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Vision 2020 -- Lure small enterprise to the villages

P. V. Indiresan

OUR maid in Delhi is illiterate but hardworking. Her services do not come cheap. Yet, in spite of working in half a dozen homes and her husband being a peon, she cannot afford a proper dwelling and has no option but to live in a slum. However, she does h ave electricity in the house, a gas stove, refrigerator, TV and a telephone too.

Spurning the solicitous facilities made for backward caste people like her, she has put her son not in a government school but in a well-known English medium school. In several respects, her family commands a Quality of Life, and her children have future prospects, better than what `rich' landlords and their children command in India's villages.

This maid demonstrates an oft-neglected fact that poor people in a rich economy can be better off than rich people in a poor economy. Her family enjoys all that it does because Delhi has a wealthy economy where electricity is readily available, telephone s can be had for the asking, gas supply is well organised, English medium schools are plenty and public transport too is extensive. In villages, practically none of these can be had, however wealthy one may be.

As matters stand, in our crowded cities, there is not enough space to provide basic amenities such as water, electricity, shelter and a healthy environment. Their congestion is such that it is physically impossible for most cities to offer these amenitie s. In rural areas, there is no such physical constraint (as there is in cities) but the absence of investment prevents people from enjoying basic amenities there too. So, the problem in cities is physical and insurmountable; in villages, the impedance is economical but curable -- provided sufficient investment is diverted to the rural areas.

The Planning Commission has targeted 8 per cent growth for the Tenth Five Year Plan. Agriculture, the mainstay of villages, cannot grow faster than 2 per cent at the most. So, it is inevitable that either, (a) villages get relatively impoverished, or (b) massive rural-urban migration results. The probability is that both will happen. At this rate, if no corrective steps are taken, in another twenty years, rural incomes will be one-eighth of urban ones, or urban populations will quadruple with slum popul ations going up by an order of magnitude. Either way, the current growth paradigm is not sustainable, either socially or politically.

There are three reasons why our rural areas are as poor as they are. One, agriculture is their mainstay, and it cannot support more than a tiny fraction of the population. Two, as a matter of policy, the government has concentrated its investment (and em ployment too) in cities to the neglect of rural areas. Three, even the little that is spent in villages is wasted in microeconomic interventions to help individual villagers and not the macroeconomy of the village as a whole.

For instance, the government has no employment generation schemes for cities; yet, there are plenty of jobs and high-paying ones too. In the villages, there are a variety of job creation schemes for the poor but few jobs of any kind to be had, let alone well-paid ones. The reason: The government invests in the macroeconomy of cities, while in villages it deals only at the micro level. It is time the government tackled the poverty of villages rather than the poverty of villagers. Villagers cannot get ric h so long as villages remain poor, too poor to attract modern industry and commerce. As a thumb rule, at least 80 per cent of the rural population must make a living in non-agricultural occupations.

It is time we faced two basic truths squarely: One, urban development based on unbridled expansion of slums is deadly. Two, rural development that depends solely on agriculture/cottage industries will breed only poverty and not wealth.

In his Technology Day Lecture, Professor Ashok Jhunjhunwala of IIT, Madras made the interesting observation that cable TV has reached a majority of the population, whereas telephones are available only in one or two per cent of homes. Petty, semi-literat e entrepreneurs have spread cable TV even to remote rural areas at no cost to the government and without any government subsidy or support. On the other hand, telephone services are growing slowly and are concentrated in large cities though they are mana ged by large enterprises with highly-trained (and highly-paid) staff.

The professor attributed the explosion of Cable TV to the absence (rather the evasion) of regulations, and also to their affordable price. He also pointed out that developed nations are so rich that they have no interest in developing cheap solutions. Th eir policy is to keep the price constant and increase the sophistication. Instead, a poor country like India should first offer an affordable service before it can think of luxuries. As a corollary, he emphasised the need for self-reliance in technology and the importance of not following the Western model to which large enterprises in India are addicted.

Taking the cue from these factual observations, we may conclude that (a) the existing paradigm of slum-based urban development is untenable and self-defeating, (b) the current paradigm of rural development too will not yield good results, (c) while rural development is correctable, urban development is not and will always be an expensive and unsatisfactory option, and (d) it is best to encourage small entrepreneurs by freeing them from the shackles of government regulations.

Sabir Bhatia, the Silicon Valley multi-millionaire, attributes his success to the fact that he could start his business merely by writing one letter to the local authority and not needing any other permit or licence of any kind. That is the kind of busin ess ambience we need.

So, for a start, the government should completely de-license industry and commerce in rural areas. Just as income-tax has been waived for agricultural incomes, the same exemption should be offered to all other rural activities, at least, say, for ten yea rs. Other levies too (excise duty, sales tax, corporate tax though not customs duties) should be exempted for rural industries. (More than the tax, the botheration that goes with it is deadly for small enterprises.) And it should be stipulated that emplo yers should, in return for this tax holiday, provide the following perquisites to all employees:

*A minimum of 100 square metres of residential space;

*Guaranteed supply of 100 litres of potable water per day, and

*10 units of electricity per month.

In addition, the firm must contribute for each employee, 10 per cent of the average salary of a schoolteacher, one per cent of the salaries of one doctor and one nurse, and 0.1 per cent of the price of a bus per year. A firm that fails in these obligatio ns is liable to pay a hefty fine or pay taxes the way urban businesses do. The firm will be liable to pay a fine also when it pollutes the environment.

More specifically, no licences should be needed for telecommunication services from a portable exchange of no more than 1,000 lines; generation and distribution of electric power from portable gensets of less than 1,000 KW capacity; and transport service s with less than 1,000 trips per day. (Portable equipment has been stipulated to permit easy entry and exit -- for service providers and consumers alike.)

It is also important to define what is the acceptable quality of environment for a rural area. For this purpose, it is not population size but the density of population that is the best guide. It may be stipulated that an environmentally satisfactory rur al area is one whose population density is less than that of London. At first sight, such a stipulation will appear strange but the fact is, in India, urban densities are generally ten times that of London. So, London (except in the vicinity of its busin ess centres) is virtually a village by Indian standards.

Then, on the basis of London's average, let us stipulate that a satisfactory rural area is one where there are no more than ten dwellings per hectare of land will be allowed (at any rate, no more than 1,000 residences in any 100 hectares of land). Let it also be the rule that no family (without exception) will have less than 100 square metres of residential space. The tax benefits and freedom of action listed above will be available for businesses only where these two conditions are strictly satisfied.

Essentially, this scheme makes rural areas an attractive location for private enterprises to migrate to -- without hurting the essentials of rural ambience. Though such businesses have to be small, they need not be so tiny as to be unviable. In return fo r exemption from controls and taxes, they will offer basic needs like water, electricity, space, education, health and connectivity as perquisites to all employees, and do so without congesting (hence, irremediably polluting) the habitat.

Currently, the government tries to provide these services and meets the cost by imposing taxes. Little out of these taxes reach the rural areas. So, rural services are sub-standard, often non-existent. In this scheme, the government waives the taxes, and gives up control on those entrepreneurs who serve the rural economy not merely by providing jobs but by paying for consumer services too.

Entrepreneurs may fear that this scheme will be costly. Government also may fear loss of revenue. We will see in the next article why both fears are groundless.

(The author is a former director, IIT, Madras. Feedback can be sent to him at Indiresan@bol.net.in)

This is 45th in the Vision 2020 series. The previous article was published on May 7.