August 23, 2012

A hurdle race for dalits too

The numerous hurdles faced by Indian entrepreneurs in general, and dalits in particular.

For more than 60 years, the vote motive has led governments to label certain communities as economically and socially deprived. The moot question is: deprived by whom? For 350-odd years prior to India’s Independence these communities suffered. Their tragedy has been greater over the last 60 years or so, as a consequence of calculated decisions based on the vote motive rather than from any will to improve their living standards. It must be pointed out that it is only the nurture of economic freedom of the last two decades that has finally unleashed opportunities for the deprived. Choice and competition in the market have enabled all to access cheaper goods and services compared to the first 40 years of Independence.

According to one estimate in the unorganised sector, dalit-owned enterprises contribute 5 percent to India’s Gross Domestic Product (GDP), which, according to the World Bank, was $1.73 trillion in 2010. Despite these figures, on November 1, 2011 the Government of India had announced a 4 percent reservation as mandatory for purchasing “goods produced and services rendered” by units owned by SCs and STs. This reservation amounts to 20 percent of the Government’s total procurement from Micro, Small and Medium Enterprises (MSMEs) in a given year. The 4 percent reservation for dalit entrepreneurs is part of an existing public procurement policy administered under the Union Ministry of MSMEs for Union Ministries, Departments and Organisations. The total number of items reserved for procurement is 358. Out of 358 items, the number of items that the dalit units produce is unknown. As a result of this policy, it is hoped that the dalit units will get business worth Rs.25, 000 crores.

However, it ought to be clear to any right-minded person that the government is merely compounding its sins by thus furthering the tragedy of the dalits, yet the announcement has been greeted mostly with cheers. Even well-known dalit intellectuals have seen it as a cause for celebration. In his column in The Pioneer (“Time to Celebrate”) Chandrabhan Prasad has treated this boon from the devil as a victory of sorts. Prasad shares the erroneous thinking of many.

In Political Ideals, published in 1917, Bertrand Russell writes that “the problem of the distribution of power is a more difficult one than the problem of the distribution of wealth.” This is true as far as the distribution politics of the United Progressive Alliance (UPA) is concerned. The UPA has fortunately failed to fulfill its 2004 general election poll promise of job reservations in the private sector for deprived sections. It is now shamelessly using its discretionary power to distribute tax payers’ money in the hope of increasing its vote share in the upcoming general election of 2014.

The numerous hurdles faced by Indian entrepreneurs in general, and dalits in particular, are due to archaic bureaucratic rules and procedures. It is these that are hindering the growth of dalit entrepreneurship. Regarding “competition from entrenched businessmen”, Milind Kamble, Chairman of the Dalit Indian Chamber of Commerce and Industry, says “there are many dalit entrepreneurs involved in large-scale manufacturing, who are also suppliers to government-run bodies such as the Indian Railways and Delhi Metro, which proves that dalit businesses are no less competitive and efficient than others.”

Photo: Karen Sox

It is clear that the 4 percent reservation for procurement is merely a political sop, motivated by the greed for more votes. It emphasises the utter failure of politicians to address the systemic issues that are hampering business including dalits. As Manish Sabharwal points out, “we must not pretend there are no effective policy alternatives. In fact, a broader fix of the entrepreneurship ecosystem will do a better job of helping the true economically disadvantaged.” He goes on to point out, rightly so, that “reservation in government procurement will breed corruption, however structured. Who decides which firm is an SC/ST supplier? Does it need to be SC/ST owned or managed?”

A look at the number of MSMEs formally registered with the Government provides an interesting picture, because only the registered units earn a chance to participate in the Government’s procurement policy.

The Quick Results of 4th All India Census of MSMEs 2006-07, released in 2009, provides the most recent available data for MSMEs. According to this, the total MSME units are 261.02 lakhs comprising 15.53 lakh registered units (5.9 percent) and 245.49 lakh unregistered units (94.1 percent). Out of this, dalits (SCs) account for a total of 20.58 lakhs comprising 1.20 lakhs registered units (5.7 percent) and 19.38 lakhs unregistered units (94.3 percent). Similarly, MSMEs owned by STs account for a total of 8.29 lakhs comprising 0.47 lakhs registered units (5.7 percent) and 7.82 lakhs unregistered units (94.3 percent). Together, SCs and STs own a total of 28.87 lakhs MSME units (11.06 percent) (registered: 1.67 lakh and unregistered: 27.20 lakh).

Out of the total units, only 70 percent are estimated to be working and others are either closed or not identifiable. It clearly seems that the prevailing rules and procedures are so hostile to any entrepreneurial activity as witness 90 percent of MSMEs remains unregistered.

The Economic Census for 2005 (latest available) throws up some more interesting facts that seem to belie the economic backwardness of certain communities. For example, OBCs (Other Backward Classes) have a 27 percent quota in government jobs and educational institutions, yet they own 15.92 million units (out of a total of 41.82 million). The SCs with 15 percent reservation in government jobs and colleges, own 3.69 million units and STs run 1.52 million units. Out of a total of 6.08 million establishments in the farming sector, the share of OBCs was 2.81 million (46.24 percent), SCs was 0.61 million (10.08 percent) and STs was 0.38 million (6.32 percent). More than 93 percent of these units owned by OBCs, SCs and STs were in rural areas.

Two vital issues emerge out of these statistics relating to dalits MSMEs. One, majority of MSMEs are unregistered. Two, more importantly most of the dalits owned MSMEs are in rural area. Therefore, the government decision to reserve MSME units for procurement has no relevance and thus decision taken clearly shows a political motive.

The yearly report by the World Bank on “ease of doing businesses” shows the pathetic condition in doing business- from starting a new venture to resolving insolvency cases. Similarly, India’s ranking in the “economic freedom index” produced annually by the Heritage Foundation shows no sign of improvement as compared to major emerging economies. Thus, the doing business is too difficult in India in general. For dalit entrepreneurs who are already vulnerable, the doing business is quite dismal. Despite, the opening up of Indian economy, the dalit community is still hampered by bureaucratic rules and procedures. Solution: simplification of entry and exits barriers and opening up of a single window system will go a long way in boosting dalit capitalism in India. Therefore, what the government needs to do is to create an enabling environment with which dalits can gain enormously from open markets and economic freedom rather than the vote motive sops which will hamper them in due course.

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