Wednesday, June 29, 2005

An enreupreuner's viewpoint about tax-evasion & Tax/GDP ratio

To : Prod. Cp.P.Chandrasekar, JNU, New Delhi

Dear Sir,

I am an entreupreuner running a SSI unit (molding)
at Chennai.

We are taxed at 35 % income tax ; and sales, excise
and power tax (as indirect -cross subsidy to domestic
consumers) constitute a good chuck of our turn-over.
Our power bill comes at a whopping 35 % of our monthly

I undertand that you are advocating rising the tax-GDP
ratio even higher. GDP is the total turnover of all
industries, enterprises, indiviuals, etc. It is the
total annaul sales turnover. Not the gross profit,
as many are misled to belive.

Now, we make some 15 % profit on our annual turnover .

So, we cheat on income tax with the help of accountants and auditors.
We inflate the expenses, sell without invoices, try to
con the tax adminisntrators. We bribe them to avoid
penalisation. We feel that the present tax rates and
regime are grossly unfair and very high (incl of power
subsisdy that we foot).

The govt comes in as a 1/3 partner without putting any
capital at the end ofthe year (while never sharing our
losses or problems).

We work hard and take great pains in running the unit
profitably. It is my hard earned money and i have the
fundamental right to spend it as i deem fit. i try to
treat my workers with compassion and sensitivity.
But charity and service will be at my terms, not at
any one else's.

I propose that JNU professors and economists/authors
may be taxed at a 'progressive' rate of some
73 % of gross income. Rs.10,000 p.m may be enough for
you to live comfortably. Or i suggest that you resign
your safe govt job and enter self employement like
publishing, etc, so that you may understand our
feelings and problems.

Over taxation in the 50s and 60s at some 90 % max plus
licence raj with 20 % inflation had wrecked our
economy and morals. A whole generation of would-be
entreupreuners were made into govt-job seeking
weaklings and enterprising nature was punished as
'profit-mongers' ; Any working man (like you or me)
works for making money (be it salary or wages or
profit) ; then why is it that only capitalists alone
are blamed as 'selfish'.

We have a more objective insight into human nature
than any Marxists. Man will work hard and give his best
only when there is an incentive to gain (profit, etc).
Otherwise, in a regulated and controlled set-up, like
in govt jobs, ineffeicney and sloth plus corruption
floursihes. How is it that many pvt enterprise better
and cheaper services than govt (like in transport or

Thanks & Regards

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Tuesday, May 03, 2005

govt deficits and inflation

Dear Sir,

Thnaks for your prompt reply to my mail.
the combined deficits of central and all stare govts
is more than 10% of GDP. And inflation may have fallen
in recent years ; and the current rise is due to
crude oil prices, etc.But still the basic reasons for
the 5 % inflation (that is according to govt
statistics) is too high. In reality, for the layman
and consumers, prices more than double in a decade.
And real rate of inflation is always higher than the
govt statistics.

The formula
rate of inflation = rate of growth of money suppy -
rate of growth of GDP
is always valid.

And it is obvious govt pumps in about 15% of money
into the economy. Pls elaborate and educate us all
about this fraud commited in the name of 'public
good'. and most state govts will be bankrupt soon,
even thought the economy may grow and look healthy.
Maharastra seems to top the list.

And Germany which sufferd terribly in the after math
of both the world wars experienced hyper-inlfation.
And till date the Germany's main objective is to keep
inflation below 2 % (or so). And that is why she is
today the strongest and healthiest economy in Europe.
We should learn from Germany's history.

thanks & Regards

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Monday, May 02, 2005

On National Debt

On National Debt

The idea of National Debt has become outdated. Nowadays people look upon it as some sort of benignant tumour, growing all the time, taking all the space but giving no pain; so why worry about it?

Nothing can be more dangerous to the stability of the government than the above view. History has repeatedly shown us countries and empires fail mainly because they become bankrupt. Wars, revolutionaries, epidemics, succession disputes are all only the immediate provocation for a crisis; but ultimately countries fail because they are bankrupt by the time that crisis arrives; because their taxation reaches unreasonable levels; because the people become so disgusted with the government they’d rather see it disappear.

The Government of India is a shining example of Spencer’s Law: Men will go for the rational solution, but only after exploring all other avenues. After experimenting with every possible scheme that goes against the basic tenets of economics, under the sweeping label of ‘socialism’, it has finally found that, to become rich there is no alternative to profit-making. Still, in managing its finances, it is yet to exhaust all the avenues and come to a reasonable understanding.
Let us get our basics straight: the economic laws that hold good for a household hold good for a country. A country has to earn more and spend less to make a profit; a country has to borrow if its expenditure exceeds its income; and a country can become insolvent the same way a family becomes. Anyone who tells you otherwise is either cheating himself or cheating you.

The cute little tricks that the ‘leftist’ economists tried to pull over these basic tenets are as follows: 1. A family cannot ‘create’ or manage its currency whereas a country can; hence a country can determine the level of its wealth through its currency. This ‘law’ fell flat when the currencies so created and artificially managed, like our Rupee and the Soviet Rouble, found their ‘natural’ values in the international markets, however much these governments tried. The pathetic attempts to artificially boost their currencies bled these countries very much. India had to periodically devalue Rupee since 1947. In 1942 a Dollar was worth two and a half Rupees; now it is worth forty-three Rupees. And that too when the dollar itself was sliding down all the time and the Rupee being an inherently strong currency to boot. In short, a government may create its currency, but it is the country’s economy that manages it. No country can become rich by printing currency. 2. There are other ways a country can ‘create’ wealth by redistributing it and by government spending. Some leftists even dare to quote Keynes as the authority who advised this sort of becoming rich through government spending. This method of becoming rich is exactly equal to lifting yourself up in air by pulling your shoelaces. Keynes’ advice was meant for a very special circumstance, namely the Great Depression, when the currency was strong and overvalued, the Government was rich, solvent and conservative but the majority of the people were poorer because they lost their currency. An insolvent Government cannot ‘create’ any wealth by overspending. It rather will cause more inflation and devalue the currency. And this is precisely what Lord Keynes told. So let us not fool ourselves into believing that microeconomics and macroeconomics are altogether different. They are one and the same, only the jargons differ.

