The real growth engine

India Uninc. throws up some interesting dimensions of the needs of the unincorporated sector, which, despite its substantial share in the economy, has been largely ignored and misunderstood in the country

Why are Indians so attracted to gold? In the din last year over the current account deficit (CAD) reaching unmanageable levels and import of gold contributing significantly to this, this question got lost with the government imposing import curbs and hiking duties. Thanks to the RBI and government measures, gold imports and CAD are now under control. So, it would be worthwhile to think again about the significance of gold in Indian households.

R Vaidyanathan?s India Uninc. offers an interesting logic, which the government might consider while taking decisions on tackling gold demand in the country in future.

?The total absence of old-age social security in India makes it imperative for certain categories of people like women and self-employed groups to look at gold, which is a highly liquid, transferable and low-cost asset to acquire, for safeguarding their future. The government, on its part, has to change its stance, acknowledge the role of gold and regard it as an investment and not merely a consumption item,? the author, a professor at IIM Bangalore, writes.

The larger point Vaidyanathan makes in the book is that the focus of policy and support for business is mostly for the corporate sector, while the non-corporate sector has been ignored despite its share being larger in the economy. Its share in the national income is about 45% compared to around 15% of the corporate sector.

Vaidyanathan has tried to bring out how the largest component of the national economy, proprietorship and partnership firms, is an area that planners often miss and economists fail to understand.

The author, through data available in the public domain, has portrayed the significant role played by the non-government, non-agricultural and non-corporate activities, which are dominant in services like trade, transport, construction, hotels and restaurants, and other services. The segment is also important for the manufacturing sector, as it handles the outsourced work of large corporate firms.

Though submerged in numbers, which makes the reading of different aspects associated with the non-corporate sector a little less interesting, the facts in the book more than make up for it. The role of the non-corporate sector in savings and capital formation, the largest employer in the country next only to agriculture, is known, but whether it is getting the required recognition is the question. The author has tried to prove bit by bit in the book that it is not. About 70-80% of savings in the country come from the household sector.

Indeed, there is a need to correct this approach. More so because, says the author, ?Research shows that the fastest growing activities are those activities in which non-corporate India?unincorporated companies?is a dominant player. It would not be wrong to say that India Uninc. is the engine of our economic growth.?

And what constitutes India Unincorporated or India Uninc? The unincorporated sector is much larger than the unorganised sector?all unregistered units in the manufacturing sector and partnership, proprietorship firms in trade, transport, construction, hotels, restaurants and other services belong to this segment.

It also consists of self-employed persons like barbers, cobblers, carpenters, plumbers, electricians, commission agents, cycle-rickshaw pullers, as also chartered accountants, architects, lawyers, priests, etc.

Going by the author, India Uninc is getting a raw deal in terms of taxation and regulations, both at the central and state levels?not much reform has been done here.

?The reforms have not focused on the activities of India Uninc. And unfortunately, we find that many policy formulations are not conducive for their growth… The idea of this book is to generate discussion regarding the largest but least focussed component of our economy, the non-corporate sector?India Uninc.?

The stress on globalisation, though, has helped, but the course chosen from here will decide the future of Indian Uninc and will also have huge implications for our savings, employment and social security.

But his argument gets stretched when he says, ?In spite of the noise made about the importance of foreign investment in our country, we find that their role is less than 10%. FDI/FII in our country is like pickles

to curd rice and not the main dish. Still, so overpowering is our Anglophilia that it is made to appear that the entire Indian economy is dependent on foreign investment.?

There is no doubt that going forward, policymakers must give India Uninc due recognition and fine-tune regulation and taxation framework accordingly. It would have been better if the author had adopted a balanced approach and given the need of foreign investment in critical sectors like infrastructure its due credit.

Nevertheless, Vaidyanathan?s analysis in the book will certainly be of help in framing income tax, regulatory and financial framework for what he calls the real growth engine of the economy?India Uninc.

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First published on: 23-03-2014 at 04:51 IST