GARIBI HATAO! - A Practical and Actionable Way!

GARIBI HATAO! - A Practical and Actionable Way! by Maj P. Tuhinikar Choudary (Retd)  Chairman - Institute for Democratic & Economic Affairz (IDEAz) www.ideaz4india.com Summary: A practical and actionable way to remove Poverty. Eradication of extreme poverty is a goal to which everyone subscribes, however no effective action has been taken these many decades after attaining Independence. Organized labour unions in the Government and Public sector have taken care to ensure that as much benefits as possible accrue to them in a guaranteed lifelong manner, while giving no consideration or care to those living in extreme poverty. The unionized labour only seeks to draw a distinction between themselves and the so called capitalists, and not between themselves and the really poor labourers. This attitude has been successful in allowing take them to take away the revenues of the Government for their selfish benefit even as the very poor suffer and also to protest against and block the attempts of the Government to disinvest in ‘sick’ Public Sector Units (PSU’s). Today, we need to review all the institutions and undertakings in which the revenues of the Government are locked in and with more being sucked in additionally each year, and action taken to redress the balance in favour of the very poor. Poverty eradication, not cosseting the unionized labour, should be the aim. Highlights:
  • GARIBI HATAO ! - has only been a slogan for long with no action thereon. The poor in India have practically no way to really improve their lot as circumstances are today. Hence, an affective scheme is proposed herein to change things and make GARIBI HATAO a meaningful and effective reality. To bring about greater equitability into our Society.
  • To give every Indian a stake is the wealth of the Country and its future. Every Indian citizen should own some asset in India to feel a sense of ownership and share in the concept of India and be willing to stand and fight for it. Those poor who presently don’t have such assets, need a onetime subsidy from the Government, to be able to claim ownership of something of India. This will give them a proper sense of possession / ownership and belonging, which will then give them and their children something to defend. Of course such a subsidy should not call up on the scarce current revenues of the Country but perhaps better utilize those locked up in unproductive assets of the State while also allowing for revitalization of such assets.
  • Most of the wealth that was taken out of the Country is steadily getting back into the Equity Market in India, directly or indirectly and can be viewed as the balance of Indian money still in Foreign Banks returning into India, via Participatory Notes and other ways allowed under the UPA regime and to an extent, even now. Hence allowing the poor to also benefit from such increases in the Equity markets, through the Mutual Funds (MF’s) which would now invest in this market, would only be equitable.
  • To allow the Indian money in Foreign Banks, which had and still is being pumped into the share market to also benefit those who are being left behind. Something that may also at least substitute for the pre-2014, election campaign promise of putting Rs. 15 lakhs into each poor Indian family’s bank account.
Key Concepts:
  1. Greater wealth distribution for an ever increasing population can really be possible only if wealth is being continuously created. Treating land and the finite pool of mineral resources and water as the only form of wealth is engaging in a Zero-sum game with decreasing per capita ‘share value’ and in which an increase in one person’s shares means an equal decrease in the share of others as such resources are fixed.
  2. New and greater wealth creation can come out of ideas, of value addition through sustainable ways of generating energy, and frugal ways of using all resources, applying the innovative ideas, and the efforts of many entrepreneurs who are willing and able to work on such ideas. This greater quantum of new wealth would then become available for more equitable distribution, even to the ever growing population.
  3. Land and other tangible resources, as a measure of wealth and as a means for security, can now be replaced by share holding (equity) in ventures which now becomes the ‘New Land’, a more effective, convenient and fungible measure of wealth and security and regular income.
“Agricultural land will continue to be less and less important as an economic asset, relative to the total value of all other economic assets” - Julian Simon.
  1. Equity in wealth distribution does not mean equal wealth in all people’s hands. As J. Paul Getty, the world’s first self made Dollar Billionaire, once said “Even if at dawn on a particular day all people woke up to such equal distribution of wealth, by dusk many would have negotiated themselves into millionaires and paupers”. Therefore what should be sought to be ensured for all is equal opportunity to better his/her present circumstances. Whether this is happening or not can be determined by the turnover of the specific people or entities in each segment, especially in the top 100 or top one percent.
