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Open Forum
PDS Should Be For Poorest:EXCESS FOOD, NO MORSEL TO EAT, by Dr. Vinod Mehta, 31 January 2008 |
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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)
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Growth Of Small Sector:KEEPING UP WITH THE MNCs, by Dr. Vinod Mehta,23 January 2008 |
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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.
Before we dwell on this, let us be clear about three points.
One, as an economic historian would say, when the market is growing in a very
general way every manufacturer finds that the demand for his product is also
growing. Be it a multi-national company (MNC) or a small scale sector firm.
Also, along with an increase in the demand of a commodity, the demand for its
substitutes also grows. For instance, if the demand for a MNC drink grows, the
demand for lemonade produced in the small sector also grows; if the MNCs
advertise for biscuits, the tiny sector finds that its sales of biscuits are
also growing.
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.
The arrival of the concept of the supermarket has brought
the unadvertised products of the small sector on the open shelves for the
public to choose from. Even the highbrow supermarkets are displaying the
products of the small and tiny sector and thus helping them enlarge their
customer base. The reason supermarkets display and sell the products of small
sector is that they earn higher profit margins on these products.
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)
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Joining Developed Nations League:GET CRACKING ON INFRASTRUCTURE, by Dr. Vinod Mehta,17 January 2008 |
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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.
This change in the mindset of some of our leaders is very
important and gives the necessary confidence to the nation to achieve that
milestone. The acquisition of foreign companies by Indian companies, the
confidence shown by multinational companies in Indian managers, the enhancement
of Indian engineering skills as witnessed with the introduction of the Tata's
small car Nano etc. provides the necessary psychological prop to think of
ourselves as a developed nation in a few years from now.
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)
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Living With Stronger Rupee:STOP GOVERNMENT SUCCOUR,BY Dr. Vinod Mehta,9 January 2008 |
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ECONOMIC HIGHLIGHTS
New Delhi, 9 January 2008
Living With
Stronger Rupee
STOP GOVERNMENT
SUCCOUR
By Dr. Vinod Mehta
(Former Director,
Research ICSSR)
The rupee has been steadily appreciating vis-à-vis the US
dollar since 2003. But in the last about
six months the appreciation has been more rapid. This is causing serious
concern among the exporters especially those engaged in the export of garments,
leather goods etc. It is also affecting
the software companies which are heavily dependent on the US market for
their exports.
The rupee has risen by as much as Rs 5 to the US dollar (Rs 9
against the British pound and Re one against the Euro). Those in the foreign
exchange business are of the view that the value of the rupee vis-à-vis the dollar
will range between Rs 38- 41 during 2008 as against Rs 49 in 2002 and Rs 45 in
2003.
Besides, because of the strong rupee, India will not
be able to meet its export target for the year 2007-08 and 2008-09 which is
expected to fall by US $15- 20 billion during the current financial year.
The industries that have been hit hard are textiles,
leather, handicrafts and the service sectors.
Reportedly, nearly four million people have lost their jobs in the past
two years alone because the foreign importers of Indian products have started
buying similar products from other countries.
True, this is a part of the ongoing changing economic
dynamics. However, the economic fundamentals are strong, foreign investors are
quite upbeat about the Indian economy and are thus willing to pour in more
money. Therefore, as of now one cannot foresee any possibility of the rupee
losing its value.
One side effect of this is that the rupee is being
increasingly accepted as a “hard currency” in many countries even though the
Reserve Bank of India
may not like it because it has not yet declared the rupee as fully convertible.
But the peoples’ perceptions are entirely different; they are increasingly
believing that the rupee could make a good asset! This is also one reason for
the rupee becoming stronger.
The software companies are the hardest hit as their software
exports are mainly for the US
market. To quote: “Indian software firms get 60 per cent of their revenues from
the US and 1 per cent appreciation of the rupee against the dollar can impact
earnings before interest and tax margins by between 30 and 50 basis points.
Irrespective of the fact whether the company is big or small, all of them have
been hit. The margins may be impacted by as much as 4 per cent.”
