Lopsided economic reforms

IN THE Economic Survey 2000-01, it was claimed, "India has the distinction of being one of the fastest growing economies in the world." This ecstasy is now somewhat subdued, after the release by the Central Statistical Organisation (CSO) of its revised estimate of gross domestic product (GDP) growth in 2000-01.

According to the latest estimate, the GDP growth in 2000-01, instead of being 6 per cent as anticipated, was only 5.2 per cent. One may still argue, and perhaps rightly so, that even 5.2 per cent growth rate is higher than what has been achieved by most other countries.

The reality, however, emerges when one looks at the GDP growth rate of agriculture, during the first four years of the Ninth Plan. It has been only 1.4 per cent per annum. During these four years, the population of the country, and of agriculturists, has increased by no less than 1.9 per cent.

From these, it is evident that during the last four years, agriculturists have become poorer, not only in comparison with non-agriculturists, but also in absolute terms. Per capita availability of foodgrains has also declined, as reported by the Planning Commission in its Mid-Term Appraisal of the Ninth Plan. One may ask, "If 60 per cent of our population, dependant on agriculture for their livelihood, have become poorer and more undernourished, then what is there to rejoice about?" The industrial sector too, during these years, has not performed better than in the past. Only the service sector maintained its tempo. No less than 70 per cent of the benefit of growth in GDP has accrued to less than 20 per cent of our population engaged in the service sector.

Low capital formation

It needs to be realised that the growth rate of our economy depends more on capital formation in those sectors, than only on wishful thinking. Recently, the government has set the target of GDP growth at 8 per cent per annum for the Tenth Plan period; and within this over-all growth, the target for agricultural growth has been fixed at 4 per cent. It is not impossible to achieve this target . But it would not materialise, unless capital formation in the farm sector increases up to about 15 per cent of its contribution to the GDP.

In recent years, capital formation in the farm sector has not been even half of this. That is why, in spite of the monsoons having been very satisfactory during the Nineties, the growth rate of the farm sector during this period has been less than half of in the Eighties. Even in agriculture, the quantum of capital formation, over a period, is far more decisive than the quantum of rainfall received in that period. One may ask, what steps has the government taken to ensure adequate capital formation in the farm sector, during the Tenth Plan?

The economic reforms are biased in many other ways. The policy of liberalisation has been applied only to the industrial sector. The agricultural sector even now remains shackled by a number of restrictions and controls on movement and trade in farm products.

The government is extolling the virtues of globalisation of trade, but it has so far failed to create a single unified market for farm products within the country. The operations of the Food Corporation of India (FCI) and the public distribution system (PDS) are distorting the normal regional and seasonal variations of commodity prices, and production decisions by farmers.

The recent decision of the government to sell wheat and rice, even to the above the poverty line families, at 30 per cent less than their economic costs, is a flagrant violation of the first principle of free trade.

It will have a serious impact not only on private grain-traders but also on farmers. It was laid down in the World Trade Agreement that no government would either buy or sell farm products at less than their open market prices.

To help the poor, the system of food coupons should be adopted, and not of intervention in free trade. The poor should no doubt be helped, but at the cost of the nation as a whole, by supplying them cash, or food-coupons, and not by sale of food grains at much below their economic costs, which deprive farmers from the possibility of getting higher prices for their produce.

The government has been claiming that to take care of the farmers' interest, it judiciously fixes minimum support prices (MSPs) of farm products, and when farmers are unable to sell their produce at prices higher than the MSPs, it comes to their rescue, and buys those at the MSPs. This claim is not quite true.

In 1990-91 to 1993-94 and again in 1994-95 and 1996-97, the MSPs of paddy were less than their costs of production. In the case of wheat also, the margins of profit have often been lower than 10 per cent. One may ask what enterprises can be sustained on negative, or such marginal rate of profit?

Uneven benefit of govt. purchases

The government purchases at MSPs are also made according to the convenience of the purchasing agencies, and not according to the needs of kisans. Coarse grains are not purchased, except nominally; most of the rice is procured as levy from rice mills, which are under no obligation to purchase paddy at the MSPs. Also, nearly 75 per cent of the total government purchases are made only in three States, namely, Punjab, Haryana and Andhra Pradesh whose production of foodgrains is less than one-fourth of the total. More than three-fourths of the producers do not get the benefit of government purchases or free trade.

Now let us see, to what extent the government has reformed its own functioning. The gross fiscal deficit has increased more than three times from Rs. 36,325 crores in 1991-92 to Rs. 111,972 crores (BE) in 2000-01. The increasing deficits have not been managed by drastic cuts in government spending, but by taking more and more loans. The total debt burden of the government now exceeds 58.5 per cent of GDP. Interest payments on these loans now exceed 48.8 per cent of the total tax revenue. One could perhaps have excused this kind of extravagance, if the borrowed money had been utilised for providing better social services, and creating better infrastructure for faster growth of the economy. But exactly the opposite has been done.

In 1990-91 out of the total expenditure, 54.3 per cent was on developmental and 45.7 per cent on non- developmental items. In 2000-01, developmental expenditure stood reduced to 38.7 per cent, while non-developmental expenditure had gone up to 61.3 per cent of the total. From these, it is evident that the future of the country is being mortgaged to maintain only the governments' pomp and show, and sometimes to earn cheap popularity.

How indifferent is the government towards the real needs of the people is evident from the fact that according to the World Development Report 2000, India's total expenditure on education and health services was no more than 4.1 per cent of GDP, whereas for the world as a whole, this was 7.3 per cent.

Even in the low-income group countries, expenditure on education and health services was 4.9 per cent of their GDP, against 4.1 per cent in India.

Let us also see what has been the impact of the economic reforms on creation of jobs. According to an official report, "Against the growth rate of job seekers at 2.5 per cent annually, jobs- creation has dropped from 2.1 per cent during the Eighties, to mere 0.8 per cent during the Nineties.

During the last three years, the rate of job-creation has further declined to only 0.5 per cent." The result is that unemployment is growing at an alarming rate which in turn is leading to growing lawlessness.

Since independence, India has adopted two different development strategies for faster economic growth, based on two different ideologies. One was under Nehru's socialism, in which "State enterprises were expected to attain the commanding heights of the economy." That ended in a fiasco. As a reaction to that, a new strategy has now been adopted, under the name of "Economic Reforms", which in reality is nothing but a surrender to international capitalism. This second strategy is also showing signs of failure within ten years. One should think, why both socialism and capitalism have failed to produce the desired results in India?

Prosperity and poverty of different countries do not depend on their ideologies. These also do not depend only on the availability of natural resources within the countries. Some countries, which are among the richest, such as Japan and Switzerland, are not richly endowed by nature. On the other hand, a country like India, which is richly endowed by nature, is among the poorest.

Prosperity of a nation depends more on the character of its people, and cohesion among them. Character depends on the quality of education. Cohesion depends on reduction in inequalities in status, incomes, opportunities and facilities, available to different groups of people engaged in different vocations and residing in different parts of the country.

That is why it was enjoined in the Constitution that the government would provide free and compulsory education to all and do its best to reduce the disparities. Perfect equality among individuals is not possible.

But when even 54 years after Swaraj, adult illiteracy, infant mortality and total death rates in rural India remain above 50 per cent higher than in urban India, then our politicians cannot escape the blame for the persisting poverty and misery of our people. Unless determined efforts are made to upgrade rural education, and raise productivity of agriculture, all other efforts will fail.

Bhanu Pratap Singh

Former Union Minister

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