Grasping ‘Pravasiye’ Opportunities

The 13th meeting of Pravasi Bhartiya Divas was concluded last week in Ahmedabad. This congregation of Indians every year presents the diversity of Indians living and working abroad.

There are basically two categories of the Indian Diaspora - Non Resident Indian ((NRI) i.e. “a citizen of India who holds an Indian passport and has temporarily emigrated to another country for six months or more for employment, residence, education or any other purposes”) and Person of Indian Origin ((POI)  i.e. “ a person who was born in India or whose ancestors were born in India or other states who have Indian ancestry but is not a citizen of India and is the citizen of another country.”)

Indian has the second largest Diaspora in the world, spread across 200 countries. The Gulf Cooperative Council (GCC) accounts for the largest share of Indian Diaspora accounting for over 6 million Indians followed by Europe. United Kingdom, alone is a home to close to 2 millions of Indian Diaspora Population. The United States has 1.5 millions of Indian Diaspora population.

The geographical spread of Indian Diaspora across the globe and the reasons contributing to migration of people from India have evolved overtime. Historically, Indians left the country as indentured labourers to the destination countries of Caribbean, Fiji and Mauritius. In contrast, the current migratory flows from India comprise of students and qualified professionals and intellectual personnel to developed countries, particularly, UK, USA, New Zealand, Canada and Australia. The movement of skilled personnel has accelerated particularly from 1990s following the rapid development of Information-Technology. There is an outflow of semi-skilled and unskilled workers too, which remains biased towards the Gulf.

The NRI community traditionally had a nostalgia and attachment to their homeland but felt alienated and ignored by the government. They often felt that the Indian embassies paid scant attention. Sieglinde Lekme has said “Sometimes diaspora art expresses a longing for home, and frequently it tries to construct a collective identity out of its mostly heterogeneous reality.”. So how can we convert these longings into tangible investment opportunities?

Overtime the Diaspora Community has also metamorphosed itself. They have reached second and third generations. Also they have integrated themselves well with their destination countries. In United States they have acquired advantaged positions and entered the political arena of the country. The US Administration has more than 50 Indians in it including Mr. Rajiv Shah who has acquired the highest position in US Aid as the admin of the US Aid. In United Kingdom also the status of the Indian Diaspora has changed. There are 18 Indians in the House of Lords and 6 British Indians in the House of Commons. This part of Indian Diaspora has showcased significant influence in policy changes. Integration of Indians abroad with the destination countries’ top layer of entrepreneurs and politicians has helped India in increasing its political reach and strategic influence globally.

How can this Diaspora be most effectively harnessed for India’s development?

The Overseas Indian Community contributes to country’s GDP by the way of remittances. India is one of topper recipients of remittances. It received a total of $70 billion as remittances in 2013, two thirds of which came from the Gulf Countries and North America. The remaining one-third is significantly accounted for by the European Countries of UK and Canada. The shares of major source countries in the total remittances flowing to India have remained more or less the same for almost a decade now.

These remittances play a crucial role in creating consumption demand domestically by directly lending purchasing power to the migrants’ families. Besides, the inflow of remittances provides a cushion against the current account deficit and thus helps in managing country’s Balance of Payment (BoP) Account. Of late, there has been a gradual increase in the inflow of remittances as savings in the bank accounts facilitated by the moderated cost of transferring remittances and deregulated interest rates on bank deposits by NRIs in the Non Residential Ordinary Accounts and Non Residential External Accounts.

Albeit increased remittance and investment inflows, yet the Diaspora involvement in country’s development matrix remains below its potential. How can the Indian Diaspora be enabled to contribute to the development of their motherland?

First, though the use of remittances for purposes other than consumption has somewhat increased but there is ample scope for better channelisation of this monetary contribution of the Diaspora. Increased inflow of remittances to the directed to savings accounts in the banks can be leveraged for increasing the liquidity in the economy. Alternatively, these funds can be loaned out towards funding investments in the economy. This would inturn create new employment opportunities, infuse new income followed by new consumption and investment in the economy through remittance multiplier effect.