  2. The distribution of wealth is perceived as inequitable in that it is perceived that the rich are growing richer faster than the poor are. This is wrongly blamed on globalization or capitalism. While reality is that everyone is growing richer, but perhaps the rich faster than the poor, because the growing wealth is from the design and services sector in which the poor and the farmers are not participating in, indeed they are not even standing in the queue to receive such benefits as they do not understand such wealth and its growth.
  3. Equality and Equalness - Pareto’s Law dictates that 20 percent of the people gets 80 percent of the benefits or talents, or accomplishments and so on. This law is Nature’s Law and applies across the many aspects of Nature, it is not changeable. Hence we will always find that the top ONE percent enjoys over 50 percent of the wealth and we should not cry about it, as long there is a churn and change at every level and, the same people or organizations do not continue at the one percent or at any other percent, level eternally and, everyone has an opportunity to improve his own level of wealth by working to attain to higher levels by themselves. 30 years back, 50 percent of the 100 richest people or Corporations today, did not exist or make the list. Everyone can strive to attain to better levels. This is Equality of opportunity, which can be something to aim for and which should be ensured for all. Equalness is not a realistic option. After all Dhirubhai Ambani did rise from being a Gas station attendant to the richest person in India by his own efforts and so did most of the industrialists in the Pharma and I.T. Sectors.
  4. The distribution of wealth as inequitable is wrongly so perceived. However not everyone gets the opportunity to get to even the first step of the ladder to the able to climb to better themselves. It should therefore be our effort to get those left out, to also join in the growth of such wealth by making them equity share holders in the share market, through properly set up and regulated Mutual Funds (MF’s), so that they too can have the opportunity to share in such wealth and grow. They however do need a head start / a handicap.
Of course, we also need to ask ourselves as to why is it that each of us seeks equalness with those above us and not with those below us. Key Metrics:
  1. In 1985 the world’s total resources were estimated to be valued at US$ 12 trillion and the world’s wealth was also about the same at US$ 12 trillion. However, by the year 2000, though the world’s total resources remained at US$ 12 trillion, the world’s total wealth had increased to US$ 200 trillion. This increase in wealth grew out of Ideas, Design, Technology and such intangible assets and the people who valued only tangible assets did not stand in queue for such intangible assets and hence did not share in the growth of such wealth. We need to get our people to share in such wealth and to give the very poor a head start in such sharing.
  2. Most of the Public sector units (PSU) set up by the earlier Governments over the decades since Independence have been ‘Sick’ for a very long time and the Government is unable to disinvest from the same due to the pressure from the organized Unions of mostly ineffective, unproductive and man power bloated employees, and the legal cases they raise. Instead of disinvestment, the Government is compelled to re-capitalize and sink many additional thousands of Crore rupees into each PSU each year. Instead it would be better that we subsidize the below poverty line people while at the same time bringing them into the equity markets.
  3. This Government with its mind set of “The Government has no business to be in business”, seeks disinvestment opportunity, but the organized labour unions will not allow any disinvestment of over 49 percent and also insists on job protection for the already unproductive levels of employees. This discourages the Private Sector from investing. The organized labour unions of the Socialist and communist era must be prevented from claiming a disproportionate share and, from black mailing the Government to benefit only them even at the cost of the very poor.
  4. Many previous handouts or subsidies to such PSU’s have only postponed the day of reckoning.
  5. We need to note that the majority of the PSU’s need total disinvestment and total revamp, which can be undertaken only under a private sector management which has ‘skin in the game’ and has a free hand to deal appropriately with the existing bloated manpower.
  6. Say 20 percent of Indians are at subsistence level poverty which means 5 Crores families (125 Crore X 20% = 25 Crores at 5 per family becomes 5.0 Cr families). If each family starts with Rs. 1.0 lakh at Government price would require 5 lakh crores for the entire scheme. This scheme can be implemented without any upfront cash flow as it is based on the funds raised from unlocking the asset value now locked up in ‘Sick’ PSU’s and at most the additional subsidies being given to such units each year and allows the stock market to pay for it through further increase in its value.
