Bangalore: The government will deliver its budget for 2011-12 later this month amid inflationary and fiscal concerns. The budget should promote infrastructure, create opportunities for entrepreneurs and new businesses, and encourage research and development, said panellists on the Bangalore leg of Mint’s Budget Agenda 2011, a four-city pre-budget discussion.
Speakers debating the topic ‘Driving inclusiveness in industrial growth’ included Krishnan Ganesh, entrepreneur; Harish Bhat, chief operating officer (COO), watches, Titan Industries Ltd; Manish Sabharwal, chairman, Teamlease Services Pvt. Ltd; Poornima Shenoy, president, India Semiconductor Association; and Anil Padmanabhan, deputy managing editor, Mint. Haseeb A. Drabu, a former chairman of Jammu and Kashmir Bank and a Mint columnist, moderated the discussion. He started off by asking the speakers to talk about how to make the Union budget relevant to new realities and new businesses in their respective fields. Edited excerpts:
Manish Sabharwal: The big lesson of the last 20 years, which happens to be the 20th anniversary of reforms, is that growth actually doesn’t lead to poverty reduction. Poverty reduction comes from three Es—education, employment and employability. In the next 20 years, the five states of Gujarat, Maharashtra, Andhra Pradesh, Tamil Nadu and Karnataka will account for 45% of GDP (gross domestic product), which is only 5% of the population. Uttar Pradesh, Bihar, Orissa, Rajasthan will have 45% of population growth. Next is geography of work in sectors. Geography of work needs to be shaken up badly. And third, which is obvious to everybody, is matching skills. The skills with which people are coming out of the education system into vocational system, there is a gap between the two... The budget would be important if you would create road clusters and get all the agenda that is already on the table out of the way, around education, employment and employability.
Krishnan Ganesh: From my entrepreneurial point of view, from the services sector, we need people with certain skills for which we train people to service the global markets, and we are willing to do that. Fundamental question is, what can the government do and what are the challenges we are facing? (At) any call centre or information technology (IT) services industry, we start doing multiple things, like power generation and transport infrastructure, which actually should be done by the government. We have taken these for granted as things that the government won’t do. But this works for some time. This works for some time. But imagine the cost of doing all this. In TutorVista, this is why we decided that people should work from home. It took only five years for a sunrise sector like the BPO (business process outsourcing) sector to lose out to the Philippines because it became uncompetitive in the global market. Creating the basic infrastructure to encourage services, business entrepreneurs is what the government and the budget should do...
Poornima Shenoy: If India has to continue at a growth of 7.8% year on year, we need to see larger investment into research and development (R&D) and investment into supporting innovation. Until 2006, China had no R&D policy. Today, they spend about 1.5% of their GDP in R&D, and in five years they plan to spend up to 2.5% in a focused and orderly manner. The UK and (the) US spend about 2.5% and plan to spend about 2.7% of GDP. India, on the other hand, which produces a larger number of engineers, has 0.8% of its GDP invested into R&D and this number has been static for several years and we don’t see any focused effort right now. We need to start looking at how we build products in India for India and start targeting other geographies of the world.
Harish Bhat: The story of consumer confidence is what should be protected by the government and the budget this time. According to recent data by AC Nielsen, India has the highest consumer confidence in the world, which reflects the purchasing pattern of consumers in the last 12 months. Impulse buying is back and consumers are willing to open their purse strings. The central story of the budget is that the government should empower industries in whatever sector by ensuring consumer confidence continues to remain at a high level, and for that we need a stable economic environment. The budget has to ensure stability and that would be the foremost task. Many, many years ago, I would attend these budget lectures by Nani Palkhiwala in Mumbai and he used to say that there are only two kinds of budgets, which finance ministers produce. One, a ‘tinkerous’ budget with small ‘tinkerings’ around parameters, and the other an ‘architect’s’ budget. I think this budget should be an architect’s budget for supporting the India growth story and protecting consumer confidence.
On the budgetary allocation of expenses, and can there be a fresh look on how the money should be spent?
MS: We have got the big picture. We have to get around with the agenda, with education reforms, like allowing private sector, and allow education with public money through private delivery. That could be one of the biggest innovations of the decade. The government doesn’t have agents for delivery. It is time to attach strings to money we allocate. We should have a different system to education than keep adding money to it. We need to create apprenticeship programmes to build skills and assets to increase productivity. The finance ministers of states have the ability to create fear of falling in the hope of rising, ability to create performance incentives, to link allocations to outcomes.
PS: R&D is a new economy industry and carries a far lesser amount of baggage. We need to start looking at the next 20 years in a different light altogether. How can we look at better public-private partnerships (PPP)? New York state decided to invest into urban technology with Columbia University. Companies like IBM (Corp.) decided to step in. It is seeing better use of facilities, better infrastructure which is a win-win for PPP. In India, too, we need to see more such coordination.
KG: I firmly believe in education, fundamental education or even vocational training; the government should not actually be doing it, but should only fund it and not try to operate it. The government school system is a failure in India, unlike the US or Europe, where the government or public schools are the best schools. My driver doesn’t send his kids to a government school. My submission is that government should act as a fund giver, and the private sector is perfectly capable of operating it efficiently as we have seen in airlines, telecom or any other sector where the private sector has been allowed. Let the private sector compete and do the job. The fundamental shift needs to happen and that can’t be restricted to public-private partnerships. PPP schemes are good but tough to implement. One key issue is—don’t operate and be the fund giver; automatically young entrepreneurs will come.
HB: I agree with Manish that there should be a smart allocation of budgetary funds and there should be support for corporates in specific areas where India has strategic advantages. Coming from the watches industry, India can well become a manufacturing hub for specific industries worldwide, particularly when the Chinese manufacturing chain is going through convulsions and shock due to wage and cost increases. The Indian watch industry is about 47 million watches, but the global watch industry is about 1,000 million watches. Can India take a 10-20% share of the global watches industry and take it away from China? There are opportunities for corporates to create manufacturing hubs within the country, and they would do it if the government provides adequate infrastructure to support it, or else these opportunities would go to Vietnam or other countries.
Anil Padmanabhan: You are saying the budget has to be employment friendly, portable, and horizontally scalable. Input-wise, smaller units contribute a fair amount (40%) but I see no representation of them in the Union budget, except for tinkering with excise, or preserving Mahatma Gandhi’s legacy of khadi. Beyond that, there is no focus to create small entrepreneurs.