Second, electronic transfers are the most preferred and easy mode to transfer remittances for Indians living abroad. Thus, improved basic technological know-how at the home country to receive electronic transfers can enhance the inflow of remittances through formal channels.

Third, the Indians living abroad can also take part in country’s development by making direct investments and also by making available their intellectual and entrepreneurial expertise for the country. Countries like China have been successful in attracting its trained and qualified Diaspora in the developed countries to return and play a role in Chinese think tanks and universities.  Similar arrangements can be made in India wherein the Indian personnel abroad can come and undertake some specialized activities like major surgeries; teach for a semester or for sometime if resettlement in India is not feasible and collaborate with the research departments of Indian academic institutions. They can help in finding innovative solutions to improve the outcome through public outlays.

Finally, while the 13th Pravasi Bhartiya Divas in Ahmedabad had a very robust presence given the attraction of the new government and Prime Minister Modi’s appeal to Non Resident Indians, this cannot be said of many other states in India. Gujarat is a shining example but other parts of the country need to emulate the story. Innovative ways to integrate the Diaspora and making them partners in development are required.

Indians abroad are now players in influencing the political and economic discussion making in US, UK and Australia. It is a challenge on to harness and leverage their new found political and economic power to India’s advantage to garner greater investments, inward capital flows, technology cooperation and counteract the growing influence of some other competing countries.

As India matures, so does the Indian Diaspora. We need to build virtual circles on their new strengths. The challenge is of grasping these new opportunities.

India in 2015: Challenges Ahead

This is my first column for 2015. Let me begin by wishing my readers a very happy 2015. Sarah Ban Breathnach has said, “New Year's Day. A fresh start. A new chapter in life waiting to be written. New questions to be asked, embraced, and loved. Only dreams give birth to change.” and yet Winston Churchil has cautioned us that, “It is always wise to look ahead, but difficult to look further than you can see.”.

The year that went by contributed to some important turnarounds.

First, we have a strong, stable and credible government with a decisive leader. The era of fractured coalition politics is hopefully behind us for some time. The parliamentary majority in the Lok Sabha is decisive for the ruling party. In the Rajya Sabha the ruling party does not have a majority and forging bipartisan support will remain a challenge. It will test the skills of the ruling party in the months ahead. Even while the spectacular victories in Maharashtra and Haryana following the general election of 2014 was a reiteration of the pro-Modi sentiment, the recent victory in Jharkhand and decisive improvement in Jammu & Kashmir mark a continuation of the same trend albeit according to some in muted form. The changed composition of the Electoral College will improve BJP’s strength in upper house in 2016 with continuing improvements.

Second, the economic decline looks to have bottomed out. We have hopefully seen an end of the prolonged period of policy paralysis, sub-5 percent growth, unsustainable Current Account Deficit, raging inflation, rising subsidy bills and little or no credible action aimed at macro-economic stability or structural reforms. This fiscal year will end with growth rate somewhere between 5.4-5.9 percent, moderation of inflation, a manageable current account, a modest revival of investor confidence. Interest rates would come down this week or by the first week of February. The recent ingredients of structural reforms includes deregulation of diesel prices, replacing cooking gas subsidy with direct transfers, reforming coal sector and allowing private sector in it, Pradhan Mantri Jan Dhan Yojna, Swachha Bharat Abhiyan and labour reforms.

Third, looking at the external factors, the world in general presents a mixed picture. Japanese economy will struggle to crawl out of recession even under the renewed leadership of Abe. The slowdown in Chinese economy will persist for a while with declining competitiveness in labour intensive manufacturing. The American economy has shown a sharp upward turn with expectations of increase in interest rates which may encourage outward capital flows with pressure on our exchange rate and current account deficit. The European economy would remain in doldrums. The growing geo political tension between Russia and the West could create multiple dynamics of its own.

