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Small is Beautiful

We would do well to shun our pursuit of the extraordinary, to the detriment of the ordinary. Let us set simple goals for ourselves, to be achieved at our natural pace; the first one being that no man should sleep hungry or stay permanently unhappy


As a people, we are obsessed with pigeonholing all kind of things. We even grade our VIPs; we have a Warrant of Precedence which tells us whether a retired Governor is senior to a sitting MP and so on. No wonder that we take pride in trying to race to number one position in everything, even if it is in the number of Coronavirus infections.

This fixation with one-upmanship makes us try to leapfrog to becoming a $ 5 trillion economy, at a time when we rank at 102 out of 117 countries in the World Hunger Index and at number 144 out of 156 countries, ranked in the World Happiness Index. A relevant question arises: “Should we follow policies that take our economy forward but leave most of our countrymen behind, poor and unhappy?”

The days of slow, incremental progress that took everyone along are now referred to as the bad old days; such development is derided as progress at the ‘Hindu rate of growth.’ The opening up of the Indian economy in 1991, which accelerated the growth of our economy, has also exacerbated inequalities of wealth and income in our society, that have rapidly increased year after year.

Thomas Piketty and Lucas Chancel in their aptly titled study Indian Income Inequality 19222014: From British Raj to Billionaire Raj pointed out that currently, the richest 1 per cent Indians earn 22 per cent of our total income; up from to 6 per cent in the early 1980s and somewhat higher than their 21 per cent share in the 1930s.

According to the Annual Global Wealth Databook published by Credit Suisse, the richest 1 per cent of our country cornered 61 per cent of the extra wealth generated between 2000 and 2015. Oxfam in their study Time to Car ahead of the 50th Annual Meeting of the World Economic Forum, mentions that India’s richest 1 per cent hold more than four times the wealth held by 953 million people who make up the bottom 70 per cent of the country’s population. The difference between the rich and poor can be gauged from the fact that India has more than 30 crore people living below the poverty line but 2.5 lakh of our countrymen, led by Mr Mukesh Ambani, who earned Rs 300 crore per day, figure in the top 1 per cent of the world’s richest people.

Not all the money with the super-rich has been earned honestly; in addition to the various scams, our banks have lost around Rs12 lakh crore to bad loans. Prime Minister Manmohan Singh had observed: “India happens to be a rich country, inhabited by very poor people.” Unfortunately, 73 years after independence we can only add ‘and some ultra-rich ones’ to Mr Singh’s observation.

The present economic crisis, triggered by the Coronavirus pandemic, has seen our GDP dip by 24 per cent. Big business has been badly affected; despite generous handouts by the Government most industry associations are still begging for sops at the Government’s door. The RBappointed KV Kamath Committee, which worked out the financial parameters for loan restructuring, has concluded that 72 per cent of the banking sector debt worth Rs 37.72 lakh crore was under stress.

Further, according to the Committee, the Coronavirus pandemic is not solely responsible for the stressed loans; Rs 23.71 lakh crore, or 45 per cent of banking sector debt, was already under stress, even before Covid-19 hit the economy. All these stressed bank loans are, ultimately, to be paid for by the Indian public through taxes like GST, VAT and Income-tax. This alone would show that far from being an engine of growth, big business is proving to be an albatross around the economy’s neck. It goes to the credit of the Kamath Committee that it has laid down stringent criteria which would ensure that only deserving businesses would be financed. However, the basic principle on which big businesses operate viz. “profits are personal while losses are public” needs to be discarded for good.Even otherwise, under various incentive schemes, the Government is restructuring loans, providing guarantees and reducing interest rates, as an antidote to the Coronavirus induced slowdown. Such measures are sure to decrease the profits of banks and affect adversely the income of honest people who had saved for a rainy day. Surprisingly, there has been little public debate on this strategy of the Government, with most (interested) people justifying the move to provide cheap loans and even suggesting cash handouts to defaulting businesses, unmindful of the fact that the rock bottom bank interest rates have made money fly away from productive avenues to the stock market and gold bourses.

The underlying idea of achieving rapid growth, financed by cheap credit to big businesses, so assiduously promoted by successive Governments, is flawed for many reasons. If after availing of so many incentives, our manufacturing sector is not strong enough to stand up to China, South Korea or even Vietnam then something is decidedly wrong with our policies and their implementation. Rather, availability of easy credit prompts many promoters to overvalue their assets and then borrow to the extent of their actual investment leaving them with no financial stakes in their enterprises. More dishonest promoters borrow against non-existent assets or dispose of their assets after taking loans and then hotfoot to foreign shores. The interest cost on borrowed funds ensures that only established and well-run businesses can thrive on borrowed funds; investors flock only to such enterprises, an example being the Reliance group that has attracted Rs 1.5 lakh crores of foreign equity investment, even in these difficult times. In contrast to big businesses, agriculture and most small businesses were not so badly affected by the pandemic; plodding away, slowly and steadily, at their ‘Hindu’ rate of growth, like the tortoise, in the hare and tortoise story. Around 45 per cent of our population is employed in agriculture while almost 70 per cent of the workers in the non-agricultural sector are employed in informal enterprises, which may be the reason that human misery has not been more pronounced in the wake of the Coronavirus pandemic. For long, the Government had a policy of supporting small manufacturing units through various measures, but the Economic Survey 2018-19 had an entire chapter “Nourishing Dwarfs to become Giants: Reorienting policies for MSME Growth” which advocated withdrawal of all benefits to such units. Many business enterprises prefer to remain small, not just to avail of Government munificence but because of many reasons, different for each unit. Then, a small and well managed enterprise is any day preferable to a large but badly managed one. Misuse of incentives should be curbed but pulling the plug on all small units may not be the best policy.

According to GST data, we have only 70,000 units with a turnover exceeding Rs 5 crore, which alone could need large loans. The credit requirement of such units could be met by a special bank jointly floated by all Public Sector Banks. This bank would soon develop enough skill to keep its money safe. Except some banks exclusively for farmers, all other banks could finance and provide technical expertise only to small enterprises.

Banks may resist this arrangement but such a step may be necessary to prevent public money from falling into the hands of fraudsters and loan defaulters. The 2008 meltdown exposed the venality of big banks in the USA. Despite their long list of delinquencies, the US Government found that the stressed financial institutions were ‘too big to fail’ and had to be saved at public cost. The present thinking of the Finance Ministry of amalgamating all public sector banks into four large banks would create similar leviathans in our country also. We would do well to shun our pursuit of the extraordinary, to the detriment of the ordinary. Let us set simple goals for ourselves, to be achieved at our natural pace; the first one being that no man should sleep hungry or stay permanently unhappy. We should aim for greater things, at an accelerated pace, only after we have successfully achieved such ‘small’ goals. The pointlessness of unbridled and uneven economic development, at the cost of people and environment, has been highlighted in E.F. chumacher’s classic treatise Small Is Beautiful: Economics as if People Mattered. The conclusion reached by Schumacher, is worth repeating: “Economic development is something much wider and deeper than economics, let alone econometrics. Its roots lie outside the economic sphere, in education, organisation, discipline and beyond that, in political independence and a national consciousness of self-reliance.”