efficiency and effectiveness and is accountable to the people. His decision-making is quick and timely and believes in single window clearance as we seen in the case of Tata’s Nano project. Gujarat under Modi’s leadership has excelled in infrastructure development and has created world class linkages acting as a backbone in the present global compitetive scenario. The successful functioning of the BRT public transport system in Ahmedabad is one such shining example. He has been instrumental in creating urban landscape at par with international standards. Gujarat has successfully implemented power sector reforms and is supplying 24*7 powers to 100 percent of villages.

Modi Means Business

The Government under modi would definitely improve business sentiment leading to an increase in both trade and investment. Sustained growth rarely occurs and autopilot. It requires competent leadership at the top. The most fundamental change from the present government would be the absence of the dual power centres. The de jure center of power would also be de facto one. This would impart realism in policy formations which is greatly missing today. The right of centre ideology subscribed to by the BJP and Modi does not see itself in an adversarial relationship vis-à-vis the business community, but as partners to realize the potential of the country. This in itself would be a major change that would affect business sentiment positively. The NDA under the leadership of BJP was focused on improving physical infrastructure, which would continue under modi. We are trained to think that the best rate the agriculture sector in India can achieve is 4 percent, but this has been believed by Gujarat experience. Where the agricultural sector grew by around 10 percent for more than a decade. We should therefore expect a paradigm shift in the way the agricultural sector would be dealt with under Modi. This focus on physical infrastructure and agriculture would remove supply bottlenecks and would bring down inflation. Better infrastructure would also make our exports more competitive and boost trade. A lower rate of inflation would allow the monetary authority to lower interest rates and thus revive investments. A focus on urban infrastructure for rural areas and rising rural income would also augment domestic demand, as more than 60 percent of our total population is living in rural areas. It was under the NDA government that the FRBM Act was enacted and fiscal responsibility targets were met. At the National level the BJP is assimilating good governance models of its various state governments and intends to replicate them on a Pan India Basis, whether it is the socially inclusive focus of Madhya Pradesh government or the Public Distribution System (PDS) of the Chhattisgarh government. Modi would also put the economy back on the path of fiscal consolidation considering his treatment of state owned enterprises in Gujarat, it would not be wrong to expect that they would be given operational freedom to achieve efficiency and scale.

First among Equal

How does Narendra Modi fit in the whole scheme of things? It is an undeniable fact that Modi is first among the present day BJP leadership Modi has a very wide acceptance amongst young voters and considering the present Indian demography, is most suited to capture the youth bulge. In the 2014 elections around 120 million voters would be voting for the first time. In is under his leadership that the party has the most realistic chances of surpassing its previous tally of 182 seats. It has been the experience that voters consolidate towards the winner in sight. As far as his ability to bring coalition partners on board is concerned, we already see two parties jockeying to align with BJP in Haryana. These would improve with the elections drawing near. It has anyway been the experience that parties come together to form the government only after elections and very few parties enter into a pre-poll alliance. Future uncertainly harms business sentiments to a great extend but as we move towards overcoming this uncertainty one sees gradual improvement in business sentiment.

People who grudgingly accept the development of Gujarat under Narendra Modi claim that this success cannot be replicated at the Pan Indian level as he would be hamstrung by coalition partners and powerful leaders within BJP unlike Gujarat where he virtually has free rein. We believe that not only would he be able to repeat the success of Gujarat, But would also surpass it. It should be noted that considering the very limited powers of state in India. Narendra modi’s achievements are indeed commendable. He has infused new hope and confidence in the people of the country. Particularly the youth that comprises 65 percent of the total population. He has been able to generate the can do spirit that is evident in the national and international business and political community. Under the stewardship of Narendra Modi. India would be able to achieve its true economic potential and become an economic super power.

Need for a strong political leadership

August 22, 2010

CA GOPAL K AGARWAL

gopalagarwal@hotmail.com,

INDIA has the potential to emerge as a superpower. But simply having potential will not help achieve the goal There can be mired factors which are acting like bottlenecks towards achievement of this goal.

Emergence of strong nation requires collective will or what is called ‘a can to do spirit”. But to build this momentum what we require is identification of these bottlenecks and take corrective measures to remove them. In Upanishads it is said that to achieve success we need to “Investigate carefully, decide correctly and follow faithfully”.

