| Issue 24 Vol I, September 30, 2006 | Archive |
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Shining
India, Where is the Light? IN a recent press release it has been said that in India ‘industry is on a roll with growth touching a 10-year high of 12.4% in July’. This is indeed heartening for the country as a whole, thinking that it was not that high during earlier years. The reason for this industrial upsurge is a turn around in mining and electricity and manufacturing sector growing over 13%. Based perhaps on this buoyancy in industrial growth, the International Monetary Fund (IMF) has scaled up India’s economic growth rate projection to 8.3% for 2006 as against 7.3% in April this year. Whether this projected rate of growth would be achieved in reality depends basically on several factors. The containment of the high rate of inflation which has been rising for some time, and, despite our efforts in terms of raising the short period interest rates, it will reach the high of 5.6% or so by the end of 2006.In fact, the government should focus more on domestic reasons that lead to 90% of inflation as compared to international reasons (like oil prices) that only account for the remaining 10%. Why not consider and change that speculation in commodities particularly pulses and grains which have contributed to the rise in graph of prices across the board. For the sake of some individual traders and so the called liberal market theme, the whole country, particularly the poor are held to ransom. Pulses have registered a double price hike in just one year. There is another constraint in terms of fiscal deficit [budget deficit + borrowings + other liabilities], which has gone up to more than 58% of the given target for 2006. It needs to be controlled within the given limits. A few effective ways to do this is to control non-plan government expenditure, impose higher taxes on the ‘undeserving rich and super rich’, broaden the tax base (like extending it the agricultural sector) and eliminate such subsidies the end result of which is not even known to the government. Presuming that, in time to come, these prescriptions would be effectively implemented, and they would eventually serve their purpose, and, as a consequence, the economy would continue to go ahead on its accelerated growth path, a few pertinent questions become highly relevant if we look at the scenario form distribution side of economic growth. These queries are basically linked with employment generation, poverty alleviation, and income disparities. Looking at what is happening in India both on the basis of experience and data set, it is quite clear that the benefits of growth do not in any way trickle down to the majority of people. There are still wide income disparities, there are still a large number of people who are below the poverty line, and there are still large numbers of people who are unemployed. The linkage between economic growth and distribution has been weakened basically because of a number of non-friendly barriers, intentionally/diplomatically created by the government (political entrepreneurs and administrators) that is concerned more for its survival, and less for public well being. In other words, the benefits of economic growth do not in any way trickle down vertically to the people. These benefits are distributed either horizontally or diagonally, and as such, do not, in any way, reach the masses. It is the poor governance that accounts for this serious lapse. One can, therefore, conclude that such an economic growth, no matter how high, is not worth for the country as a whole. The country may shine from a distance, but there will be darkness all around. [The author is presently a Professor of Economics at the National University of Lesotho in Southern Africa.] |
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Equity versus Growth THE debate among the economists on what should take precedence, growth or equity is an unending one. No two economists can agree. But the central point of all economic theory whether of Karl Marx variety or Adam Smith type is welfare. His should leave little chance for disagreement. But it abounds. Currently the draft paper of the 11th Five Year Plan is the subject of intense debate not only among the politicians, public administrators, but also economists. The issue is what is primary, equity or mere growth.
