The country need far more competition to come into business to accelerate growth, as the evidence from the past shows that wealth creation and growth has accelerated after the market was opened up, said Chief Economic Adviser K V Subramanian. Competition has helped the companies to innovate and helped people from the non-preveleged background to be part of wealth creation.
Delivering the 7th Dr Raja J Chelliah Memorial Lecture on Ethical Wealth Creation, organised by the Southern India Chamber of Commerce and Industry and Madras School of Economics, he said that after liberalisation, challenge has been created, wealth creation has happened at an accelerated pace because there has been new firms entry, new sectors came into play and new ideas fructified.
"Sensex had a couple of sectors dominating in 1985, since there were less competitioin and today Sensex is far more democratised in terms of representation of different sectors. This is reflection of greater competition. We need lot more competition and challenge has to be a part of the economy," he said. One of the key ways in which wealth creation happens is when people who come from nowhere, from non-previleged background are able to challenge and this should happen in business as well.
"Take cricket for instance, Mahindra Singh Dhoni is from Jharkhand and is an icon here in Chennai. Or take the case of Jasprit Bumrah. If you went back 30-40 years back, cricketers came from Mumbai, Hyderabad, Bengaluru and Delhi a little bit - the elite. Today cricketers come from various corners of the country. That is the effect competition has brought," he added.
Markets do need the role of trust to work and rather than looking at anecdotes of the 10 per cent time when the markets did not work, economists should look at the 85-90 per cent time when the market do work.
India need pro-business policies and not pro-crony policies, he said stating that the "connected companies" earned far more return before the CAG's report on telecom spectrum allocations in 2011, not because of quality of the products or services they had and lost the market after that. Fair entry is extremely important in an economy so that cronyism does not develop, which is important in Indian economy.
Competition brought in by private sector has helped increased growth. The growth of road transport as against railways, both in passenger and freight traffic is evidence to this, as discussed in the Economic Survey released last month. The announcement privatisation has helped BPCL to grow faster than its peer HPCL and resulted in creation of Rs 33,000 crore of wealth, he dded. The netprofit and the net worth of the privatised firms as against their peers has also grown faster.
India still have many obstacles created by anachronistic laws. One such is Essential Commodities Act, 1955, which might have been a relevant one during that period. But today there is no food shortage and as times pass the relevance of those laws has also to be questioned. The increase in onion prices recently, where there was a shortage and volatility increased and stock limits were imposed, shows that Essential Commodities Act did not have much of an impact. Thousands of raids were conducted under the ambit of the Act, it did not have impact on the prices of Onion and this raises the question on the role of the Act. If the government want to double the farmer's income, it cannot call the stockers as hoarders.
If the country need to enter into the top 50 countries in the Ease of Doing Business, there is a lot more to be done. India ranked 163 of 192 countries in enforcing contracts, which everybody has to think of. Assemble in India, which has also been discussed in both the Economic Survey and the Union Budget, will help the country to bring in more growth, as an initial step to making in India.
C Rangarajan, former chairman, Economic Advisory Council to the Prime Minister and former Governor of Reserve Bank of India has sought the Chief Economic Adviser K V Subramanian to bring in clarity to the doubts in the mind of people regarding the GDP growth numbers the government has given out.
Presiding over the 7th Dr Raja J Chelliah Memorial Lecture on Ethical Wealth Creation, organised by the Southern India Chamber of Commerce and Industry and Madras School of Economics, where the Lecture was given by Subramanian, he said, "In the Economic Survey there is a chapter on the economic growth of the country. I want to say that those who are now incharge have to find more satisfactory answers to the kind of doubts arise in the minds of people."
"If you look at the rate of growth of the economy, the one thing that disturbs people is what is happening in the manufacturing. People are not disputing what the old methodology showed agriculture growth as against the new method, or in services sector for that matter. It is manufacturing which is showing some problem. In a year in which many people thought that the economy is disturbed, you show a rate of growth of 8.2 per cent," he said.
He added that he himself has recommended use of the MCA21 data, which is an electronic repository of corporate filings with the Ministry of Corporate Affairs, in the method, but there is a problem in using the data because the corporate affairs data are in value terms and National Income is looking at the real term and it is not known how the translation is being done. Since the MCA 21 data is not in the public domain no other person can really look at what is wrong or how it is being used.
"My request to you will be that you should ask your own people to just look carefully at the MCA21 data, to look at sectorally and see whether the manufacturing growth they are talking about a particular sector is in accord with what the sector experts would see. All these things about difference in methodology, all that is not the answer. You talked about causation and correlation. There was a correlation and they have misunderstood as causation. This is Subramanian's big mistake. You cannot say that these indicators correspond with GDP growth and also use that as a regression to find out what the rate of growth should be. The trust in statistics, trust in the numbers has become a question mark. Please clarify it, it would be in the best interest of the country." he added.
He said that he is not blaming anybody or not talking as if somebody deliberately did anything or not. How the MCA 21 data has been used, how some numbers have come and why the perception is so different is something that should be clarified which would increase the trust, said Rangarajan.
His comment comes after there were questions raised over the government's calculations on the GDP growth, and the government defended its decision to rely on MCA 21 database to arrive at the numbers.