The Hindu Business Line : Seeking outside-the-box solutions

All the misalignments retarding industrial growth are well known. Yet, nobody wants to correct the existing set-up to improve efficiency. One simple solution could be `rurbanisation' that will empower the rural areas to compete with cities and at the same time lead to high quality urban development. Thus, there are answers, but they need outside-the-box thinking, and that is the problem, says P. V. Indiresan.

NOT MANY people listen to radios these days but those who do know that signals coming from stations barely a 100 km away are too weak to be heard. Yet, scientists are able to guide satellites precisely to observe planet Pluto, 6 billion km away. They do so by a simple trick: They take all components of the signal from the far-off satellite and align them all together.

The larger the number of such components aligned together, the stronger the signal becomes and better detectable it will be. If we apply the same tactic in economic development too, we will zoom high. Unfortunately, we lack that vision; we do not align different elements of the economy, and work at cross-purposes.

The government wants 12 per cent growth in the industrial sector. Several countries have achieved such growth, including China, which is a bigger behemoth than we are. Hence, 12 per cent industrial growth is realisable provided we align different elements of the economy to spearhead growth.

Industry does not grow merely by building manufacturing plants; it requires a wide variety of services to back it up. Without banks, insurance companies and other financial institutions to organise funds, no manufacturing plant will get off the ground. Transport systems both for goods and for persons are a must.

In this Knowledge Era, no modern enterprise can prosper without the backing of good education from the kindergarten level right up to esoteric Ph.D.s. Once educated, workers start demanding many amenities; they insist on high quality too. If they do not get what they want, they migrate. Further if industry grows at 12 per cent so too will industrial waste. Therefore, industries will do more harm than good unless there are adequate systems to clean up the mess they make. We need watch dogs too. When one comes to think about it, the support systems that industries need to function are so many that they will need two-three times more workers than the industry itself. It is not enough for an economy to have all these services; most of them should be brought together in one place — where the manufacturer wants to be.

Unlike some industries, services are gregarious; they like to operate cheek-by-jowl with one another. They bring together so many employees that only cities can support them. Wherever services accumulate, cities become big, even huge.

Thus, industry will not grow at high rates, let alone a rate as high as 12 per cent, unless supported by a variety of services, and in turn large cities. Unfortunately, Chief Ministers like Mr N. Chandrababu Naidu and Mr. S. M. Krishna, who actively promoted quality urban development, lost badly in the recent elections.

It is said that no one is as scared as a disappointed optimist. Therefore, politicians are running scared of urban development. Several of them are actually obstructing normal urban progress the way we are seeing in Bangalore.

How can industry grow at 12 per cent when State politicians want only rural growth and are dead set against urban development?

Modern industries are capital intensive too. Fortunately, we are flush with foreign exchange reserves that are setting records every week. Once we learn to make use of them, we can drive our industries very fast. Unfortunately, these reserves are of the wrong variety: They are volatile; they are as likely to evaporate as to grow like mushrooms. On the other hand, most industries — particularly the infrastructure sector needs to grow rapidly — have very long gestation periods. If we launch major industrial infrastructure development programmes trusting the forex reserves, those reserves may disappear any time, leaving us high and dry. Until we learn to align the short-term interest of foreign speculators with the long-term needs of our industries and industrial infrastructure, such funds are less than useless.

Confronted as they are by global competition, our industries have to be careful to pare down their labour force to the barest minimum. That is why industry has been shedding labour even as its output is increasing. Our industries will not survive in the global jungle unless they get large funds and are able to shed labour at will.

In like manner, in this era of rapidly changing technology, industries may become obsolete at short notice. So, they should be ready to close any time. Our labour leaders are aware of this problem as they confess in private. However, in public, they are inflexible and stick to ideologies that are two hundred years old. They want recruitment and no retrenchment. They want the economy to be an animal with a large stomach and no bowels. All these misalignments that are retarding industrial growth are well known. However, nobody wants to budge; nobody wants to re-align the existing set up for better efficiency. Nobody has the vision to look ahead, far ahead. Nobody wants even to look for solutions; that is the true tragedy.

There is not even an agreement that we need rapid industrial growth. Not a day passes without a seminar on the `unwisdom' of consumerist culture. Curiously enough, they are all held in five star hotels. Passionate opponents of consumerism jet set around the globe; they decry the philistinism of the modern generation even as they sip bottled mineral water. Many of them are powerful enough to halt billion-dollar projects, particularly in the case of infrastructure projects. Often, their agitations double or even treble the cost of such projects.

There is no use complaining. We have to get on with our task of rapid industrial growth or suffer from the onslaught of the same activists who will passionately decry poverty and curse the inhumanity of governments that do nothing to help the poor. Briefly speaking, we need (a) the kind of urban development that will fetch votes, at least reassure our politicians that they will not suffer the same fate as Mr Chandrababu Naidu; (b) foreign exchange that is usable in long-gestation projects; (c) labour that is flexible and astute enough not to be misled by firebrand labour leaders, and (d) the kind of industrial growth that will silence environmental activists.

Sceptics would say that all this is asking for the moon. Pre-war radio engineers would have said the same if someone had told them that radio communication is possible at distances of billions of kilometres. The problem is difficult but not insolvable. The trick is to find a way to align everybody's self interest in a common direction.

PURA, the scheme of Providing Urban amenities in Rural Areas, is one possible solution. These days, the name PURA has been appropriated by all sorts of projects and has lost its original intent. To emphasise its true nature, let us rename it Rurbanisation. It is a double-edged process that empowers the rural areas to compete with cities and at the same time leads to high quality urban development. The fact that Rurbanisation empowers rural areas should reassure nervous politicians. That it is high quality urban development should reassure hard-headed industrialists too.

Located as it is in rural areas, Rurbanisation supports many measures that environmentalists would approve.

As it multiplies industrial jobs by expanding the service sector, it should, in principle, please labour leaders too. Unfortunately, prosperous workers do not care for labour leaders; one cannot have everything.

Still, there is a catch: Will entrepreneurs agree to re-locate in uncharted Rurban areas? With proper inducements they may. For instance, suppose a State government declares that Rurban towns will be deemed rural even if their population rises to several hundred thousand, and therefore, are permanently freed from the imposition of Rent Control and Urban Land Ceiling Acts.

As a further incentive, suppose it abolishes stamp duty on real estate transactions inside Rurban habitats. Apart from the financial benefit, the relief they bring from pinpricks will be a great attraction.

Rurban habitats will have city sized-populations. Therefore, they can support a wide range of services, both what employers and their employees need. However, the quality of municipal services in India is terrible. Suppose a State government agrees to outsource them to non-profit Section 25 companies. Then we have the best of both worlds: Corporate governance of municipal services and freedom from profiteering from such services.

The Central government too can pitch in to help. One, it can treat those non-profit Section 25 companies as charities and offer tax relief for any payments made to them. Two, it can make it worthwhile for banks to lend in Rurban areas at low rates of interest. Three, it can allow free flow of foreign direct investment in real estate development. Then, we will not need hot money.

Rurbanisation may not be the only solution. If we look for solutions, we will find them — provided we agree to search outside the box. In any case, in the game of rapid industrial growth, the ball lies not in the court of investors but in the dimly lit corridors of State and Central governments.

(The author is former Director, IIT Madras. Response may be sent to indresan@vsnl.com)

This is 138th in the Vision 2020 series. The previous article was published on November 29.