Debating India


Realistic, Sarcastic, Futuristic

Wednesday 7 July 2004, by SRINIVAS*Alam

The three words are adequate to describe this year’s economic blueprint. Add to that one more: Bold. That’s a lot more than what can be said about past Surveys

Three words are more than adequate to describe this year’s Economic Survey: Realistic, Sarcastic and Futuristic. Well, add to that one more: Bold. That’s a lot more than what can be said about past Surveys. Therefore, it may not be a bad idea to follow the Finance Minister P. Chidambaram’s advice: Please, read this year’s document. In fact, read between the lines. Because the Survey 2003-04 reveals a lot, and intentionally. More than that, the Chidambaram stamp is visible across the United Progressive Alliance’s (UPA) second economic statement, after the Common Minimum Programme (CMP).

Ever since the Congress-led coalition came to power, critics have gone to town saying that most reforms will now be on the backburner. That even the great reformers’ duo of Prime Minister Manmohan Singh and Chidamabaram will not be able to deliver much given their constraints. That pressures will force policy makers to backtrack.

To begin with, that’s exactly what happened. The Left parties forced the government to practically give up privatisation of profitable PSUs. Other coalition partners made sure that critical decisions on labour reforms or reducing the interest rate on Employees Provident Fund are delayed. In some areas like aviation and agriculture, pro-liberal policies of the past regime were changed. And the capital markets tanked initially, then yo-yoed due to lack of clarity on the reforms process.

Surprisingly, the Survey tries to undo the past damage. Like Chidambaram’s dream Budget in 1997, it goes several steps forward on the reforms path. Some of the statements it makes are enough to shock the Left parties and coalition partners.

For example, the Survey points out that the current Minimum Support Price (MSP) regime for 24 agricultural commodities needs to be revamped. Since India has become a net exporter of foodgrains, after being a net importer for decades, the policy makers now feel that the cost-plus MSP system creates problems, and is unable to deal with extreme situations of excess production. And it leads to excessive storage with the government agency, Food Corporation of India. Now that will definitely not go well with the Left parties at all, or even with some constituents within the Congress party itself.

In the same breath, the Survey states that the current policy of reservation for the small scale sector needs to be removed. Citing China’s example, it says that the neighbour began to witness high economic growth only after the small scale sector was liberalised in that country. And the same needs to be done here. Do we already hear the critics raring to rip Chidambaram apart? Well, then they should also hear this one: The Survey wants a consensus to be built on labour reforms which, according to it, is essential.

That was the bold part. Now for some saracsm, and the Survey is full of it. At every stage - practically in every chapter - it takes digs at the previous BJP-led government. We will give a few examples so that the reader gets an idea of the Finance Minister’s sense of humour.

First, let’s go to the introduction to the chapter on Public Finance. On fiscal consolidation, which it feels is an integral part of reforms, the Survey states that "after a promising start in the early nineties, progress faltered.... somewhat from 1997-98." Just remember that it was the Congress which was in power in the early nineties - the Narasimha Rao-Manmohan Singh duo unleashed the reforms process then - and the BJP-led coalition came to power in 1998 for the first time.

Fiscal deficit declined from 6.6 per cent of the GDP in 1990-91 to 4.1 per cent in 1996-97 (the first time when Chidambaram was the Finance Minister) and, thereafter, "maintained a rising trend till 2001-02 (when the National Democratic Alliance was in power)".Although the figure has gone down dramatically to 4.6 per cent of the GDP in 2003-04, this was largely due to unprecedented economic growth of 8.2 per cent.

But the Survey is not willing to give any credit to the NDA for the high growth witnessed last year. For, it maintains that the growth was largely due to the turnaround in agriculture, which grew by 9.1 per cent after a negative growth of over 5 per cent in 2002-03.

In the case of employment generation, which was highlighted by the BJP as one of its major successes, the Survey downplays the achievements. "Employment growth in the country improved to 2.07 per cent per annum in 2000-02 as compared to 1.07 per cent per annum in 1994-2000. In absolute terms, additional employment by 84 lakh per year on an average in 2000-02 fell short of the target of additional employment of one crore per year."

Now, the one crore target was set up the previous Prime Minister, Atal Behari Vajpayee. And then the Survey further adds that "However, these estimates (the ones for 2000-02) are based on thin samples which may contain large sampling errors."

No one can deny that one thing the NDA government got right was the massive construction and improvement of national and state highways, both largely under the Prime Minister’s Quadrilateral Programme and Gram Sadak Yojana. But then the Survey is not too enthused by the success. To begin with, it states that "Owing to delays of project construction, the full economic impact of these projects are yet to come."

It does compliment the work done under the National Highway Development Programme by the National Highway Authority of India. Then comes the real punchline: "In terms of policy issues, the major questions that need to be addressed in the roads sector are about a shift from inaugurating roads to comprehensive ’corridor management’, which can maximise the velocity and throughput of the highways... This motivates a shift in focus from road construction to high sustained velocities. It brings up a new set of issues including: high efficiency in tolling, maintenance, continual performance analysis and incremental highway engineering work, enforcement against encroachments on shoulders or service roads, enforcement against illegal alterations, law and order, accidents, customer facilities on the road, etc.... This may require a fresh set of institutional innovations, and organisational structures, as compared with the existing efforts, which are focused on pre-inauguration activities."

In conclusion, one can only say that where the Survey really scores is in its ability to be realistic and provide a futuristic blueprint for the next few years. It talks openly about the problems with Central Government finances in terms of deficits, the mess in State Governments’ finances, the fear that inflation will go up in the near future, and that even interest rates could move northwards if the deficit is not checked now.

For agriculture, it states that it needs to be made more diversified so that employment can be generated and growth can be achieved on a sustainable basis, unlike the current times when everything depends on the monsoons.

In the case of industry, it talks of attaining a regular annual growth of 10 per cent for the next five years if India has to attain prosperity levels of other nations like China, and reduce poverty levels drastically. For that, both foreign and domestic investments need to be encouraged.

But then as we all know, the Survey is the economic blueprint.And major policies, including those announced in the Budget, are influenced by political pressures and counter-pressures. So, what the Survey preaches may not be palatable to the political masters.

Alam Srinivas


in Outlook India, Wednesday, July 07, 2004.

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