Issue

Context

Government of India has taken steps in the form of disinvestment, relaxing FDI norms, bringing new tax laws and rules and borrowings to mobilize resources for the development of the country.  Recently, passenger fares in Railways were hiked on the recommendation of Bibek Debroy committee for mobilisation of resources for major railway projects and restructuring of railway ministry and railway board.

Background

• Resource Mobilization is the identification, organization and utilization of the available material resources within the country (including financial resources) to further its objectives of development missions and plans.
• Every country has economic resources within its territory known as domestic resources. But often they might not be available for collective use. The percentage of resources used when compared to the potential is often very low. For a country to grow, identification and mobilization of its resources is necessary. It should be available for easy use and for central and state level planning.
• Types of Resources of India: There are two types of resources:

1. 1. Natural Resources – Coal, Petroleum, Natural Gas, Water, Spectrum etc.
   2. Human Resources – The labour force and intellectual capacity of a nation.

Analysis

Why is Resource Mobilization so Important?

• It is helpful in maintaining Organizational Sustainability.
• It keeps a check and guarantees continuation of the organization’s (government or non-government) service provision.
• It paves the way for improvement of the available services and products.
• It supports the expansion of the organization’s products and services.
• It is crucial to any organizations existence, as any organization, be it in the public sector or private sector, must continually generate new business to maintain a perpetual presence.
• The proper utilization of these resources leads to generation of economic resources –savings, investment capital, tax, etc.

Mobilization of Natural Resources

• India, though a country with sufficient reserves, due to policy bottlenecks, is importing coal and iron. This is increasing our Current Account Deficit.
• India is also facing technological obstacles to exploit some of its the natural resources.
• India is also suffering from the domestic factors like political factors, resistance from tribal people to development and exploitation of resources, inter-state conflicts, disputes with neighboring countries, etc.

Mobilization of Human Resources

• Organizing human potential for ready use is necessary for growth of India. In-fact, as country of 125 crore people, India now is eyeing more on its human resource potential. The demographic dividend is also in favour of India.
• Mobilization of human resources highlights the need to empower human resources.
• Weaker sections like women, children, SC, ST, OBC etc should be brought into mainstream.
• There should be right employment opportunities for human resources, and when there is lack of skill the job demands, there should be skill development programs.
• Utilize the demographic dividend.
• India is currently levering on its technologists – engineers, doctors and scientists.

Mobilization of Financial Resources

• If a country needs to grow, more goods and services should be produced. The production can be done by government sector, private sector or in PPP mode. But for that, the economic resources of a country should be mobilised.
• In India, despite having good savings rate, domestic investment is less. Indians are investing in less productive assets like gold and consumer durable.  If India needs to grow, there should be more investments in agriculture, manufacturing or services.
• In India, tax collected is very less. The tax base has to be widened.
• Four factors of production- land, labour, capital and organization – should come together. There should be an atmosphere for growth and investment.
• Organizations do not “spontaneously emerge” but require the mobilization of resources.
• In modern capitalistic society, these resources are more “free flowing” and are easier to mobilize than in more traditional societies. Many factors impact the development of the organization.
• Initial Resource Mix: There are various resource needs in a starting organization (technology, labor, capital, organizational structure, societal support, legitimacy, etc.). But the right mix of resources is not always available.
• The most important resource of an organization is its people.
• More savings and more productive investment.

How does public and Private sector mobilize domestic resources?

• Public sector mobilises resources in two ways:
• Taxation
• Public revenue generation for investment in social services and infrastructure.
• Private sector mobilises resources in following ways:
  • The private sector mobilizes the savings of households and firms through financial intermediaries, which allocate these resources to investment in productive activities.

Issues with mobilisation of resources

Issues with mobilisation of resources include all those issues and problems highlighted in – mobilization of natural resources, human resources and financial resources. Some of them are discussed here:

• Limited Domestic public resources:
  • It makes least developed countries (LDCs) highly dependent on external resources which limit their policy space and create some dependency.
  • Their economic vulnerability is further exacerbated by indebtedness.
• Weak Domestic taxation and fiscal policies:
  • The fiscal discipline is hardly seen in developing countries. They often resort to deficit financing to pursue development.
  • The taxes are not broad-based and tax evasion is common in developing countries which squeeze out the chances for public expenditure.
• Lack of National and sub-regional development banks with rural penetration:
  • Though India is enjoying the presence of big national and international banks but the financial inclusion at rural level has been a myth.
  • Moreover, 2008 financial crisis brought national development banks back onto the policy agenda, as countries sought sources of long-term financing to stimulate economic recoveries, and there is greater international acceptance of such banks. However, poorer and smaller developing countries may face greater obstacles in setting up such banks, due to funding and technical constraints.
• Illicit financial flows from developing countries:
  • Illicit financial flows involve resources that have been obtained, transferred or used illegally or illicitly.
  • A common concern with regard to illicit financial flows from developing countries is the identification of flows considered potentially damaging to economic development.
  • In developing economies, vital development resources are being lost because of the ease with which capital flight can flourish in the context of a burgeoning yet opaque international financial system [and] closely related to this is the idea that illicit capital flows from developing economies are indicative of deeper structural problems of political governance in these countries.
  • Concerns over illicit financial flows therefore reflect a range of relevant policy concerns, yet underlying analytical frameworks and empirical methodologies continue to be the subject of debate. Illicit financial flows need not be illegal if relevant legal frameworks do not adequately reflect wider public social and economic interests or do not cover such flows.
• International tax cooperation:
  • The combating of illicit financial flows has been a core driver of international tax cooperation in recent years.
  • In general, international tax cooperation assumes particular importance in a world of hyperglobalization, in which tax systems in some countries can affect public revenue collection in other countries.
  • Such cross-national effects can result from tax evasion, for example if high net worth individuals place financial assets in tax havens, as well as from illicit financial flows arising from the creative accounting or transfer pricing practices of multinational enterprises.
• Lack of Multilateral development Banks:
  • Financing needs to support the achievement of the Sustainable Development Goals are considerable.
  • Lack of financing is not due to a shortfall in global savings; at the global level, institutional investors currently have assets under their management totalling $115 trillion. Most are in the form of developed country securities and other assets that offer low returns.
  • Multilateral development banks and other international banks, existing and new, are therefore needed to bridge finance from end-savers to development projects. Development banks can thus be key players in development by providing long-term financing directly from their funding sources, by tapping into new sources and by leveraging additional resources, including private, through the co-financing of projects with other partners.

Why is Domestic Resource Mobilization (DRM) particularly important?

In low-income countries confronting widespread poverty, mobilizing domestic resources is particularly challenging, which has led developing countries to rely on foreign aid, foreign direct investment, export earnings and other external resources. Nevertheless, there are compelling reasons to give much more emphasis to DRM.

• Greater reliance on DRM is vital to elevating economic growth, accelerating poverty reduction and underpinning sustained development.
• High-growth economies typically save 20-30 per cent or more of their income in order to finance public and private investment.
• DRM is potentially more congruent with domestic ownership than external resources.
• Foreign aid invariably carries restrictions and conditionality.
• FDI is primarily oriented to the commercial objectives of the investor, not the principal development priorities of the host country.
• DRM is more predictable and less volatile than aid, export earnings, or FDI.

Conclusion

 Resource in the form of investment is the most important factor affecting growth. Hence, resource mobilization to boost investment has always been a priority. The task of mobilizing resources involves deliberate decisions on selection of major investments, control of expenditures, monitoring of performance and realization of planned level of economic activity. Going further, it also includes prevention of tax evasion and tax avoidance.