Now a brief review of India’s economic history. India always had a balance of trade in its favour, i.e., it always exported more than it imported. This was true even during the height of British imperialism. And again, it always had a surplus budget, i.e., it always earned more but spent less. Again this was true all through the British history except for a few years of the Second World War. Were the British to incur a loss in running India they would have invited Bahadur Shah Zafar to take over. So, when the British handed over India to us, they gave us a solvent government. India had a public debt even then, but it was well within limits. India had a foreign exchange reserve of five billion Pounds in 1947.

Now our socialist experimenters took over. They told us we were a backward economy because we exported raw materials and imported finished goods and we exported agricultural produce but no machinery. Why should a country be backward just because it exported raw materials, they never bothered to answer. They also covered up the fact that we also had a huge labour market and the combination of the raw material and cheap labour would make us a manufacturing country, if only we let the fellows, with the money and the technology, to invest.

No, thanks, we will do it ourselves, we told the world, and set up our public sector, which is public only in making us bear its losses. We frittered away our foreign reserves in buying machinery and technology. We reduced the export of raw materials because it is a sign of backwardness. We nationalized steel, coal and power, with disastrous consequences. We created militant labour unions that were averse to all forms of work. What followed was a communist heaven: no work, full pay. But in Hindu religion, even the longest stay in heaven will end one day, however much be our punya we will eventually exhaust it and return to earth again. This happened after the 1991 foreign exchange crisis. Since then we are limping towards obeying the basics tenets of economics rather than trying to cheat them. But in the process of these socialist experiments we have incurred a huge national debt. Some noise was made about this when India was short of foreign exchange and spent 25% of its earnings to service its debts – a euphemism for the interest we were paying. But now that the foreign reserves are comfortable nobody is worrying about the national debt.

There are many reputed economists who will tell you not to worry. They will tell you that your debt to GDP ratio is still low, your taxes are only about 8% of the GDP and so you must tax more and spend huge amounts in public works for ‘development’. Let us have a look at these gems of wisdom.

Debt to GDP: this is audacious at the very least and atrocious at the most. GDP is roughly the trade turnover of all our people. Public Debt is incurred by the government, often on expenditures that people might disapprove of. The government cannot take away the entire national income as tax, it has to leave a little bit for the people, so that they can subsist and be taxed next year. So the government’s debts must be compared only to what it can collect as tax from the people, not what the people earn in total. It is meaningless to compare the National Debt to GDP. It is like comparing the debts of a profligate son with the business turnover of his patient father who has a big family: however much is his love, he cannot give up any sizeable portion of his earnings to pay off his son’s racing debts. At some point he would disown his son.

Similarly at some point in the raising taxation the people will refuse to pay the taxes. So this Debt to GDP is one of the most malicious tricks of the trade, beware.

In every taxation, people will try to wriggle away and evade as much as possible, an endeavour that our bureaucrats help very much through arcane rules. This will again reduce the tax collectible, and hence the money at government’s disposal. So far there is no authoritative study on how much of the national income can be collected as tax without risking serious riots. But an empirical and witty work of Northcote Parkinson puts this at 36% (of national income, not GDP).

But it is impossible to reach this point in India for the following reasons: the black economy will overwhelm the white economy under heavy taxation; it is easier to bribe the taxman and get away; and India simply does not have such a heavy mechanism that can track all the transactions and tax them. In India’s case, the limit is only 10% of the GDP, given the rudimentary nature of our transactions and the porous tax net. And we are fast approaching this point, as any Finance Minister will tell you that any more new taxes will not fetch much return.

Hence the second point: Taxation as a percentage of GDP is misleading.
Let us get one more thing straight: government is not a mechanism to create wealth, it is a mechanism of the society to govern itself. If we compare the whole society to a business, then the ‘government’ is its administrative expenses. How much should a company spend on administrative costs? Crudely put, you decide to give a free banquet to 10,000 people, costing 10 lakh Rupees, and you engage a fellow to do this. Some part of this money should be spent on this fellow. How much would you allow? Put this way, the answer is obvious: may be ten thousand, may be twenty, but certainly not one lakh Rupees. Put in words, administrative costs should be only one to two percent of the total turnover. Hence the ideal tax to GDP ratio is 1-2 %, not 10%, i.e., the government should take only 1-2% of GDP for all its expenditure, and again of this sum, only 1-2% should be the ‘administrative cost’- salary, etc to its servants.

Now about public spending. The lesser said the better. At present India is like a family that has both some large debts and some small assets. Supposing it decides to sell the assets and get some money; how should this money be spent? Any prudent housewife will advise you to pay off your debts so that your interest burden will come down. If she advises you to buy a plasma TV with this money, to take a trip to the Maldives, or to spend it on the groceries, then it is time you took to sanyas: once the money is thus spent yours will be a family with some large debts and no assets. Yet, here is a government that is selling away its assets in the form of PSU disinvestments, and spending it to cover day-to-day expenditures. In the esoteric language of the Government, capital receipt is being spent on revenue expenditure. Nobody seems to be bothered about it, rather some people want this money to send a satellite to moon, others to fund an outlandish Food for Work scheme.

Of late another interesting twist has been added to this farce. At present due to the vagaries of time India is enjoying an unprecedented foreign reserve. Very learned scholars are debating how to put this money to ‘serve’ the people. Put this surplus in a corpus fund, urges a noble heart, and use the interest for welfare schemes. It is taken for granted that this new found prosperity is going to last forever, without caring to understand the whimsical nature of modern money that it is supported not by any physical asset but only by the credibility of the issuing government (that is what makes Rupee an inherently strong currency: come what may, a billion Indians are accepting only Rupees, therefore anyone wanting to deal with this billion has to keep some Rupees; the day the corner paanwala prefers payment in Dollars or Euros, Rupee is well and truly gone). It occurs to nobody to pay off our huge foreign debts; the nearest suggestion is that we should exchange high-interest loans for low-interest ones. Our ‘huge’ reserves may vanish within a fortnight if we commit a small error in valuing our Rupee, as Indonesia found to its cost a few years ago. The more reasonable option is to take this opportunity to reduce our foreign debts.