According to me the most important constraint that India is facing is weak political leadership. There are so many factors where India needs course corrections. These factors are not far to find. Anybody, groomed to social life can clearly identify that corruption; caste politics, violence, lawlessness, terrorism, etc are acting as a parasite to the national life. But there is nobody among the present leaders showing any will or determination to fight this menace. The politics of compromise is the name of the game. There is a continuous competition among the parties to capture vote-banks. To capture vote-banks money power, muscle power and even emotions are used.

The attitude to compromise on national issues to fulfill personal ambitions or meet short term political goals is the weakness of our leadership. We are caught up in a vicious circle where a weak leader will further lead to weakness in the leadership.

I don’t want to be sounding negative. We can overcome this attitude. Ultimately everything comes down to simple economic principle of demand and supply. What we need is strong nationalist political leaders.

The second important factor is the lack of complete inner democracy in all political parties. In the name of discipline every political party has thwarted democratic values. Any party, which resorts to inner democratic process, will be able to develop strong leadership among itself. And once we get a strong political leadership we will be able to overcome most of the other constraints. We can then easily achieve a strong and a well developed nation.

Outsourcing equals Globalisation

March 30, 2003

By Gopal Krishna Agarwal,

BUSINESS process outsourcing (BPO) helps in globalising national economies. Outsourcing depends on labour arbitrage and India is considered to be a major beneficiary of the process. In any field where knowledge is involved, it has the potential to become a global giant by leveraging the potential of its English-speaking, tech savvy and cheap manpower in the global market.

India’s IT market has grown from $1.73 billion in 1994-95 to $16.5 billion in 2002-03. The country’s software exports grew at 26 to 28 per cent during the current fiscal year ending March 2004. As if in response to this striking growth, we are suddenly hearing anti-globalisation noises from the West. Legislation has been introduced in the US seeking a clamp down on such outsourcing.

This attempt to ban outsourcing may also be a sign of weakening American confidence in the strength of its dollar. The US has been running up a higher and higher deficit which has crossed half a trillion dollars this year. Earlier, this was being financed by at- tracting global currency reserves. The central banks of nations the world over were keeping their cur rency reserves in dollars, thereby fuelling the demand for that currency. But with the weakening of the dollar, this could change.

Experts in the US realise, how ever, that banning outsourcing can be no solution to the economic and employment crises the nation is facing. Even Alan Greenspan, the chairman of the Federal Reserve, has pointed out that efforts to protect US jobs through legislation could end up damaging the economy. He has stated that if the US opts to erect walls against foreign trade and even discourage job-displacing innovation, it could slow the pace of its economic growth markedly. In any case, US companies have little choice. If they don’t cut costs by outsourcing they will rapidly become uncompetitive, vis-a-vis companies that do, which will result in many more US jobs being lost as an increasing number of these companies will be forced to shut down.

The world outsourcing market is estimated to be about $5 trillion in 2002 according to the – Outsourcing Research Council. Nearly 20 per cent of the total business is constituted by the IT E and ITES market, which is growing at about 15 per cent per annum. Of this, India receives only about 2 per cent of the work generated. This indicates the huge ■ potential it has of future growth. However, in a simultaneous reverse process, some of the best and biggest of Indian companies are outsourcing strategic IT functions to global companies.

Strategic outsourcing is, in fact, the fastest growing segment in the Indian IT markets as seen from the series of deals announced in the last few days. A notable deal struck in the recent past is that between Hewlett-Packard and Bank of India for over Rs 680 crores. It is also clear that global vendors have es- established their expertise and experience, in handling the long-term, complex outsourcing needs of Indian companies to enable business transformation. It is no coincidence that Indian companies are opting for strategic outsourcing at a time when the BPO phenomenon is at its peak. Indian non-IT companies are taking to outsourcing as they are on the lookout for vendors with the best domain knowledge. In simple terms, this is just another manifestation of globalisation.

Several high-profile visitors from the US have told us that India is one of the most closed economies in the world. This is partly an attempt to legitimise anti-outsourcing legislation in their country. The conventional test for gauging openness is tariff structures, on which India scores well as per WTO standards.

Americans were earlier in a position to win competition and control the economies of other nations through monetary policies devised by multilateral agencies like the IMF and the World Bank. When international trade agreements were extended to the agriculture and services sectors, developed nations were not very comfortable since they started losing out to the competition. At that point, they started taking recourse to anti-liberalisation measures like banning outsourcing. But there is a huge contradiction here. The US economy is based on accessing world markets. One cannot ban outsourcing of business process while continuing to access world markets.

The US cannot ban outsourcing while continuing to access world markets

The author is member, Central Economic cell, BJP