Category Archives: Economy

India’s Tier 2: Incentivize Hidden Liquidity

I’m back from a yet another trip of one of India’s holiest cities – Allahabad – a city with deep historical and mythological underpinnings, yet fast trying to embrace modern India’s newest fads. It’s a city I grew up in and therefore I have had the chance to observe social and economic opportunities first hand. On this trip it seemed that everyone in the place was buzzing with the promised conversion to a “smart city”.

However, what could easily derail any “smart city” dream is the lack of basic necessities, infrastructure, education, growth mindset and talent drain. Sure there is enough economic growth as anecdotal evidence from local business that are proxies of consumer spending & confidence like entertainment, food, consumer goods, etc. suggest. But the growth is ad-hoc and haphazard. There has been growth in transactions and economic activity, but not HDI. I don’t think a “smart city” can be made without effecting change in fundamental mindset, infrastructure and employment dynamics .

But here’s an idea. Why can’t such mid-sized cities build an eco-system which nourishes a variety of new businesses spanning areas like social, infrastructure, education, medical, consumer, entertainment, information & media, transport, etc? Why not put the huge amounts of idle cash/hidden cash to good use by incentivizing the hoarders of such money?

The problem is that this liquidity is either invested in real estate through legal and illegal means or it is spent on consumer purchases & entertainment outside the city (typically in big cities or abroad). But hardly any of it is ploughed back to be reinvested for the good of the city.

It is my belief that such liquidity can fund a lot of new start-ups in a variety of areas – there are plenty of higher educational institutions churning out bright students. But lack of exposure to new ideas, the absence of a viable guiding platform and the fear of such cash coming under the taxman’s scanner are holding back many bright ideas. Therefore for the youth, the only way to progress is to move out of the city after graduating.

So when one can have tax amnesty schemes like voluntary disclosure of incomes, why can’t we have another such amnesty scheme which mandates the pooling of money into an fund that bankrolls new business ideas that will make a difference to the city, generate employment, discover new talent, change mindset, and truly prepare the Allahabad to usher in the “smart city” tag.