Fourth, the altered global energy scenario with medium term prognosis of soft oil prices has huge implications for India. The current downward trend in petroleum and oil prices would benefit fiscal management particularly subsidy flow but make renewable energy less cost competitive. A robust recovery of our exports, given global uncertainties, could remain problematic. This could impact the current account deficit. However, on the whole, the external environment in the short term looks advantageous for us. The subdued inflation behavior should be used as an opportunity to rationalize cross subsidies and pursue many pending reforms.

So what are the challenges which we face? And what could be the most beneficial outcome?

First, combining rapid economic growth with social cohesiveness will remain problematic. Societal evolution in accepting the consequences of rapid growth at best presents a mixed picture. Preserving traditional values, cultural identity, during periods of rapid urbanization and migration poses policy choices on which there are no easy answers.

Second, rapid economic growth cannot be taken for granted. Expectations both form the Prime Minister and the Budget in altering the growth trajectory remain high, almost unrealistic. Policies and procedures when altered have a gestation period. The misalignment between expectations and ground level changes in the short run can create uncertainties. The opposition would hope for political backlash. It is important to persevere and stay on the course.

Third, creating gainful employment both in manufacturing and services will need changes in regulatory framework beyond administrative actions. Some recent measures initiated in earnest to fix time limits on grant of approvals, simplifying the number of approvals needed, resolving contractual disputes, simplifying registration procedures can make a difference on the Ease of doing business. Changes in labour laws would need to go beyond encouraging states to adopt the best practices of some states like Rajasthan and Madhya Pradesh. Legislative action sooner or later will be inevitable. Reports that large foreign investments from relocation of Japanese investment away from China are still in a wait and watch mode for India suggest need for more decisive action.

 Fourth, improving health and education outcomes has received priority focus. Nonetheless, harmonising skill inculcation programmes with emerging demands needs coordinated action between centre and states, the corporate sector and more robust forms of public private partnership.

Fifth, managing parliament, particularly the Rajya Sabha could remain problematic. Government has options by the way of ordinance, its promulgations and Joint Sessions. These are no substitutes for persevering with forging bipartisan support to enact key legislations. Given recent setback in State Elections the opposition may be subdued facilitating greater cooperation during the year.

Sixth, internal security presents a complex challenge. The recent ethnic killings in Assam, challenge of terrorism aided and abated from across the border and the specter of Maoist insurgency in several states requires a robust response. The conduct of peaceful elections in Jammu and Kashmir has many positives.

Finally, harnessing the improved external environment to India’s advantage. The investor appetite in United States Japan and Australia has been rekindled. Translating expectations and commitments into tangible actions may require re-doubling our efforts. Moving foreign policy to foreign economic policy must go beyond rhetoric. Harnessing the enthusiasm of Indian diaspora can be a decisive advantage.

The New Year comes with the renewed hopes and expectations. The prime minister was right when he recently said that the “World is ready for India but is India ready for the world?”. We must prove that we are and that there is credible action to address the key challenges.

It is well said by Joyce Meyer that “We don’t grow when things are easy; we grow when we face challenges.”

नई आर्थिक चुनौतियों की दस्तक

The Power of Zero

In normal parlance achieving zero is not a happy state. Getting zero in examination assessment reports or levels of economic activity or assessing prospects of growth is held as sign of underperformance and weakness. Yet there is some cheer in the economic world for reaching the state of zero inflation. India’s wholesale inflation fell to zero in November- from 7.52 percent a year ago - lowest since July 2009.  There are multiple ways in which price indices are computed in India. The Wholesale Price Index (WPI) measures the price of a representative basket of wholesale goods. In India, this basket is composed of three groups, namely, Primary Articles, Fuel and Power and Manufactured Products. Historically, the wholesale price index (WPI) has been the main measure of inflation in India. The WPI is used by the Government to measure inflation. However, in 2013, the Reserve Bank of India adopted the Consumer Price Index (CPI) as the key measure of inflation following the recommendation of the Urjit Patel Committee. The consumer price index (CPI) undoubtedly works better than wholesale price index (WPI) in capturing market dynamics and arriving at a more realistic inflation forecast. This preferred measure of price index has also come down to 4.38 percent in November from 11.6 percent a year ago. Part of the sharp fall in both retail and wholesale inflation is due to the significant moderation in prices of food and fuel witnessed in recent weeks in addition to the favourable base effect.  There are several questions which this raises.

