Economic Highlights

New Delhi, 7 February 2008

More Economic Reforms

CHANGE MINDSETS PLEASE

By Dr. Vinod Mehta

Former Director, Research, ICSSR

The process of economic reforms has taken roots in the past 15 years. The CPM too cannot deny its necessity. Deng Xio Ping was the first Chinese communist to have understood the importance of market economy and economic reforms. He knew these could catapult China into a major economic power and put the economy on the reform path. It was in the 80s, much earlier than India did. Look where the Chinese economy stands today.

And, if we even after these long years were to ask: what is the greatest hurdle in the way of economic reforms the answer would be the bureaucracy. Yes, even today. That is to say, those who are responsible for liberalizing the economy have still somewhat outdated mindsets and are unwilling to implement the reforms in spirit.  But they are a hurdle not by any design but by a mindset, which has been nurtured over the past six decades i.e to say the least anti-developmental.

But, when you put such administrators to take economic or business decisions they would in all probability mess up the whole situation by applying the same yardstick as in basic administration.  A person good at maintaining law and order or in running a good system of schools will not necessarily run economic enterprises with same efficiency.

This is because the Indian Administrative Service produces general administrators, who are rotated throughout their tenure in various departments or ministries. An officer could well be posted one day in the Law Ministry, the next day in Commerce Ministry, the next in the department of animal husbandry (Ministry of Agriculture), or the next to the Department of higher education (Ministry of Human Resource Development) and eventually retire in the Department of surface transport.

Therefore, when such people are asked to man economic enterprises majority of them would mess up. One can list a number of examples, but let’s take the case of Air India and Indian Airlines, which stand merged today. While the world over, airlines are run by professionals, it is in India that the bureaucrat has been given the day-to-day charge of Air India; elsewhere airline companies have expanded at a feverish pace, whereas Air India and Indian have yet to grow (of course some have closed down). Airlines such as Singapore or Thai are popular with travelers, however, Air India is opted by those who have no other option or when the Government forces its employees to fly only this carrier.  

So, bringing untrained bureaucrats to man business-related units will not only mess up the whole unit but may also bring a bad name to bureaucrats. Thus, the best way out for the Government would be to get out of the business of running economic enterprises and concentrate on governance alone. If this is not possible in the immediate future, the Government could consider at least retraining them. It would help change mindsets so that they are capable of running economic units. 

At the same time, the Government needs to re-look the structure of ministries; a comparison with other countries would show that some of the ministries existing here don’t exist elsewhere.  For instance, countries such as the U.K. and Thailand have no ministries as Civil Aviation, Information and Broadcasting, Food Processing. Further,  many countries do not have like us the department of banking under the Ministry of Finance as commercial banks come under the supervision of the central bank.

On the question of mindset, it is equally, if not more important to change the mindsets of people at the junior level – say of directors, deputy secretaries, undersecretaries and section officers. This is because it is they who put up the cases before their seniors --joint secretaries, additional secretaries and secretaries. In all likelihood, the senior officers do not have the time to go through all details and to quite an extent would accept  opinions and take a decision on the notes put up by their junior staff.

Tragically, the ministry of finance, which is supposed to be pioneering the economic reforms, is too a victim of this mindset.  Ask staff in the autonomous bodies under various ministries whether the babus in the finance ministry have forced them to have sleepless nights over questions which could pass off as irrelevant. The answer may well be a resounding yes. 

This apart, it needs to be emphasized that most of the ministries have their fingers in every pie. Though there are autonomous bodies, statutory bodies or special organizations created under an act of Parliament, at the end all would ultimately be controlled by the babus in ministries. Unless we make efforts to change mindsets, which don’t go well with the philosophy of economic reforms we shall not be able to implement economic reforms, even if we seriously wanted to.