Finally a word about our principles of spending. For years we were told that the government could have ‘small deficit’ in its budget to ‘stimulate’ economic growth. Huge deficits were created and debts incurred in following this principle religiously, but the growth was ridiculously small, and unjustly dubbed the ‘Hindu rate of growth’. Now that the private investment is stimulating all the growth ever needed, and the government has a huge debt burden, it is high time this pious advice was forgotten, India’s budget balanced, and the surplus thus created used for reducing our internal debts. It is high time we froze our expenditure for sometime and reduced our debts and interests. This we owe it not to ourselves but to our sons and successors. No son ever likes to take over a debt-ridden family, why should the country be any different ?

To : Communists & Socialists of India

From :


To :
The CPM Politbureau, New Delhi

Dear Sirs,

I am a middle class man working in a private concernin Chennai. I would like to share my views aboutworking class conditions with you.

The unorganised sector constitutes the majority of theworking class : about 91 % ; they are not unionisedand have no security or other benefits.We support privatisation as we feel it will reducecorruptiion, wastage of public funds, and reduce thecost of services and goods ; and increase employement and prosperity in the long run.

In TN, public transport system is to be partiallyprivatised. And naturally your party opposes it onideological grounds. But reality is somethingdiffernt. No one cares for us public who use theinefficent and insufficeint public transport system.If properly liberated from the License Raj (theexisting private bus toutes are sold for lakhs of rupees in black money among the monopoly privateoperators, as you very well know), we belive the bus transport will be efficent and cheap like thelorry transport sector which is efficent and free.We do not have sufficent buses ; and entire publictransport corporations incur losses not because of cross subsidisation or running busues to remote villages. The losses are mainly due to corruption,lack of accountablity, top heavy adminstration andpolitical interferance and nepotism. No one can reformor improve the existing system.If the system is privatised and liberalised like the lorry transport system, then there will be sufficentand cheap buses all over the country.

Yes, there will retrenchment among the govt workers ;they may get jobs with the private bus companies ;the salary may reduce but the buses will be good.May i ask you, why you are bothered only when suchwell paid minority workers loose jobs ; but do notcare when millions of casual labourers (whodesperately need cheap bus transport) loose theirjobs.

Reg bad debts in public sector banks of 75000 crores :Why do only PSU banks have such severe problems ? whyare private banks like LVB, KVB healthy. You do not address the core of the probelm : the corrupt bankemployees who doled out the loans to unethical business men. Blaming the business men alone will notsolve the problem. And the govt of India (means the tax paying public) will have to bear the burden inwriting off these loans. Like UTI fiasco...

The govt of India and the state govts are all bankruptand very soon paying salary for govt employees isgoing to be a struggle.The CPM West Bengal Govt does privatisation and had recently appointed Mackinskey & Co of USA asconsultants for restrutaring process. Can you expain the double standards of CPM in thisregard ??Personnaly i feel that to be a communist, it takesdedication, selfless nature and above all honesty.

The majority of the organsied trade unions (like therailway union members) are dishonest and misuse theirmembership. They do not care for the real prolateriatof India : the unorganised sector, who are exploited,over worked and under paid); that is why the reach ofCPM is shrinking and strikes organised by govt unionsand others get very little attention from the realproletariat. We do not care.

I have yet to meet a honest union leader from INDIAN Railways who has not amassed a fortune by misusing hisposition. Most of these members have bourgeousie mentality and are fascists. Yet you count them as yourcomrades and dream of using them as instruments of revolution.

Swami Vivekanada (a socialistic swami) called for just 100 dedicated and selfless young men to followhim so that he can change the world. The important factor is that he needed honest and selfless youngmen. QUALITY IS VERY IMPORTANT THAN QUANTITY.You may dismiss me as a bourgeousie or a revisionist ;but in our opinion you can never in 10000 yearssucceed in bringing in a revolution like October revolution of 1918, WITH THESE PSEUDO COMRADES.

With Regards

The real cost of Socialism in India

Reg : Socialism

All our problems in Indian socieity can be traced to unpractical socialism / leftist ideas since 1947.The corruption, nepotisim, fall in moral standards andvalues in all spheres of life is directly linked tothe undermining of our national currency.the socilistic govts until 1991, stiffled growth ofprivate sector (explotiting imperialists !!) and further spent huge money (borrowed or printed ortaxed)on huge PSUs and in reckless expansion of govtmacihnery and creating white elephants like SAIL. while the price of all products produced by PSUs werevery high due to lack of competition and inefficiency,there was also acute shortage of goods (like cementuntil 1980). it gave rise to black market, smuggling,horading and bribery among govt officials.

At one time there was a maximum taxation of about 90 % for many corporates (in addition to high powercharges, sales tax and excise) ; naturally it led toevasion of taxes and created black money.moreover the govt created inflation by meeting thebudgetery and other deficits by printing money.if the wage levels doubled in ten years, price levelsmultipied by four times. And interest rates werearound 20 % ( and unofficial and real rate at around30 % or more ) . Micro credit in samll town markets, etc is at 200 % (kandhu vatti).all govt stastics reg inflation, interest rates, etcae half triths and doesn't cover the black moneysegment. corruption grew slowly and steadily, as it wasimpossible to live honestly on a fixed salary whileprices were rising annually. and huge power was centralised and given to bureacrats who ruled in thelicense permit, quota raj. naturally, they too becomecorrupt. and their culture spread form dept to deptand finally reached the armed forces (Tehelka, Bofors,etc).

Indians were not this corrupt and morally degradedin 1947. There was expoitation, feudalism,zamindarism,casteism, poverty, unempolyment and hunger then ;but as a whole moral values were very high, producingexemplery leaders in politics and other related fields.

These modern day leftists rever Lord Keyenes, whoadvocated deficit financing to stimulate growth.but he prescribed only 2% or less defict. not the 12.5 % defict (gross defict of central and state govtsput togehter as a ratio of GDP). this defict is madeup by recklessly printing money.Keyes had said " there is no better way to underminethe moral and political standards of a nation than byunderming her currency. "there are no free lunches in this world. only wealth,which has been created can be redistriubuted to all.

Soviet Union crumbled not because of US capitalsiticconspiracy, or by huge defence expeditures or byexporting revolution to third world countries atenormous cost ; it crumbled mainly because of overcentralisation of power with burecarcy, corrputionand inefficency of the state run PSUs, short, during the last decades of soviet union,the entire country was run like our present TamilNadu Sate Transport Corporation or Co-op Mills.

