Making the Indian economy
roll By Siddharth Srivastava
NEW DELHI - Economic policies can make or mar
governments. The new Congress-led United Progressive
Alliance government under Prime Minister Manmohan Singh
is making its first statement on economic policy through
the release of an economic survey, as well as the
presentation of the annual budget in parliament on
Thursday.
In a complex and huge country such as
India, every little twist or turn of strategy or
allocation of funds can end up affecting the lives of
millions of people, who in turn express their resentment
or pleasure by executing their voting rights. As the
results of elections in the recent past indicate, the
Indian population is turning increasingly touchy on
issues of governance and development. No jugglery of
figures on gross domestic product (GDP), fiscal deficits
or inflation sways anyone unless there is a real change
in living standards, jobs, incomes, infrastructure and
much more.
The previous government under Atal
Bihari Vajpayee realized a bit late in the day that it
is not enough for pockets of the economy such as
software, services and call centers to grow at
exponential rates, while millions others employed in
agriculture and industry languish.
"Shining
India" is a misnomer if it benefits a few while the rest
are left behind or, worse, made to watch from the
sidelines while others celebrate their success.
Bangalore and Hyderabad, the two boroughs of "shining"
India, saw their chieftains Chandrababu Naidu and S M
Krishna eat humble pie at the hustings as another India
not often seen or heard in the form of farmers, peasants
and landless laborers made their presence felt in the
recent polls.
Despite healthy figures of growth
and fiscal deficits in the past year, Vajpayee this week
vacated his palatial residence to move into a more
humble abode. In a twist of irony, the chief ministers
of the states of Orissa and Bihar, with no record of
reforms, continue in the saddle simply because in a sea
of poverty there is nobody to envy, with religion and
caste loyalties still holding sway.
It is a
difficult task for Singh and Finance Minister P
Chidambaram; indeed, everybody has a take on the path of
progress that the country should embark on, but it is
the people who finally have to decide. Several lines of
thought have emerged in the recent past in debates in
business papers and international magazines.
Given the arguments and counter-arguments, readers
have to bear in mind that for every assumption in
economics, there is always a counter-theory. The abiding
view is that economic reforms must be accompanied
by active government intervention in creating
human capital, infrastructure and health facilities
so that more and more are in a position to latch
on to the train of progress. A rapid growth in the
service sector has to be accompanied by the unleashing
of manufacturing as the only way to ensure mass
employment, as well as the movement of labor away from
agriculture. There has to be a proactive approach on the
part of the government to ensure farmers' institutional
credit, power and irrigation.
The mantra is on
the wall: economic reforms and growth cannot be
accomplished without distributive justice as a human
face. The vote against Vajpayee was not an expression
against reforms; it is the voice of all those who have
been left out and who want to be included in the high
road of economic progress. Many have benefited in the
past, as reflected in the figures of poverty, which have
declined from 39% to 24% in urban areas and from 39% to
26% in rural areas, in the past 15 years. But those out
of the economic loop want the new dispensation to change
the situation for them, and others who desire even more
improvement.
As the Hindu newspaper comments:
"The most noteworthy aspect of the economic survey is
the manner in which it deals with the question of growth
and distribution. It recognizes that rapid economic
expansion is a necessary but insufficient condition for
poverty reduction. An appropriate enabling environment
has to be created for the underprivileged to be able to
reap the benefits of faster growth through an expansion
in employment. The survey makes the important argument
that cost recovery in the public sector can turn out to
be counterproductive, since it can end up denying the
poor access to vital education and health services. An
increase in user charges cannot, therefore, become a
mantra of government policy. The report calls for a
multi-pronged reform of anti-poverty programs, if they
are to make better use of enhanced allocations and make
an impact on rural and urban distress. These are all old
truths, but the problem has been that the obsession with
growth and the lack of concern with distribution had
blinded governments of the past decade to their
importance."
Simple it would seem, as all
the above analysis would suggest - tackle poverty along
with growth - but it is not so. There are myriad forces
in play - problems of implementation, corruption,
taxation, laws and bylaws in politically sensitive issues such
as in labor reforms, subsidies in food or
infrastructure that hold up government funds, public debt due to
the non-profitable and burgeoning public sector, problems
of transport, roads, power, managing coalition
politics with the left parties that support the
Congress government steeped in trade-union and socialist
philosophy.
There is a near unanimity about the
direction, but it is the nitty-gritty that can become
the sticking point. Premier Manmohan Singh is an
economist of repute, and so is Chidambaram. So far the duo
seem to be more than keen to undo the mistakes of the
Vajpayee government by trying to address the losers of
economic reforms. There have been populist
announcements, such as guaranteed jobs for able-bodied
men for 100 days a year and a substantial increase in
government expenditure on education and health care.
Both are unachievable unless several other
parameters, such as deficits, labor and wage laws in the
country, are taken care of. These pronouncements are
more in the nature of highlighting the mistakes of the
previous government rather than anything substantial on
the ground. Nobody doubts the credentials of Manmohan
Singh. He enjoys a high degree of respect, and given his
unexpected ascendance the people of the country are
prepared to wait and give him time. But the honeymoon
will soon be over, and concrete results will need to be
shown.
Budget highlights
Curb the budget deficit (US$27.4 billion) to 4.4% of
GDP in the year to March 31, 2005, the lowest in eight
years, from 4.6% last year.
The fruits of economic growth, forecast by the central
bank at 7% this fiscal, will be used for increased
spending on health (to 3% of GDP), education (to
6% of GDP) and aid to the poor.
Boost investment from overseas by raising
foreign-investment limits in insurance companies to 49% from 26%
and in telecommunications to 74% from 49%. The FDI limit
in the civil aviation sector has also been increased
from 40% to 49%. Overseas companies will also now be
allowed a 49% stake in an Indian venture against the
existing 26%.
Economic Survey The
Economic Survey, written by civil servants advising
Chidambaram, say that the budget deficit and higher
borrowing by companies might push up interest rates and
brake growth.
A law binding India to cutting
the deficit by at last 0.3% of GDP a year took effect
on Monday. The act requires the government to wipe out the
revenue deficit by March 2008, meaning the government
can only borrow to fund capital investment thereafter.
Siddharth Srivastava is a
New Delhi-based journalist.
(Copyright 2004 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