Given the developments of the past 15 years, it is clear that unless we spell change the process of implementation of economic reforms is going to be tardy. Outdated mindsets, which we have inherited, shall unintentionally continue to put spokes in the wheels of economic reforms.---INFA

(Copyright, India News and Feature Alliance)

ECONOMIC HIGHLIGHTS

New Delhi, 31 January 2008 

PDS Should Be For Poorest

EXCESS FOOD, NO MORSEL TO EAT

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

Over four years ago, the then Prime Minister Vajpayee admitted that the implementation of the Public Distribution System (PDS) had not measured up to the public’s expectation. He observed that the targeted PDS did not seem to be working well in many places especially in the rural North and North-Eastern States. He confessed this while inaugurating a seminar on “Towards a Hunger Free India” organized jointly by the Planning Commission, World Food Programme and the MS Swaminathan Research Foundation.

At another forum he expressed his concern over the peculiar dilemma the country faced: of excess food and low consumption. Recall, in 2002 some of the NGOs had reported tribal deaths due to starvation in Rajasthan’s Baran district and Kashipur in Orissa. Primarily because the people could not afford to buy the grains even at the subsidized rates.

Not only that. Many of them did not even possess the Below Poverty Line (BPL) cards that entitled them to purchase foodgrains at subsidized rates in ration shops. Some of them even mortgaged their BPL cards to money lenders or local traders.

Though no starvation deaths have been reported in recent times yet it is also well known that food is not reaching the targeted poor people. It is in this context that the functioning of the PDS needs a closer look, is suitably revised and revamped so that food reaches the really needy people.

Look at the irony. Despite surplus food stocks, reportedly at least 50 million Indians are on the brink of starvation and over 200 million Indians are under-fed. Scandalously, about 60 million tonnes of surplus foodgrain is rotting in various Government warehouses in the country.

Clearly, the fact that people are starving when there is a surplus of grains is an indictment of the Government’s Public Distribution System. The PDS has a network of about 4,60,000 ration shops across the country through which grain, sugar, cooking oil etc are sold at subsidized rates.

It is reported that at the national level leakages from the PDS amount to nearly 1.5 times the actual amount of grain needed. A Planning Commission report on the PDS states: “In the year 2003-04, out of 14.07 million tonnes of foodgrain issued to 16 States at BPL prices from the Central pool, only around 5.93 million tonnes were delivered to the poor families.”

Also remember, the need for the PDS was felt in 1958 when the food production had dropped. Prior to that there was the rationing system which was introduced during the Second World War to manage the limited food stock but this was discontinued in 1943. It was again introduced in 1950 to regulate the public distribution of foodgrain as a deliberate social policy.

The main idea behind the public distribution system was: a) to provide foodgrain and other items of daily necessities to the poorer sections of the society at affordable (subsidized) price; b) to influence the market prices of cereals to keep them under control and c) to ensure equity in the matter of distribution of essential commodities. In other words, the PDS from rationing evolved into a national food security system.

The PDS was established during the period when India was facing shortages of essential agricultural commodities. For a number of years it served the purpose well for which it was introduced. However, today we have reached a situation where there is no shortage of foodgrain etc. but still some of the poorer sections of the society are not getting the foodgrain they need.

This has been attributed to various factors. One, the PDS itself leaves much to be desired. The grain, though available in godowns, is unable to reach those sections of the society which need them the most. The district Administration has been found wanting in transporting the grain to the poorest of the people.

Two, even after subsidies, the price of grain is so high, due to the increase in the procurement price of grain along with the rising components of cost of the Food Corporation of India, that many poor people in the target group cannot afford to buy it. It is common knowledge that approximately 36% of the population live below the poverty line which means that their income is not sufficient to buy adequate quantity of food. Also, about 80% of the poor people live in rural and tribal areas.

Three, the poorest sections of the society are not able to meet their food requirements because our PDS concentrates heavily on rice and wheat and leaves out coarse grain like maize, barley, millet and sorghum.

Moreover, the Government’s support to rice and wheat has led to the neglect of these grains which are not only relatively cheaper but the staple diet of many of the rural people. Since there is no support price for them the farmers are shifting to wheat and rice production. Hence, we have a situation where the Government policy has favoured wheat and rice production at the cost of the poor peoples’ staple diet.