The chinese are more wiser and far sighted ; they areliberalising fast and invited MNCs to invest in China.china is still ruled by the Communist party with aniron fist ;they are under no presuure from IMF orWorld Bank or US or WTO ; they sponateously do whatthey are doing. Why don't the Indian communists understand and analyse these factors ?

Please read the book " Free to Choose" by MiltonFreedman,an US free market economist (Nobel prize winner).Competition is most important (while privatising) toensure efficency and productivity. you know very wellthe difference in the bus transport and lorrytransportsector in India. if licences are totally abolishedand free enterprise is allowed in bus transports, then there will be good, sufficeint and cheap buses in all routes ; and moreover the corruption intransport ministry and burecracy, and trade unionswill be finished.

Only 9 % of the total labour force in India comes under organised sector. There is no hope or securityfor the crores of contract labourers, child labourers,agri workers ,etc. if labour laws are liberalisedand hire or fire system is introduced in all sectors(including the govt), the sky will not fall down.the best way that anyone can help the poor in Indiais by stopping the reckless printing of money topay the govt expenses. by guranting the minimum wagesthey get does not erode in real value (purchasingpower), the govt can help them. (than with all theanti-poverty alievation schemes)and the govt is bankrupt ; so we will sell all govtPSUs eventually to meet the deficits.

The dramatic fall in STD rates is a good example offree enterprise Vs govt monopoly. And we are payingartifically high rates for Diesel, Petrol and powerdue to govt monopoloy and corruption.

MNCs and child labour

Dear Sir,

In your recent article in NR you had mentioned about"...exploiting MNCs...".It is ironical that many people object to and opposeMNCs while enjoying the products and services providedby the same MNCs (Santro Car, PCs, Cameras, TVs, VCDplayers, pharma products, garments, software, etc).Globalisation is not evil. And the very humaneeconomist Prof.Amartya Sen (who is respected by Indianleftists) does not oppose globalisation or MNCS.And the workers are better paid and working conditionsare better with MNC factories in India than localones. And the consumers (both of us included) get bestprodcuts and servies at cheaper prices.And wealth is created which will improve the standardand quality of living. And the taxes paid the MNCs andits employees can be used by the govt to fincane itswelfare or other activites.

Everytime i see a child labourer i feel pained andalsoangry with the RBI printing press at Nasik, whichenables the GoI to print ruppees to fiance its growingdeficts.

Growth in money suppy = inflation + GDP growth rate14 % = 7.5 % + 6.5%and 14% grwoth in money supply per year is solely dueto govt deficts (means borrwings from RBI).Economic laws are ruthless and there is escaping theevil effects of inflation ; and over taxation leadsto evasion and corruption (and creation of blackmoney and black economy).I feel that this has corrputed our souls.

One good e.g is the arrest of Kanchi Sankaracjarya.Large amount of donations was received by him frombusinessmes in cash (black money), and probably withBenami people for him. and though his motive in thebeginning was social service, the black moneyeventually have found its way into wrong hands for wrong uses. All of us who use black money wouldbe corrupted in some way or the other and it makesus loose reapect for the law (whatever may be ourraionalisation or justification). Jayendrar's predecessor never touched any cash andnever ever allowed donations in black. And all moneycould be accounted and spent in a legal manner.

The advent of black money donations (the business mentoo could easily donate large amounts in cash, as allof them generate black money in their dealings)changed all this and the end result is now visible.

thanks & regards


What keeps India backward ?

From 12.9.2000
36, Middle St.,
Karur - 639 004 (T.N)


The Cheif Minister,
Tamil Nadu

Dear Sir,
Permit me to express my views about liberalisation and privatisation of Indian
economy. The leftists and the ignorant public still oppose the liberalisation process
initiated in 1991 as anti - poor. Uncontrolled Government expenditure and socialism
are root cause of all the problems we have, including poverty, unemployment, corruption
and high inflation and interest rates.
The Govt of Tamil Nadu is no exception. Creating more districts is an classical example
of increasing wasteful govt expenditure. For example, our Taluk Karur was made into a district
at a cost of about Rs.10 crores, while the revenue collected remains the same. Now there are
three officers of IAS rank and more Police officers. But the number of clerks, constables and
other lower level posts remain as it was. The whole administrative set up is top heavy and leads
to inefficiency and corruption.
The state transport corporations are notorious for badly maintained buses, corruption and
mismanagement. The private buses are well maintained and cost effective and are
profitable. The govt.can issue more routes through open auction and sell off the loss making
state transport corporation( about Rs.400 crores can be saved in losses every year). Auctioning
of all routes every three years( just like the auction of permits for wine shops) can fetch
enormous revenue for the cash strapped government and avoid corruption at the same stroke.
Every one knows that the "route" for the existing bus routes are traded (in black) for tens of
lakhs of rupees. All this illegal money can be garnered by the govt through open auctions and
I have herewith enclosed an article of mine which was published on the internet (about the
damage caused by socialistic policies in India.
Thanking You

A critique of Socialists of India:

Who are the real proletariat of India ?

Leftists of modern times have lost their power of rational,objective analysis.
They are seldom realistic or pragmatic. There is a lot of grey area but these
gentlemen view in only black or white, their vision clouded by their ideology.
There are two totally different types of working class in modern India.The
majority (about 80 percent ) are of the unorganized sector( farming, contract
labourers, domestic workers,construction,etc.)They are unorganized, have no
union or identity or awareness about their rights. They are the silent and
invisible majority,exploited and under paid with no protection or benefits.
The other type is the organized sector ;unionized and militant, recognized
and used by all political parties(including the Marxists).The leftists work only
for these pampered elite at the cost of the silent majority.Worst among these
are the government employees ( all PSUs and govt. departments).They constitute
less than 2 percent of the population, but the government spends a major portion
of its budget on them.