 

First, the cost and condition of accessing formal credit is influenced by inflationary trends. Contrary to expectations, the RBI in its last policy review announced two weeks ago decided to keep the interest rates unchanged at 8.0 percent which is considered as too high for encouraging new investment decisions.  Infact, the RBI has maintained a retail inflation target of 8% by January 2015 and 6% by January 2016. The Consumer Price Index inflation falling below the 6% target considerably earlier than anticipated may prompt the RBI to begin its easing cycle sooner than later. There are however doubts on the trajectory of inflationary expectations. Inflationary expectation surveys are conducted by the RBI periodically by eliciting opinion of households on their future price expectations. This influences consumer behaviour and consumption pattern. According to the latest Inflation expectation survey of the RBI, the inflationary expectations over the next three months and one year are at 14.6 and 16 percent compared to 12.9 and 15.3 percent in March 2014. Many however doubt if these findings are realistic in nature in determining interest rates. There are also apprehensions on whether the decline in prices of food or fuel is transitory in nature or sustainable. The decline in interest rate has to be sharp and steep to make a difference by signalling that the worst is over also in making investment decisions more viable.

Second, there is a broader issue of refocusing on long-pending reforms with inflation having moderated significantly.  It offers an opportunity and considerable flexibility for politically sensitive subsidy rationalisation apart from number of other economic changes. These reforms can be fast-tracked now including the distortionary regime of price controls and cross-subsidies on LPG, Kerosene and Fertiliser to mention a few. Having eliminated under-recoveries in diesel that amounted to Rs 62,837 crore in 2013-14, the government needs to target the Rs 77,000 crore-odd subsidy on cooking fuels next. It should do this by making all consumers pay the market price for LPG and kerosene, and transferring the difference directly into the bank accounts of actual beneficiaries. The latter must be carefully identified, to include only low-income or vulnerable households deserving of subsidy. The fertilizer subsidy remains a key burden on government finances which is currently estimated at Rs 70,000 crore.  There is therefore need for a rationalistic approach towards pricing of fertiliser and the most commonly used soil nutrient Urea.  Moderating Food prices offers a window of opportunity to fully decontrol sugar and reform the public distribution system to roll out the Direct benefit Transfer scheme. Similarly, prices of public utilities, including electricity, transport and rail passenger fair and freight rates can be progressively freed given the favourable circumstances. The market share of Indian Railways in total freight traffic has been falling consistently and this calls for rationalization of cross-subsidies between passenger fares and freight rates to remove distortions. This is therefore a historic opportunity to fast-track these reforms to make the economy more competitive.

Finally, moderating inflation is also an opportunity to reform the tax regime to make it more progressive and to strengthen the public finances. Moderating inflation is positive news for the government as lesser subsidy outgoes on food and petroleum products and lower costs of borrowing can improve the fiscal health of the economy. Lower input costs and interest rates can boost private investment in infrastructure projects.  With the Wholesale Price Index at zero and the Consumer Price Index at below 5% level, the Indian economy should start picking up steam. But this would largely depend on the pace of fiscal and expenditure reforms which took a back seat in the previous years.

 

The power of zero is a far reaching power. It is a signal of change which affords an opportunity for undertaking long-postponed reforms. Not only has Modi won a historic but the external circumstances have also turned favourable unthinkable only few months ago. Economists may view the free fall in inflation with lots of caution but this could not have come at a more opportune time for India especially with several reform issues hinged on the behaviour of headline inflation. The power of zero must therefore be fully harnessed. Coming few months will be keenly watched on whether we are able to make the most of it.

Smooth start to a tough ride

रौशन भविश्य की ओर कदम

This Dividend Will Be A Cracker