However, as the things stand, there is a surplus of grain but people do not have the sufficient purchasing power to meet their requirements from the market. Undoubtedly, the country needs to approach this problem at various levels.

First, the employment opportunities for the BPL people will have to be increased so that they can earn enough to buy their grain requirement from the market. Plainly, they need remunerative employment on a regular basis. The food-for-work programme is not enough. It needs to be strengthened. 

Second, we should look at the institutional arrangements to distribute the foodgrain directly to the starving people. In such cases there is no need of selling them any grain as they can’t afford to buy. But at the same time, institutions like the Panchayats should see to it that these people do not go hungry. The district Administration should help the Panchayats organize community kitchens and the cost for giving food to them should be borne by the Government itself.

Third, the emphasis should be shifted from the production of rice and wheat to the production of coarse grain which is cheaper and affordable for many of the poorer sections of the society. Unlike rice and wheat, coarse grains do not need a lot of water and fertilizer and are cheaper to grow in areas of scarce water.

That apart, since the output of grain has reached a comfortable level, questionably is it essential to keep large quantities of grain in state godowns beyond a certain level? The cost of storing so much grain is also responsible for keeping the prices very high. We may have to think of alternative ways of storing grains so that the costs become lower. Keeping in view the costs involved, it is uneconomical to store grain by the State beyond a certain level.

One way could be to issue food coupons so that the poorest people may buy their food requirements from the market and the State reimburses the money to the shopkeeper. But it will be difficult to implement this in tribal and remote areas.

However, the nation must find a way out to balance the grain storage requirement of the nation from the security point of view and the need of the poorest people to get food. The money saved on storage costs could perhaps be used to give free grain to the poorest people in times of distress.

The long term solution however, is to generate jobs and give adequate purchasing power to the poorest of the people so that they can purchase their own food from the market.---- INFA

(Copyright, India News & Feature Alliance)

ECONOMIC HIGHLIGHTS

New Delhi, 23 January 2008

Growth Of Small Sector

KEEPING UP WITH THE MNCs

By Dr. Vinod Mehta

Former Director, Research, ICSSR

It was feared that the economic reforms which generally favoured big industries would undermine the existence and development of small and tiny units. However, the developments of the past one and a half decade show that the small sector far from being undermined is not only surviving the competition but is also growing and changing to adapt to the new marketing environment. 

Short of entering into expensive and sometimes unwinable advertising wars, the small, the tiny and the unorganized sector are concentrating on quality aspects of marketing to retain and expand their share of the market. Some have even tied up with the bigger companies in the form of backend linkages for supplying of certain components to one single manufacturer. These are the stories coming out of small and medium towns of India.

Two, even as we always perceive one monolithic market for one kind of product, the reality is somewhat different. For practical purposes the market can be broadly divided into two categories --- a market of individual or family buyers and a market of institutional buyers (like hotels, hotels, canteens, offices, establishments etc). The individual buyers usually buy things in small quantities while institutional buyers buy in bulk; the institutional buyers are relatively more cost-conscious than individual buyers. Again, in the case of an individual or a family buyer it is the carry home pay-packet which generally determines its demand pattern.

Finally, within these two broad categories of markets, namely individual and institutional, there are various layers of markets catering to different segments of people and institutions. For instance, both a five star hotel restaurant and a dhaba need edible oil for cooking purposes but both will use different qualities of edible oil, and hence their sources or procurement would be different. Besides, the products of the MNCs and large industrial houses may appeal to the people of upper income brackets and to the institutions patronized by them but the vast majority will still be attracted to goods which are relatively cheaper and produced in the small sector.

Coming to the changes that are occurring in the small scale sector, we find that one of the consequences of the liberal economic policies has been that both the consumers and the producers have suddenly become conscious of quality. The consumers are now demanding quality products at competitive prices. The small scale sector including the tiny sector has started responding to this by improving the quality of their products. 