We Indians have developed, over the socialist decades,a double standard
regarding work ethics. Any Indian will work sincerely while being employed
by any private organization (otherwise he will be sacked). The same chap, if
he is employed by the government will become lazy, inefficient and corrupt,
but demand very high salary,perks and paid holidays.( there are ,of course,
exceptions). Only in India are the bureaucrats so arrogant and corrupt.The
job-for-life rule with no mechanism for monitoring and correcting inefficiency
has made our government the biggest employer in the whole world.
Most of the PSUs and government departments are overstaffed and
underworked. Worse, all of them are top heavy.Too many officers and
bureaucrats.There is no pyramidal structure in any department.Posts are
sanctioned and created with scant regard for cost effectiveness and need.
If any private company (say like Reliance or Tisco),is staffed and run like
a government department(say Home Ministry), it would have gone bankrupt
in no time.But the government is unable to downsize its ministries.As a result
fiscal deficit is growing dangerously fuelling inflation and poverty.About half of
the government income is used for interest payments alone.Salary for
government employees and defense budget swallows a large portion and finally
a meager amount is left for capital expenditure and welfare. Is this socialism?

Less and less money is allotted for vital areas like education, health and
drinking water schemes while the salary bill bloats.To top it all, the loss making
PSUs are maintained at any cost to the exchequer. (for e.g Air India and Indian
Airlines could have been privatized long back avoiding a lot of loss and trouble)
The money poured to maintain them could have been used for more useful activites.
Most people don't realise that less government interference promotes enormous
growth.The IT industry and synthetic fibre industries are good examples. There is
negligible government control or interference in these sectors and no government
owned PSUs in these sectors ;only private initiative and enterprise. Hence the
enormous growth and employment opportunities.

To contrast the striking difference between government inefficiency and private
sector initiative,consider public sector road transport corporations.While there is a crying
need for more buses, the loss making government owned corporations are unable to
expand fleets or maintain the existing buses in good conditions(mainly due corruption,
inefficiency and over staffing of top management)The private buses are generally better
maintened and less accident prone.The licenses for the routes are sold (in the black
market) for tens of lakhs of rupees.Licenses for bus routes can be decontrolled (like
lorry transport sector) to end all these troubles.But there are vested interests (consisting
of transport ministers, bureaucrats,existing private bus operators and trade unions) who
prevent this so that their monopoly and graft can continue as ever.This is nothing but
crony capitalism masquerading as socialism. Fortunately the lorry transport sector is
totally in private domain and hence efficient and cost effective. All other infrastructure
sectors(like power, telecom, ports and airports) are plagued by similar problems,
arresting growth and development of the economy.

Private banks were nationalized in 1969 by Smt.Indira Gandhi (for purely populist
and selfish reasons).The leftists and the intelligentsia applauded the foolish action. Look
at the result. The NPAs (bad debts) are astronomical and most government banks(like
Indian Bank, UCO Bank)are almost bankrupt.Only budgetary support and government
protection keeps them alive.The private banks(like the Karur Vysya Bank, The Vysya
Bank, TMB, etc) are healthy and growing. All banks operate under similar rules and
regulations (including social sector lending obligations ). One must contemplate the
reasons for the decay of only the nationalized banks, while private banks are healthy.
Kerala is a classical victim of this socialistic farce.There is abundandant water,ports
and a skilled and efficient workforce in Kerala.The banks are awash with deposits.But due
to fear of labour militancy and anti-capital government policy,industrialists are reluctant to
start industries there.As a result highly educated and skilled Keralites are forced to migrate
all over India and abroad in search of employment opportunities.
The leftistists condemn IMF and the World Bank as stooges of western capitalism.But
without their timely support we would have gone bankrupt. USA, in the fifties, afforded us
technology,capital and aid to develop our industries like steel, infrastructure,etc.We ignored
them, while nations like Japan and Malasia utilised the offer and prospered.

Rajaji, a visionary leader, fought against this licence,permit,quota raj all his life. He was
for 'lazzie faire' way of economy.Unfortunately his plea fell on deaf ears.Only in 1991 when
we were dangerously short of foreign exchange did we realise our folly and began
liberalisation and privatisation.

The leftists must be realistic and analyse the perils of Indian brand of socialism that
is still plaguing us.

From : K.R.Athiyaman, 36,Middle St.,Pasupathipayam, Karur - 4
To : The Editor, Frontline ; copy to : Mr.C.P.Chandrasekar & Ms.Jayati Ghosh, Columnists
Dt : 25.09.2000


1. In 1973, Arab countries suddenly revised the price of petroleum. Again in 1979 and 1990, due to politicalsituations the prices fluctuated wildly. To act as a cushion and shock absorber,the government proposed to set up an Oil Pool Account. Evey litre of petrol and diesel was taxed and a surplus amountof Rs.15,000 crores was accumulated in this fund.

2. However, this fund was misused by the government. First this fund was used for waiving the agriculturalloans less than Rs.10,000/- Then it was used to pay the raised salaries of government employees .

3. In addition various surcharges and taxes were levied on petrol and diesel.For example, during the 1990- 91 Gulf War, a " gulf surcharge " was introduced. This war was over in 1991, but we are still paying the -surcharge ! If we examone the pricing closely, may be we will find that we are still paying a tax or surcharge levied during the 1971 Bangladesh Liberation War, 1962 Chinese invasion, 1857 Mutiny andBabar invasion of 1526 !

4. In the past, petroleum prices in the world market have gone up and dowm many times, but in India,theprices always go up, and never come down. Petrol and diesel prices are promptly raised whenever petroleum prices go up in the world market, but when they come down, the government of India and its monopoly oil companies simply swallowed the profits.

5. So to save us,the taxes and surcharges should be lowered and abolished. Oil monopoly must be abolished immediately. Foreign companies should be allowed th compete with the Government oil monopoly. Let the cheapest oil win !


Politics survives on cliche and slogans.Certain words become popular
at certain times, only to be replaced by other words at other times. After
1991 there was a spate of these words of the age. Liberalisation,paradigm
shift and indicative planning were the new buzz words. But after all these
years,the progress actually achieved is quite low. Why ?

We have the knack of taking only the shell and leaving the core behind.
We had a cursory look at the S.E.Asian countries,China,Korea and Taiwan,
discovered that these countries grew by allowing liberal doses of foreign
investment,and so be it. In India of course some money came in, there was
a lot of growth in computers and software(the IT sector) and suddenly people
were getting more worth for either money in TV,fridge,car and other white goods
but now even this trickle is drying up. What went wrong again ?

