Thread - So here is what I thought of the announcements made by the FM on 13th May. But before that a short commercial break. https://twitter.com/SandeepParekh/status/1260784646964510720?s=20
Broadly, very good moves by the FM - but with one very dangerous announcement. The one I had warned against in the PM's speech - about raising barriers. https://twitter.com/SandeepParekh/status/1260241874901700612?s=20
@ARanganathan72 warns against this - but in fact he hugely understates the risks in the move. Restrictions on foreign products is dangerous not only in science and technology but everywhere. Technology doesn't end in the lab and doesn't live in a silo. https://twitter.com/ARanganathan72/status/1260546866359545856?s=20
If you have been to a hospital or even to a tiny nursing home - you know that there are very few pieces of equipment which are 'Indian'. "No Global tenders for Government tenders of upto Rs 200 crore" would mean public hospitals will get no equipment at all.
Then you will have a whole byzantine set of rules drafted by babus as to what is to be excepted. And what is Indian. Is a fancy german car which is assembled in India - Indian or foreign? Are the HUL products and Kama Ayurveda products Indian or foreign.
Are fully foreign made Seimens CAT Scan machines kosher or banned? Should an exception be made of that? Should all medical equip be exempted? What is medical? Is a dentist's chair medical or non medical? Babus will spend millions of hours solving these problems-which aren't probs
Import substitution is neither a good in itself, nor does it solve any existing problem. Should we dominate the drug industry and allow CAT scan machines to be imported - YES. Should we manufacture planes instead of working on expanding the scope of non-generic R&D - NO.
Should we allocate billions of dollars to manufacturing our own branded mobile phones (loss making for sure) - instead of letting apple manf their phones in India and create plentiful products and employment?
An emerging economy, and there are no known exceptions, is good at doing things better, faster and cheaper. Not inventing quantum new things. India was there over a thousand years back. And if we keep this rule - it will never again be there.
Trying to manf modern things is a complex mix of foreign/domestic invesments/parts/labour/enterprise. Often seamlessly intermingled. A Kama Ayurveda may be 40% foreign owned (say) - but it creates thousands of Indian jobs. It may use a lot of foreign machines in manf of soaps.
Coming to the second macro point - is our love of our MSMEs. This is a great thing - but MSME should be a journey, not the destination. The destination is creating the world's biggest and most profitable cos. We have created rules all these years to keep industries in MSME.
All our laws are designed to keep small and medium companies - medium and small (in that order). Want a thousand meters of land - not so tough. Try to build a factory at scale and get 100 hectares. It will take you forever to get it.
Keep your labour force below 50 or 100, it is easy to comply with labour laws. Go over that and hundreds of inspectors will descend on your company to check the forms you have filed about toilet cleanliness.
The only exception to the rule is capital - I think we have truly liberalised an efficient capital market and it rewards being bigger rather than being smaller. This is a good thing normally, as it rewards scale, efficiency and profits.
Right now, it is not a good thing - as MSMEs are completely choked of both business and liquidity. The ability to survive is at risk, forget growth. So the FMs annoucments have been great.
There is liquidity infusion and a lot of sovereign guarantees to commerical loans to MSMEs. Will it be sufficient help to already leveraged MSMEs? Probably not. But most are not - and the money with interest moratorium should help tide over the immediate crisis at many.
Similarly, NBFCs and MFIs will get their own set of liquidity infusion and their lenders will get sovereign guarantees. This life support in highly leveraged entities like NBFCs is very very important https://twitter.com/SandeepParekh/status/1260247055739555840?s=20
Financial sector crisis rapidly spreads like contagian to the real sector - besides spreading rapidly to the world of investments (think mutual funds).
Discom reliefs and some minor relief to the real estate sector will also cushion a lot of the impact and can commend the FM in those actions. It will have some impact on the end consumer of real estate, but that couldn't have been avoided.
All existing reliefs in actual payment (though with some interest) means that tax payment can be delayed for those who have accrued income but have not seen matching cash flows in their books.
However, this is not the time for the cosmic gyaan. This is the time for providing oxygen and then water to a breathless body - which the FM has done very well. But over a longer period - the govt. should not pick winners.
Broadly, my argument has been for a much smaller and enabling government. 90% of all laws and 99% of all laws with inspectors enforcing them must go. We have some of the most dynamic entrepreneurs in the world - a big proportion of silicon valley enterpreneurs is brown.
Frankly the govt doesn't need to do much - just get out of the way. Some carrots are always welcome though. But after this episode is over - we need to get our place under the sun in the world economy. And that will not happen till we let the invisible hand do its magic.
Most of the attempts to 'make in India' or atmanirbhar bharat should be focused towards incentives - not bans or prohibitions. Similarly, the time has come to provide financial incentives to get bigger - let listed companies get some small preference in say tax rates.
Let labour law be run by state governnments and let them compete. The centre should worry only about a few things related to safety and maternity - enforced not by an inspector but other means https://twitter.com/SandeepParekh/status/1260251257777852418?s=20
If the @narendramodi govt. doesn't get this right with its centralised and charismatic leader who wants to do right, we will never achieve our potential. Here is to a smaller government, and an ever-growing MSME sector, which doesn't stay MSME.
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