From biscuits and other bakery products, readymade garments to food processors and coolers one can see a significant improvement in the quality of their products --- in some products the improvement is more and in some others it is less.  But the most important fact is that the small scale sector has come to realize that it cannot survive without improving the quality of its products and that it has to be constantly innovative. Since these units cannot advertise their products, one has to see for oneself the quality of their products in actual shops.

The second consequence of liberalization for the small scale sector has been that it has now started paying serious attention to packaging. The goods are now being packed by them in colourful attractive packages. Be it biscuits or bread, a shirt or a jean, a bath soap or a detergent powder. The individual shopkeepers of groceries can now be seen cleaning bulk products like pulses and packaging them in convenient packs for retail sale.  Similarly, new garments being sold on the roadside are being packed in a similar fashion as those in big stores. Many things which the shopkeepers used to weigh in front of us are today sold in a pre-packaged form.

Thirdly, the small and the tiny sector have also started using brand names for their products. Though these brands are seldom advertised, yet the small scale sector is attempting to build its own brand following despite being limited to a particular territory.  For instance, a few years ago, Delhi citizens could buy bread made by one of the two big bread manufacturers or from one of the numerous small bakeries. But in the past 10 years apart from the two big bread manufacturers, a large number of other branded breads from the small scale sector are being sold in large numbers in Delhi.

Fourthly, the concept of neighbourhood provision stores is slowly giving way to supermarkets of all kinds where all the products for sale are displayed on the shelves. One finds the products of the small sale sector getting the same exposure as the products of the large sector leaving the decision to the consumers.  This was not possible under the old concept of provision stores where one had to demand an item by name.

As far as the non-food sector is concerned, the small scale units are upgrading their technical base with help from large companies with which they may have backend linkages like auto parts. Since large companies outsource the manufacture of their small components they also maintain quality control by helping these units buy and assimilate new technologies. In these kinds of backend linkages the small scale units do not have to worry about their sale targets.

There are some problems with the small scale units in rural areas as their demand base is limited to a few nearby villages and have almost no forward linkages with large companies to sustain them. Thus, there is an urgent need to study the impact of economic reforms on the small scale and tiny units in rural areas and then devise policy measures to help them to sustain themselves.

There is no gainsaying that the small scale sector, far from being overawed by the MNCs and by the large domestic sector has not only changed but is still continuing to change with the times, adopting new approaches and strategies to stay put in the vast Indian market.

Going by the experience of the past 15 years, competition from the MNCs and the large domestic companies has not spelt the death knell of the small sector. Besides, if the country were to fully de-reserve the small sector, it would not only survive but become more robust.  It has its own dynamics. --- INFA

(Copyright India News & Feature Alliance)

ECONOMIC HIGHLIGHTS

New Delhi, 17 January 2008

Joining Developed Nations League

GET CRACKING ON INFRASTRUCTURE 

By Dr. Vinod Mehta

(Former Director, Research ICSSR)

For almost five decades India was content to be known as a “developing” or a “Third World” country.  Then in the last decade of the 20th century economic reforms happened and the growth rate doubled from around 4 per cent to 8 per cent and India came to be known as the “emerging” economy, one of the fastest growing economies in the world after China. 

The developments of the past one and a half decade have brought a sea change in the thinking of some of our leaders. They all want that India should become a developed country in the next few years. It was the former President of India, A.P.J. Abdul Kalam, who in his book “Vision 2020” shared his vision of India as a developed nation.

The average citizen has also started thinking in those terms. The date 2020 is not sacrosanct in the sense that on 1 January 2020 we would become a developed nation like Japan or Germany. The important thing is that we should start working in that direction and endeavour to achieve that goal say in the next 20 to 25 years. The timing is correct, what we need is a clear road-map to achieve that status. The Eleventh Five Year Plan could be termed as a beginning point for our journey towards a developed country.

Some people may think of it as a cynical idea. Even after 60 years of Independence we have not been able to ensure safe drinking water to every person or achieve 100% literacy so why talk about India as developed nation? Well this is a brute fact and should be recognized so, and efforts doubled to solve these issues on an urgent basis.