We went wrong in finding the proper order of things.we have a 100 million plus
literate labour force, and we need jobs for them. So first we need foreign
manufactures to start their production from here.But this needs power, I mean
electricity,not muscle power or voter power ,so we should have started with a
lot of power plants ;of course there were Enron and Cogentrix, but they never took
off. Why? Because we insisted that our SEB & should be the intermediary between
Enron and the consumers,SEB with all their "transmission losses" of 22%free
electricity to farmers,huts and politicians,and inefficiency. Compare the
transmission losses of BSES, the private company which supplies uninterrupted
and stable power to Bombay city. Transmission losses of BSES is very low
compared to that of SEBs. Highly efficient and cost effective.It would be wonderful,
if we have a similar set up all over India.

The best course would be to start numerous industrial estates- with a private
power plant, that the power company and the manufactures in the estates negotiate
the price ; keep out the SEB and IAS officers and trade unionists and politicians. Then
soon you will have an industrial estate and thousands of jobs ; no money the part
of the govt, and no commissions,"kickbacks",negotiation teams and foreign tours
either. But we went the bureaucratic way,and are still negotiating about power
purchase price,etc.Even Lenin recognised the role of electricity as for back as 1920.
Our bureaucrats are yet to catch up with early Twentieth Century.They will reach
21st century sometime after 2150, I hope.

Then the second step would be to allow the foreign manufacturers to employ
us - the Indians of course the unemployables like our burecurcrats, politicians,economists
,& trade union leaders cannot expect any job from the foreigners. But there are other
and lesser Indians in their millions,who are capable and to work. We were preventing
them from working under a foreign management,saying that the American(or the
Japanese or the Koreans) will underpay them .And we are not giving them employment
ourselves.Being underpaid is much better than being unemployed. We will not employ
the millions-nor will be let them get employed by foreigners.except if they manage to
crawl out of India to the middle east or Singapore.Have you seen an electronic/computer
product of late? I have seen Siemens monitor, Casio digital diaries,Sony peripherals,and
lot of other things,all made in China.It would have been "Made in India"but for our ignorant

If we fear too much that the foreign companies may exploit an labour,we could have
framed labour agencies, run by Indians,that would take up labour contracts with the
foreign companies.But we didn't. The reason is that, we are still suffering from east India
Company syndrome, believing that given half a chance,the "imperialists"will turn that
into a colony No sane person, especially a capitalist with money to invest,will dream of
"conquering" India again - we have spoiled India too much to be of any use to anybody.
The Indians are not the hardworking,intelligent,artistic and honest people that they were
in the 17th 18th or 19th century.So we need not worry about away colonialism-direct or
indirect.No western country will be eager to take up the headaches of the Indian Republic.
Third, we should have scrapped all the nonsense public sector units like the Bicycle
Corporation of India, ET&T,Indian Telephone Industries,etc.(of course not BHEL, NTC
and some others)and put all the money into primary education. We should stop all the
useless scheme operations from 1955(DWCRA,SITKRA, and others),dismantle the
Block Development Office whole sale,and instead spend the money thus saved in printing
primers for children in all the Indian languages. We didn't and we won't.

We should have allowed everybody (Indian,Foreigners, Indian + Foreigners) to enter into
the basic amenities- roads,phones,transport,etc. We didn't and if we did allow them,that is
after lots of its' and buts,only into basic service not into cellular, or with so much restrictions.
We did none of the realistic and proper things. We made some superficial changes
and there followed some superficial developments. We don't have the capacity to understand
the steam age capitalism. We don't understand the modern economics.For example, an
average American earns 240 times more than an average Indian but consumes electricity
equivalent of 8750 Indians ! This shows how cheap electricity is in USA. All around the
world, right from the days of Pharaoh, bulk consumers always get a discount. But under
our E.Bs and telephone department, the more you consume, the costlier the unit price is !
Weirdest logic !

I do agree that administration cannot be run like a business. But then administrators cannot
run a business. Let our bureaucrats accept this.

To sum up, to really develop India,

1.The power production needs to be increased manifold. Preference should be given to Thermal
power, using natural gas, oil and coal , in that order. The oil should be imported by the individual company at its own cost, not through RBI's foreign reserves. These Power companies should be
allowed to sell the power to who ever that desires it, at whatever price they choose, preferably
restricted in area. Let SEBs continue to function till our people are exorcised of their phobias
about private sector - may be forever, I won't mind.

2.The foreign companies should be encouraged to "source" their manpower from here and establish manufacturing facilities. No "Single window clearance" , "Automatic approval" , "Fast Track Options"and other bureaucratic nonsense, but declare Eco-friendly industries like computer parts and electronic items, etc totally free. The ministry of Environment is not at all protecting the environment, but has become another way of harassing the few unsuspecting investors. The sooner it is dismantled, the better. Hazardous industries are still going on just as ever. Remember : in India, one more monitoring/controlling/clearance authority means one more palm to grease, that's all.

3.Allow total and fair internal competition. No "MRTP" Acts and commissions are needed but all the district consumer forums should be allowed to prosecute the erring companies on their own.
In our country, till our institutions acquire a fair measure of integrity, the only way of preventing corruption is decentralisation. The ancient Athens had a Supreme Court whose judges were impossible to bribe - simply because there were 1000 judges ! Authorise every district forum to prosecute and you make it impossible for the companies to bribe their way through !

4.Concentrate on primary and secondary education. In future, an illiterate will be at a grave
disadvantage. the primary education should be in the mother tongue, simple and rigorous.
The syllabus needs to be pared down for the primary education.

5.Steel, Aluminum and other metals and alloys should allowed to be imported freely.Only free
competition will enable our indigenous producers to become really efficient.Only when Indian
consumers and other downstream industries get the best and cheapest steel, will our economy

6.Dismantle goverment monopolies of Oil sector. Let the cheapest oil win.
Of course, Indians will be finally forced to take up these steps. After all didn't Spencer say " Man will do the rational thing, but only after exploring all other possibilities " !

From : K.R.Athiyaman, 36,Middle St., Pauvai, Karur - 639 004 10.11.2000


This question may seem absurd. What could be there in technology to
understand ? You need only to know the technology, not understand it.
After all, the related term is know-how, not know-what. And even if it is
argued that there is something to be understoodabout "technology", surely
India will understand it. Are there not Indian satellites ? Have we not
mastered the nuclear science ? And we have our own super computers,
you know.

