Experts See Holes In Bjps Bhagidari Sector

The BJP has initiated a debate by taking up cudgels in favour of what it describes as the unincorporated Bhagidari sector comprising individuals involved in a variety of trades. However, there are divergent views among experts on the partys stand. We publish their views and the text of the relevant chapter in the partys manifesto

What is the contribution of the unorganised, self-employed sector to national economic growth ? Have they been bypassed by the government and the reforms process ? Do they need and deserve protection and special attention from the government ?

These are some questions that have cropped up in the wake of the BJP including the sector in its manifesto in a prominent way.

 

There is not much research done on this sector. But there is a sharp divergence of views on the contribution and the condition of millions of unincorporated enterprises run by individuals and partnership firms. Planning Commission experts differ on the quantum of the contribution of various sectors to the GDP.

According to them, the contribution of agriculture and allied sectors-which includes mining and quarrying-is 31 per cent, government sector, including public sector undertakings 21 per cent, corporate manufacturing sector 14 per cent and corporate service sector including financial services would be 4-5 per cent. That leaves 29-30 per cent which could be the contribution of the so-called bhagidaris. There are also sharp differences among economists over the BJPs claim that bhagidaris account for 75 per cent of the transport sector and 60 per cent of the construction sector.

The BJP is obviously not taking into account railways and the public works departments from the central government to district panchayat level while talking about the transport sector and construction sectors. The railways account for 44 per cent of transport, an expert with the Central Statistical Organisation said.

Whose cause is the BJP advocating ? There is really no need to go into the partys motives. An analysis of the Bhagidari community will itself throw up some answers.

A clear distinction must be made between the self-employed millions who live at the subsistence level and those that earn huge incomes. You cannot club two groups of people- hawkers and khadi weavers with doctors, lawyers and chartered accountants, Om Prakash Mathur, an economist with the National Institute of Public Finance (NIPF) said.

Experts comment on the issues thrown up by the BJP manifesto:

Q: Has the `Bhagidari sector been neglected in the past ?

Mathur: Some of the welfare schemes like Jawahar Rojgar Yojana, Swarna Jayanti Yojana and schemes for weavers are meant to provide credit for self-employment to these sections who cannot provide collateral security to banks. This issue of providing credit to the self-employed poor who cannot provide collateral security to banks has been given some thought. There have been proposals for creating a development bank for them and the issue has also been discussed seriously at the government level.

S R Mohnot, executive chairman, Centre for Industrial & Economic Research: The so-called `Bhagidari sector means, by a process of elimination, the non-public non-corporate sector. It has two components: the small and tiny secondary sector and a large part of the services sector. Of the two, the informal secondary sector dominates in terms of physical output; and the widely dispersed services sector dominates in terms of employment.

The informal secondary sector has not been neglected in the past at least in terms of policy. If the support has been resource inefficient it is a common malady of the regulatory economic system. The support has been in many forms, excise duty exemptions, subsidised power, financial assistance including customs relief, purchase and price preference. The government has also provided financial support especially through apex SIDBI.This has enabled the sector to contribute a handsome share in incremental output, employment and exports.

A break-up of the services sector will also show that some segments, such as the transport sector, has received assistance from the government, such as, by way of subsidised diesel prices, and bank loans to truck and taxi operators. Nonetheless, a large part of the services sector has remained outside the support-net. Wherever it was given it has been misdirected and misapplied.

The bank credit to the small scale industry sector expanded during the 1990s and kept pace with the total bank credit at around 15%. The fact that over 200,000 units are sick, blocking over Rs 8000 crores of bank credit, proves that while financial assistance was given it was not efficiently administered and monitored.

Jay Dubashi, member, BJPs economy cell: Our focus is the poor people, mostly craftsmen who have been totally ignored. I think the manifesto should have focussed on the number of people involved in this sector which is about 26 per cent of the working population.

Q: Does the sector need support ?

Mathur: A section of these people, particularly lawyers, building contractors, chartered accountants and medical practitioners are outside the tax net or have been paying much less taxes than they should. I dont see why the government should be extending protection or incentives to them.There is justification in extending the system of micro-credit to those who live at the subsistence level.

Mohnot: While the small and the informal sector does need support to enable it to adjust to the sudden transformation of the emerging economic equations, one has to be very cautious in extending support if it is not efficiently directed. The best support the state can provide is in terms of human resource development (upgradation of skills) and infrastructure support. The four decades of experience shows that the direct financial assistance will not be targeted where it is needed and will not be applied optimally. Another area where an efficient support system could be organised is the transfer, absorption and development of technology. It needs to be clearly understood that any support which does not induce the recipient to be an efficient producer-be it physical or intangible output-will be self-defeating. What is most needed is the right prioritisation and design and development of the delivery system - the absence of which has cost the economy so dearly in the past.

Dubashi: Most of these so-called welfare schemes are focussed in and around urban areas and in areas where PSUs exist. There is very little effort to provide credit to the poor self-employed people who are mostly on their own in the rural areas. Most of them do not have any income worth paying taxes. Whatever tax evasion takes place is only among professionals like lawyers and doctors.

Q. Is the sector growing fast (as compared to the corporate sector) ?

Mathur: A good part of this is the service sector which is indeed growing at a faster rate than the manufacturing sector. Besides, the unorganised sector has been the beneficiary of certain developments like the stress in certain companies on outsourcing goods and services.

Mohnot: With global exposure and the role of the multinationals, only resource-efficient production units will survive. This will need the injection of a major dose of new and cost-efficient technologies. As the economy grows at the relatively high rate of 7 to 8 per cent, some of the services will grow fairly fast.

There are, nonetheless, several segments, such as public administration which, by design, will remain static, if not decline.The growth will draw on both larger inputs in terms of manpower (especially the trading sector) and by means of substantial value addition.

Dubashi: There is a serious danger of a large section of self-employed people suffering grievously if they continue to be neglected. If that happens, this sector will not grow as fast as it is at present.