However, it is the vision which is very important. Nehru had a vision of India as a developed country over a period of time. This vision led him to set up institutions like the IITs, IIMs, Centre for Scientific & Industrial Research, Indian Space Research Organisation, Atomic Energy Commission. Defence Research & Development Organisation, Agricultural universities, AIIMS and even research in the field of social sciences and humanities.

People had at that time also laughed at him but today after 60 years the achievements by Indian scientists, engineers, doctors, managers, social scientists are known the world over. We are at a stage now where we can talk about and think about   achieving the status of a developed country in the coming years.

The eyes of many countries are focused on India. The events and developments are being closely watched by them. There are some powers which would not like India to become a developed nation and so are engaged in pinpricking. It could take the form of denial of certain technologies or ill-treatment of software personnel, medical doctors etc. Therefore, keeping in mind that other countries would like to stall or delay our march towards a developed nation, we must have a clearly defined path to achieve the goal of becoming a developed nation.

As a first step, problems like illiteracy, lack of safe drinking water which have been with us since Independence need to be tackled on a war footing. Most of the diseases are water borne. If we can ensure safe drinking water to everyone the health of the population will generally improve and there will be less pressure on our hospitals.

As far as education is concerned it is simply not enough to have literate people but people with a qualification up to a minimum school level say 10th standard. If the country is going to use computers in almost every aspect of life, it is essential that the population is educated enough to handle and work on these gadgets. The Knowledge Commission has rightly emphasized the quality aspect of our elementary and higher education.

Having said that, let’s now try to build on our strengths. As we know, the process of economic reforms is on for the past 15 years. In the past one and a half decade many new first time entrepreneurs have emerged in the country such as Infosys, Wipro and many others. The process of economic reforms needs to be accelerated further so that we are able to complete this process in the next five years.

If the economy is competitive in the international market it will automatically become a strong over a period of time. Without a strong economy and a strong financial system we will not be able to keep abreast with the developed nations. The results of economic reforms are now for everyone to see; Indian firms are becoming lean and cost effective now.

After the reforms in the industrial sector we should now complete the economic reforms in the financial sector also. Steps have already been taken like the establishment of private sector banks, private insurance companies, setting up of Pension Funds, relaxation in foreign currency regulations and so on. But we must speed up the reforms in this sector and get rid of Non Performing Assets at the earliest.

However, we have yet to start reforms in the agricultural sector. This is an area which has a very big potential to make us a developed country. Till date, we do not have any agricultural policy worth the name. Our productivity of agricultural crops per hectare is much lower than the productivity in other countries. Though we are number one in milk production today it is due to the fact that we have a large number of milch cattle and not because the productivity of our milch cattle is high as in other developed countries.

The market for agricultural products is still under-developed in terms of infrastructure and access to international markets. Countries like Holland and Germany grow more grains per hectare than India and get more milk from limited number of cattle stock. Therefore, to make India a developed country we will have to bring the agricultural sector on par with the agricultural sector in the developed countries.

Technologies play an important role in making a country developed or not so developed. Why America is on the top today is because of the fact that it has the best technologies in the world. Indian scientists have also done well to develop technologies which can put India at par with other developed countries.  In fact, many of our scientists and technologists working outside India have contributed to scientific research in those countries. If we can get our act together and consolidate our position in the technological sphere then we can claim to become a developed country.

There is also a need to change the mindsets of the people to bring them in tune with the one in developed countries. For instance, over a period time we should start reducing our dependence on concessional loans from various countries and instead start giving concessional loans to other developing countries.

When collaborating with foreign countries on research we should always insist of becoming an equal partner instead of a junior partner. For participation in international conferences we should stop taking any assistance from developed countries for our travel and stay by arguing that we belong to a Third World country. We should be able to pay from our own resources for participation of our academics in international conferences and symposia.

Finally, we also need to have a world-class infrastructure ready in the next 15 years. We need to set up a world-class communication system, transport system including good road and rail network.  All these are minimum requirements for the emergence of a developed nation, which India aspires to be. ---- INFA

(Copyright India News & Feature Alliance)