Still there is something about technology that we did not understand.
Surely our achievements are insignificant compared with what we could have
achieved and what our capacity is.It may spring to the mind that we are a
poor country, half illiterate and backward and that we have missed the first
phase of industrialisation due to the colonial rule. Let us see how these
factors need have prevented us from becoming a technological society.
The most crucial thing that we didn't understand about technology is that
it is dynamic and not static. There is nothing wrong about not developing a
particular technology and importing it.No country could develop all the
technologies it needs. Importing a technology is not new to us.The art of silk
weaving was imported from China and so was the technique of paper making,
block and screen printing, fire works and gun powder. The idea of currency
was developed by the Hydians,and that of paper currency by the Chinese.
Steel making was developed by the Indians. All the people, at sometime
or other in their historyhave imported technology. The British acquired the
technique of making rockets (for war) from Tipu ! So there is nothing wrong
about our technology imports during the fifties and eighties.

What was wrong about it was our failure or inability to develop it further.
This is a result of treating technology as a static method of manufacturing.
When one learns a particular method of making chains, one doesn't master
the technology. To elaborate on this example, there are two ways of learning
technologies. The first is mechanical repetition of some movements. If we
watch a carpenter making a chair, we can learn making chains, by simply
imitating him. But we will get only the copied of the original,may be with slight
changes, fortuitous or deliberate. The second way is understanding what a
chair is : that a chair has a seat, a reclining plane, handrests and legs; that
a chair can havefour legs or simply the same tube bent all around the bottom;
that the reclining surface can be moldedwith the seat ; that the handrests can
be integral with the legs. Now we can make chairs for various designs - two
long plates for legs,the seat aesthetically shaped, the curves flowing, etc.Now
we have truly mastered the technique of making chairs.

It need not be rubbed in that we learnt technology the first way.We imported
not technology, but only assembly lines. Only someone who understands
technology can make technology our of assembly lines. To others, it is a
mere repetitive assembly line. To further handicap is, we had put on the
blinkers of import substitution. To us, mastering a technology meant 100 %
indigenisation and nothing more.To quote a solid example, we bought the
phone technology for ITI and started production here. We took it apart and
found that this spring was imported ; so let's make it. That diaphragm was
imported ; so let us make that. Thus we indegenised it 100% and thought
that we have mastered the technology of making phones. By that time, others
have moved on from dial to push button type. Now we bought that technology.
By that time we mastered that the cordless technology appeared !

The Hindustan Motors started manufacturing cars sometime in the fifties.
Its Ambassador line is still continuing. But the changes made in its are few.
And, if at all there are any changes, they are : i) imported or ii) much behind
the contemporary technology. Hyundai imported an assembly line from Suzuki
in 1969. Now they are designing cars all by themselves. 100 % indigenisation
in manufacturing may not be possible. What is necessary is 100 %
indegenisation in design - the concepts.

Why are we incapable of understanding technologies ? The main reason
is that in India, there is a huge gap between theory and practice. The engineers,
who are supposed to master the technology, don't have first hand experience
with the machines. Ferrari, the famous car designer, has no formal qualifications.
Yet no Indian automobile engineer can match him. Forget Ferrari, most Indian
automobile engineers cannot even repair their own car ! How can we expect them
to design a new carburretor or spark plug or engine ? In medieval Europe, surgery
was done by the local barber, while the doctors supervised it from a distance !

In our country, the labours handle the machine, right from erection, and the
engineers supervise it ! You can very well imagine the results. When some Indian
engineers joined Hyundai plant near Chennai, they wereasked to take a personal
role on erection, and they promptly fled ! No technological improvement is possible
till one "understands" a machine and has hands on experience. In India, the
mechanic who"understands" an engine lacks the theoretical background and the
engineer with the theoretical background has no hand on experience.

An even bigger stumbling block is there in developing new technologies. The
next stage in a technology can come from a totally unexpected field.
Understanding a camera and film developing will not enable you to design a
Polaroid camera ! For example the dot matrix printer was an improved form
of typewriter. There is the ribbon and there is the printing head. The
improvement was that instead of individual letters there is a small hammer.
Now, however much you "understand" the dot matrix printer, you cannot
develop the laser printer out of it, which is the next stage. It came from a
totally unexpected area ; laser combined with xerography ! The only way out
is to encourage basic research which may (or may not) yield unexpected
benefits. India is handicapped here also.

The second most crucial thing about technology development is that a
commercially driven development is cheaper, quicker and more practical
than an institutional/ bureaucratic technology development. It is true that more
new technologies came out of institutional and / or government labs than
commercial labs. But once a technology is marketed, it is developed further
only by the commercially motivated. There is no use in developing technologies
if they are not commercially used. To cite an instance, the erstwhile USSR
successfully competed with the US in space technology. It launched the first
satellite, the first cosmonaut, the first probe to the moon,etc .Still, the US was
successful in one sense.The first satellites of both countries went up in 1957.

Yet, as early as 1964, US found commercial use for the satellite, when it
telecast the 19694 Olympics ! Soon private companies began to build
satellites, and our first Insats were built for us by a private concern, Ford
Aerospatiale. In that aspect, i.e. making practical use of technology, US
was ahead of USSR, only due to its commercial instincts.Our technologies
are notoriously unviable, precisely because our motto is "self reliance at any
cost"- and you cannot afford "any cost indefinitely. That's why, in spite of our
successful Insat system,till 1998 (when the rules were changed) our own
private channels used foreign satellites - because ISRO never cared about
making money. And if you cannot make money out of a technology sooner
or later, that technology will fail to take root.

All our "technological achievements" suffer from the same defect - they are
just showpieces and not commercially viable. Take C-DAC. It has developed
a few software packages - a word processor, a spreadsheet, etc. There are
free packages of exactly the same kind, developed by individuals. Yet we
boast this was"achievement" - because the ministers are technology-illiterates.
Two years ago, INSDOC listed as its"achievement" the bringing out of two
databases in CD. Yet there are scores of libraries bringing out dozens of
databases every year. If this is pointed out the stock reply is that ours is a
resource poor country, that we cannot afford to imitate the rich. But precisely
that is what must be noted : we spend unrealistically huge amounts to bring
out these two CDs - because of "Science at any cost" - slogan. A foreign
company couldhave been contracted to do the same thing cheaply. Year after
year we repeat and confirm the results of experiments undertaken by some
foreigner. Cryogenics, where we had a little lead a few years ago, is now
never talked about. Dr.A.P.J.Abdul Kalam once pointed out that ISRO scientists
had made a light weight caliper for a handicapped child. But it was not
commercialised, nor the technology transferred to some company that
makes calipers. What is the use of that technology ? One showpiece of
caliper ?