Action Plan:
  1. The number of PSU’s, both Central and State that are ‘Sick’ as on date, should be determined.
  2. The salary, health, travel, pension and housing and administrative costs of such PSU’s should be compared to similar Companies in the Private sector both in India and abroad, as Indian private sector Companies are also man power bloated due to lesser productivity when compared to the efficient and productive companies in the same sectors abroad.
  3. It is by forcibly disinvesting in the ‘Sick’ PSU’s, and compelling the employees to take 1-3 years salary as VRS and using the thus saved subsidy and salary amounts properly, that it is proposed to eradicate all poverty from India at one stroke.
  4. Tenant Farmers cultivating less than two Hectares of agricultural land could also be included in the poor category and be allotted shares in the MF or PSU to the value of Rs. 3.0 lakhs like other poor people, however any loan waiver amount, if availed by them, will be deducted from the value of such shares. This will only be fair to those other farmers, who in mostly similar circumstances, did not avail any loan waiver but paid off their loans themselves.
  5. Poor and marginal farmers needs are addressed in a different scheme - “Krishi Jagruti” Scheme / Project - Own your Farm as a Share Holder’.
  6. It is proposed that all the assets (lands, housing, machinery, Brand value etc) of all such PSU’s both Central and State be properly valued at the current Government rates and the current share value arrived at. The actual market rates would easily be about 3 times that, and therefore the PSU’s be offered for sale at atleast three times the Government rate on terms as below. Already ONE lakh has become THREE lakhs;
    1. 49 percent of the shares be offered to the Private Sector Purchaser,
    2. Two percent of the shares to be held by the respective Government, which will also hold a Director post on the Board of the Company, to prevent misappropriation of the properties.  
    3. Balance 49 percent of the shares to be allotted to any of the 2 or 3 Mutual Funds (MF’s) set-up for this purpose. Each MF can of course trade its own shares on the stock exchanges.
    4. Such MF’s will allot in turn, its shares equal to Rs. 3.0 lakhs in favour of every poor person in India with Aadhar linked Bank Account. The poor should be defined as those families that are subsisting on daily wages and who own No asset. These shares will be their asset in the Concept of India and now they will have something to fight for, and will give them the head start they need. If the values so allow, the next level of the poor can also be added in as deemed fit. The shares should be allotted jointly in the name of both the wife and husband with wife’s name first to encourage gender equality and recognition of the wife’s contribution to the family. The shares should be locked in for a period of five to ten years to prevent exploitation.
    5. When the value of the share in the disinvested PSU becomes multiplied a further FIVE times over, as can be expected in the next 3 to 5 years, the Government share of 2 percent will be sold to the Private Investor at this enhanced price. The MF’s may then also sell their shares back to the Company if it so desires. By then the original ONE lakh Government value of the share of the individual will then be at least Rs. 15.0 lakhs and the shareholder would have been getting dividends thereon all these years, enabling her to understand the value of equity. This meets the alleged promise made by the PM in his earlier election campaign of putting Rs. 15.0 lakhs into each poor person’s account. Though indirectly from the money that comes back into India’s share market. That too without infusing any more money than that given as subsidy to the ‘Sick’ PSU’s each year.
    6. Payment of Dividend every year after the end of the second year must be ensured. Of course if the scheme can be subsidized a little more, then dividend can even be paid out in end of the first year itself.
    7. The MF shares can be permitted to be used as collateral for a loan of up to 50 percent of the market value, as determined by the Auditors, after the first year through the MF or a Bank which will be responsible to certify and verify the end use.
    8. The MF share holder can opt to sell her share after the lock in period of five to ten years on the Equity Exchange. This period would be long enough to allow her to understand and appreciate the concept of long term investment in the Stock market and not be taken for a ride by other unscrupulous traders / investors.
Conclusion: Eradicating extreme poverty is easier said than done. However by taking action as given above the Government will be able to subsidize a stake in the wealth of India to each of such poor families, thus giving them something to hold and even fight for. The Government must therefore urgently act on this scheme. NOTE:
  • Doing away with the regressive Income Tax Act and simplifying the GST Act, would greatly expedite the growth of the Share Market. (See – “Comments on Goods & Services Tax (GST) and Income Tax (IT)”)
Jai Hind!
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