Financial & market inclusive growth

V Shunmugam & Yogesh Kochhar

The Economic Times, May 27, 2009
(http://economictimes.indiatimes.com/Opinion/Financial--market-inclusive-growth/articleshow/3074630.cms?curpg=1)

Globally, economists measure growth as the percentage by which a nation’s output (GDP) has changed over a period of time and view development as a ‘qualitative phenomenon’ to find if the benefits of growth of an economy have reached its stakeholders.
UN organisations such as UNDP, World Bank, and UNCTAD measure aspects of development through measures such as Human Development Index, World Development Indicators, Human Capital Index, etc. However, till today there is no one holistic measure.
In effect, this means that while we can measure a statistical sum of aspects of the status of stakeholders and their economic wellbeing, but measuring the individual universe, i.e., their total wellbeing, is an issue that still continues to dog development economists.
Ignoring development leads to socio-economic disparities, unproductive labour, increase in unproductive investments (subsidies, market support, etc.), social unrest and so on. Let’s apply this to the Indian context.
A dipstick on the 9% growth could be rural economic development. Unfortunately the signals from the rural economy (in terms of common economic denominators, i.e., income/ employment/ investment) do not augur well. The recently released World Development Report, 2008 attributes this to market and state failures characterised by insufficient and unequal access to information/ imperfect competition/ high transaction and supply chain costs, etc.
It is important to note that while financial inclusion provides access to financial products, it would be of no avail until they make efficient production decisions and sell their products at prices reflective of supply and demand. This necessitates that rural areas need market-inclusive growth and an important catalyst that can enable this is telephony.
The imperative answer to all these hurdles in rural economic development is sound policies promoting ‘financial’ and ‘market’ inclusive growth. While financially inclusive policies take the financial products closer to the rural masses, market inclusive policies would take markets nearer to them and alchemise the financial inclusion.
The tie-up between MCX and Tata Indicom to deliver this facility to provide market signals on a toll-free platform to the agricultural commodity value chain is an example of the ‘marriage of convenience’ which would soon become ‘marriage of choice’ given the commercial challenges and opportunities that envelop it.
To strengthen the efficiency of the prices discovered on the exchanges, it’s imperative that the price discovery process be a two-way communication process wherein farmers respond to market signals and also pass on signals back to markets, without which the markets are paraplegic leading to unrealistic options and indices. In order to expedite relevant participation it is necessary that policy makers provide financial incentives to make it attractive or allow enabling institutions. Telecom is the key.
While futures by principle enable commodities of specific quality for delivery at specific place/date, stakeholders need access to markets of similar nature, i.e., national and connected on a real-time basis to make the rural products deliverable under perfect market conditions. Suffice it to say that with 300 million mobile phones, the time is now. The rates of agri-produce on an IVR are the ring tome equivalent downloads in the rural markets. Such markets which provide alternative platforms for delivery in rural areas can be established expeditiously if the government treats investment in supporting infrastructure preferentially (making the source tax free or providing a tax holiday for the income stream) to help them break even on par with commercial projects.
An analogy quoted by Yunus Muhammad of Grameen bank sums it up, “the government ought to treat a loan for a small fishing boat differently from a loan for a big fishing vessel, the economies of scale and scope for the two are different”. The World Bank is listening.
If the markets provide the right impetus to the rural areas, they would earn enough to save. In turn, they would invest more to ensure a safe, healthy, and secure livelihood than to remain a burden on the exchequer. It shall lead to the development of appropriate financial products as also various delivery models making financial inclusion a viable proposition than to make it a financial burden on treasuries, through products based on what they produce and own; such as a savings bank for grains. Health, education and livelihood are supported by this model too.
A healthy cocktail of financial inclusion and market inclusion with an appropriate dose of required policy changes (financial/ market/ telecom) would do wonders not only for economic growth but also economic development.
There is a space in the market and there is a market in such space. The act of discovery does not lie in looking for new lands alone, but also looking with new eyes. Ancient Indian wisdom says, ‘when you shut one eye, you don’t hear everything’. In an environment of appropriate policy change, with a healthy cocktail of financial inclusion and market inclusion; ‘shaken not stirred with telephony is the new bond.’

(Yogesh Kochhar is head, E-governance Business Unit, Tata Teleservices Ltd.)