Whenever somebody points out that the cost of space research is exorbitant,
the reply is that the spin-offs will benefit everyone. But where are the spin-offs ?
Surely 30 years of research would have left a few spin-offs. Where are the
companies using that technology, and what are the products commercially
available ?

We are not importing technologies, we are simply importing assembly lines.
The HAL is the best example. Right from MiG - 21, every few years, a new kind
of aircraft would be acquired from USSR and its technology "transferred". Yet
HAL never developed so much as tarpaulin covers for these aircrafts. The ICF,
Chennai acquired the technology of railway coaches in the sixties. Now (2000)
it is again shopping for technology. The private sector is no better. Ashok
Leyland, Hindustan Motors and chemical factories shop for "new technologies"
every few years. The least we could have done is abolishing the R & D in all
these organisations and save a few rupees.

Compare this, let us say, with a market dominated by small manufacturers.
The motors and pumps of Coimbatore are of world class - at least in quality,
since they also imitate the foreigners and do not have in house R& D. May
be only cut throat competition will force the companies to care about its

Reverse engineering is almost unheard of in India - except among the
manufacturers of fake "foreign goods". High rates of taxation and bureaucratic
stranglehold ensured that these manufacturers will never improve their quality.
History shows that Japan and Taiwan and Korea, all started their manufacturing
history with shoddy goods and then moved up. The quality of Japanese goods
before World War II was horrible. Yet they improved. Our "cheap manufacturers",
on the other hand, find that they are better off remaining where they are - when
they make a fake citizen watch their profit is high - because they just bribe their
way - but when they try to market it under their own brand name, they attract
may be 15% sales tax, in addition to the bribe. So it is better to make fake
foreign goods than cheap but genuine Indian goods. Thanks to the "quality" of
the Indian goods during the era of "protection", foreign goods enjoy a high
reputation among our people. Our people are willing to pay Rs.500/- for a "citizen"
watch, even when they know it is a fake, but won't pay Rs.300/- for the same
product if it is marketed under an Indian name !

When we are coining slogans for the public consumption, care should be
taken about their subtle psychological effects. During the British rule, we
chanted "Good government is no substitute for self government" there by subtly
implying that self government won't be good ! And in the fifties, we proclaimed
"Indian goods - self reliance - even if it is costly and inferior". This attitude
certainly ensured that Indian goods will be costly and inferior - because we
have decided to buy them, so the manufacturer has no incentive to improve
them !

The third important aspect of technology is its cost. Here also, our myopic
ignorance led us to spoil our progress.Every product or service will be costly
when introduced. But further technological improvements will bring down its
cost, making it affordable to many. X-Rays, Photography, radio, T.V., Computer,
all were much costlier when they were introduced. And so were pens, paper,
aluminum (Napoleon had an aluminum plate ! ), tea, Xerox, bicycles, etc. Yet
in a few years time, technology will make them within the reach of many. Ford
sade the automobile cheaper. Sony made the transistor radio. There are
numerous examples. Yet all these examples staring in the face, our policy
makers divided things into two categories - those used by the rich and those
used by the poor ! The things that the rich use today will reach the poor
tomorrow. If one is really socialistic, one must ensure that even the poor has
access to these goods today itself. But our logic was inverted and perverted.

If the poor can't afford it,the rich shouldn't get it. We implemented this policy
through our tax system - the "costly" things are taxed more - because only
the rich use them thus ensuring that only the rich could afford them forever.

We taxed air travel so heavily that even today it is prohibitively costly to the
majority. During the same period, around the world, air fares progressively
became cheaper and more people traveled by air because it became cheaper
and vice versa. But in India, in the year 2000, thousands of people are forced
to spend two days - 36 hours atleast, to travel from Tamil Nadu to New Delhi.
And we are going to compete with Japan and Germany ! Show me one
developed country where people are forced to loose man hours. Yet it is
certainly possible to offer air travel for the same sector for Rs.1500/- per
person compared with Rs.500/- for the train. This is solely due to the addled
policy makers. Air travel is for the rich - tax it, tax it - till only the rich can
afford it. Let the others crowd into trains and spend days on end. Who
cares ?

Nationalisation of Air India and Indian airlways in the fifties and preventing
the private sector from running efficient air services(until recently) was the final
straw. Indian airlines became highly inefficient and costly. Same "foresight"
was shown in taxing electronic goods. In 1971, the government slapped a 40%
tax on the fledgling electronics industry. The industry promptly died.(Remember
G.D.Naidu of Coimbatore and cheap transistors he mass produced) Companies
that started to manufacture calculators folded up - leaving the field wide open
for the smuggled Casio calculators. Today over 95% of all calculators in India
are Casio - duty paid or smuggled. IBM went out of India in 1975 - just when
the computers were within the reach of big companies. As a result our
computerisation drive was postponed by 20 years. Let us not forget that
Computers became [popular in India because of a lucky accident - Rajiv Gandhi
encouraged it. Otherwise the rusty Devilal or the communists would have banned
them indefinitely and dragged us backward.

Thus, taxation should take a long term perspective. Since this is very difficult,
(who could have predicted the reach of Internet today ?) the best course is to
tax hi-tech items and services at an ad valoreum and low rate uniformly applied
- sales tax of 3% and service tax of 2%.

It is never too late for a people to catch up with the rest of the world, and more
importantly, to gain a lead in technology and research. Japan, Korea and China
are good examples. But this rapid development cannot be achieved merely by
"allotting" 2% of GDP to "research"(of which 1.5% would be taken by
"administrative expenses") or by similar stunts. Only an open, fair and free internal
competition could have achieved it, but now it seems too late. The next best
alternative is to encourage foreign manufacturers to start their production in India.
By this, in the next 15 years we could achieve state-of-art design capacities.

Therefore it is fair to conclude that our policy makers never understood what
technology means. It is not proving your abilities to the world, but using them
to improve your standard of living. Designing and making a better truck or
telephone network or pylons is certainly better than launching satellites but
importing paper. The sooner we get rid of our inferiority complex that drives us
to merely imitate the developed countries at enormous costs, the better.