We were promised when the current reforms began in 1991 that the benefits of faster growth will eventually "trickle down". This has not happened. In fact, the upper classes have managed a large share of the benefits of this growth. This has not resulted in lowering of unemployment. In the decade between 1993-94 and 2004, unemployment rates among rural men increased from 5.6 per cent to 9 per cent and among urban men it increased from 6.7 per cent to 8.1 per cent. The unemployment rates among women also increased substantially. Our Planning Commission has claimed that rural and urban poverty have declined, yet it is difficult to reconcile the unemployment numbers with the poverty estimates. If there are fewer job opportunities, how come poverty has been reduced? There is something inherently wrong with these estimates. Ironically, The Commission's draft Approach Paper, "Towards faster and more inclusive growth", takes no lessons from the past mistakes. It has basically set four alternative growth targets - 7 per cent, 8 per cent, 8.5 per cent and 9 per cent. Each of these depends upon a number of factors, resources and good monsoons. if the overall economy has to grow at 7 per cent, the Planning Commission estimates that public investment must reach 8.4 per cent of gross domestic product (GDP). But if the overall growth rate is to reach 9 per cent a year during the public investment must be at 11.2 per cent of GDP. The agricultural sector must grow at 3.2 per cent if the GDP is to increase annually by 7 per cent; the sector must grow at 4.1 per cent if GDP growth is targeted to increase annually by 9 per cent during the next Plan. The Planning Commission has proposed a target of 8.5 per cent for the next Plan. Critics argue that growth with equity would be impossible without reorienting the planning process. This would require targets to be set in terms of social objectives rather than percentage of growth in national income. This requires targets to be set in terms of social objectives. In other words, the question must be phrased not in terms of the pace of growth but in terms of the level of employment required to yield a certain level of income. For instance, instead of deciding on the target rate for the growth of the agricultural sector, the emphasis must be on social categories if the Plan's objective is to rescue the peasant from the agrarian crisis. Since the agricultural sector is stagnating, what must be done to increase agricultural growth to 4 per cent in the 11th Plan period? Secondly, in view of the crisis in peasant agriculture, what must be done to lift the peasants out of the crisis? For instance, the move to encourage corporate farming in agriculture would make sense if one were merely interested in increasing agricultural growth. But this would be disastrous if we wish to protect and promote peasant agriculture. Liberalisation has undermined not only the viability of small farms but also the livelihoods of people engaged in small-scale industry and trade. A range of activities in the informal or unorganised sector has been adversely affected by the policies associated with liberalisation. Anyone can visit Ludhiana, mandi Gobindgarh and other centers to find this out. Sections of people dependent on such activities no longer have preferential access to institutional credit, nor do they enjoy government support, which was earlier provided by way of reserving certain fields of activities for the small-scale sector. And, now this Approach Paper prescribes that the policy of progressive de-reservation should proceed "at an accelerated pace." How skewed is the logic that the entry of multinational companies into agricultural retailing would protect the interests of small producers. This, it claims, will protect producers from "vested interests" that is local traders. It assumes that big companies are not for profit, but to protect the small farmers. This is mean to allow foreign big capital into retail business and would adversely hit the small trade and artiyas in a big way. Similarly instead of seeking more state involvement in education and social services, the Approach Paper wants user charges and cut into the subsidies. Our planners do not have an underdeveloped country with poverty, illiteracy and deprivation in mind but a well developed country. The model they have in mind has left 15 per cent of the Americans below the poverty line and Latin countries that tried to adopt it have already abandoned it. What we require is more public investment in infra structure, particularly more irrigation and power sectors. There is no point doling out thousands of acres of land almost free to big companies like Reliance as in Punjab and Haryana. This would spell disaster not only for farmers, but also for small traders. Plan must focus on greater good of greater number of Indians and not making a small class of 15 per cent richer. The states must rise and present an alternative paper at the National Development Council as Kerala has done to prevent this growth sans equity approach. |
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Some policy
planners emphasise, as in this document, growth should be our criteria to
judge the performance of our economy. If growth is the sole criterion to
measure the performance, India has indeed done well during the Tenth Plan
(2003-04 to 2006-07). Economic growth on average was about 7 per cent, up
from 5.5 per cent during the Ninth Plan. But if one was to ask whether this
growth has any meaning for the vast majority of the people, the answer would
be a big no. In terms of the two most vital parameters, employment growth
and poverty reduction, the results are dismaying. India’s’ ooze fourth
population does not have two square meals a day. Unemployment is rising each
day with millions of our youth without jobs and our system of governance,
education, health, and transport are in disarray. Even Prime Minister Dr
Manmohan Singh in his Independence Day speech confessed the skewed impact on
development, emphasised the growing disenchantment and the agrarian crisis
facing the country. But as always our experts are in love with growth rates.