The Hindu Business Line : Mechanisms for inclusive growth

A social equity based model, which includes the local community as a partner, is vital for making growth more inclusive. Panchayats can also play a crucial role in the delivery of public services and help empower the local communities, says TUSHAR PANDEY.

Long-term development of the Indian economy will surely require a sustainable growth contribution from rural India by using the productive potential of agriculture and the rural non-farm sector, and the development of village industries.

There is an urgent need for a co-ordinated and focused policy formulation and effective implementation of programmes, projects, schemes, etc., for improving supply chain management, enhancing skills, upgrading technology, expanding markets and capacity-building of the entrepreneurs/artisans and their groups/collectives.

Despite six decades of planning and government-led anti-poverty programmes, the high rate of poverty still remains a challenge. Governance inefficiencies and low levels of transparency have been widely accepted as the dominant hurdle. As a part of the governance reform process, there is an emerging need for developing new growth models in the rural areas.

Public-private partnership (PPP) has been widely recognised as the institutional innovation mechanism to facilitate the private sector’s efficiencies in public services and government-run programmes. It enables a win-win situation for all stakeholders and blends public objectives with marketability and profitability.

The advantage that PPP projects have is that they can incorporate a social focus without affecting the economic viability and efficiency of the project. Public private partnerships have been successfully structured and applied in the last decade, to the infrastructure sector and have typically followed the B-O-T (Build-Operate-Transfer) model and its variants. The lessons learnt from these successes have set the foundation for the adaptation and application of the PPP model to other sectors.

Post reforms, wealth has been accumulated by a small segment of the population. Income and wealth distribution is excessively skewed, leading to social unrest, conflict activism and dispute. It is from this perspective that a ‘social equity model’ will enable linkages with the rural poor.

Social equity model

The social equity model, structured on PPP principles, is an important tool for inclusive and sustainable rural growth. This model attempts to holistically include the local community as a partner in development with the component of social equity being formed by the concerned local community having a stake in the project.

This local community is incorporated as a project partner (holding minority equity ownership) representing a shift away from the regular ‘grant and subsidy’ model. This model thus focuses on involvement of all the stakeholders and provides positive returns to all of them.

The component of social equity can be in the form of land and/or capital and might also need to be provided directly or indirectly by the public agency; however, ultimately it will be the individual members of the concerned community who will have stake in the project.

The community can then participate in the decision-making process and ensure collaboratively that all the policies of the project are directed towards the collective well-being of all stakeholders.

The government needs to take the lead in putting in place the appropriate framework while inviting genuinely interested private players to put together PPP projects that would include the most important stakeholder — the community — as partners in the whole growth process.

Today this need appears to synergise with larger political interests and, therefore, a structured and modified PPP process (compared to commercial viability based infrastructure model) will go a long way in creating a win-win situation for society, government and political masses.

Role of panchayats

As the most authentic representation of masses, panchayats bring in a new perspective to the challenges of governance, empowerment and even delivery of public services to the community.

In spite of dependency on State-level commitment and action including provisions on graam sabhas, elections, dissolution, reservations, devolution, District Planning Committees (DPCs); there is enormous potential for promotion of a partnership between the private sector and the panchayats across the country.

With about three-fourths of our population residing in rural areas, with agriculture being the main income source; panchayats can be the best medium for spreading the benefits of rapid economic growth.

Panchayats as delivery mechanisms represent the emphasis on empowering grassroots democracy and act as an effective institutional intermediary for the rural community, enabling technological and financial investment. Panchayats are also potentially the best alternative for making available credit, insurance and other financial services to these communities.

Private and public sector entrepreneurs need to connect with Panchayati Raj institutions directly or through the Panchayati Raj departments of State governments, and establish the necessary linkages for exploiting their business potential.

There can be no better facilitators for such solutions than the freely elected local representatives of the community, reflecting, as they do, the social profile of the community as a whole.

There is an urgent need to apply the co-operative ideology in rural India in an innovative and market responsive manner. The very essence of a cooperative is that the members have stake in it.

In India, however, it is quite difficult for the poor to get together and form cooperatives. Hence the workers/society have no equity stake in the organisation.

Another challenge that cooperatives face is that of weak management. The model should holistically include the local community as a project partner and invite professional management to handhold them initially. A cooperative that is based on the principle of social equity and is run by professional management will ensure profitability in business and ensure inclusive growth and poverty reduction.

Producer Company structure

‘Producer Company’ model was the outcome of a 2002 amendment to the Companies Act, enabling a legal framework in which flexible yet accountable structures exist. It gives primary producers the flexibility to organise themselves as a normal company but on the basis of a one-man one-vote principle which is the essence of a co-operative institution.

Producer companies combine the economic advantage of a corporate entity with the social benefits of a co-operative. The Producer Company format is a more efficient way of organising micro level producers.

It offers them the opportunity to compete and collaborate with other business organisations such as large companies. A producer company is mostly formed by groups of producers who form themselves into trusts or boards. These trusts then come together to form a company. The trusts have up to 51 per cent stake in the company while the remaining equity is brought in by a large private company or player.

The emphasis on the social equity based model is crucial in drawing up a model that is inclusive, sustainable and collaborative.

Delivery mechanisms will differ depending on various parameters. However, no matter which delivery mechanism is followed, there will be need for constant government support, both legally and institutionally.

(The author is Country Head, Strategic Initiatives & Advisory Government, YES Bank.)

More Stories on : Economy | Rural Development

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Borrowing abroad made easier

Mechanisms for inclusive growth

Gains from the Finance Act, 2008

A circular gets judicial backing

Taxing times for IPL?

Longevity norms aren’t universal

Rationing supplies

Increasing wealth of politicians