Apart from the IT companies, small scale textile and leather
units have also been hit. It is no
secret that foreign importers like Wal Mart and others source unbranded
garments from countries like India,
Pakistan, Bangladesh, Sri
Lanka, Vietnam,
Indonesia, the Philippines,
China etc. With the Indian rupee becoming stronger the foreign importers have
to pay more in dollars to the Indian exporters now for, say, a similar shirt
that they were to import from Pakistan
or Vietnam.
Therefore, the foreign importers of Indian garments have
switched over to buying their requirements from other countries. Hence the fall
in our exports and consequent closure of some units and job loss. This is also
true of leather and other products.
But there is another set of people, the importers, who are
happy about the strong rupee as it makes imports cheaper. For instance, India imports
huge quantities of oil and with a stronger rupee it will pay less in dollar
terms for its import. If the exporters are fretting about the declining export
earnings because of the rupee’s appreciation, we should also be happy that the appreciating
rupee also brings down our import bill of a number of goods and commodities
like capital goods, oil, pulses, grain etc.
No doubt, the appreciating rupee is only a temporary
phenomenon which will stabilize at some level but we can use this opportunity
to import capital goods to strengthen the capital base of our manufacturing
sector. The time is also appropriate to import and build inventories of
critical raw materials. We can also build our stocks of grain, pulses and
edible oil to keep a check on inflation.
However, the concern of the small exporters is also genuine
and needs to be attended to. Being labour intensive any loss of an export order
will force them to close down leading to job losses. In the past, various Governments
used to devalue currencies to protect their exports but devaluation as an
instrument to check appreciation of any currency is now outdated.
Moreover, because of the hue and cry raised by the exporters
the Government came out with a Rs 1,400 crore relief package for exporters in
July last year. It included interest subsidy to the tune of Rs 600 crore on
bank loans for the small and medium sized exporters and Rs 800 crore on duty
drawback to all the exporters on inputs used in the manufacture of export goods
and other measures. But according to the exporters, the package is not
sufficient notwithstanding the fact that it is expected to mitigate some of
their problems. Happily for them some more relief packages are on the way.
The ideal thing would be for the Reserve Bank of India to manage
the exchange rate fluctuations within a certain band to be determined by it along
with managing the flow of foreign funds. But more important than this is that
our business houses and industries must realize that as the economy gets
stronger the rupee will also get stronger in relative terms.
Therefore, businesses which are heavily oriented towards the
US
markets must factor in the appreciating rupee in their calculations and devise
strategies to check the erosion in their export earnings. Moreover, they also
need to reduce their dependence on the US market and move towards the European
market, Japan etc and start earning in Euro and Yen.
The small and medium scale units engaged in the export of
garments, leather goods, handicrafts etc must upgrade their technologies, plan
newer products with newer designs to remain competitive. The other strategy could
be to slowly switch over to branded products which will not then have to
compete with unbranded products from countries like Indonesia,
Vietnam or Bangladesh.
However, for a large number of people the exchange rate
variations do not have much of a meaning unless some of the items of their
daily consumption like pulses happen to be imported. The common man is
concerned more with the domestic inflation which affects his living standards
and not the appreciation or depreciation of rupee which is remotely connected
to him. Fortunately, the domestic rate of inflation has come down which should
make the consumer relatively happy.
In other words, there is no need to panic about the rupee’s appreciating
value as it will not affect the common man to any significant extent. In
economic terms, it means an automatic correction in the exchange rate and every
player in the foreign exchange market adjusts its requirements accordingly.
The packages for exporters are unnecessary but in the given
situation they are perhaps needed to meet the export target as well as save
jobs. But this cannot be a long term measure. The business must learn to live
with the strong rupee in this era of globalization, develop appropriate
business strategies and stop looking for succor from the Government. ----INFA
(Copyright India News & Feature Alliance)
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Economic Reforms’ Report Card:TOUCH FARM & FINANCE SECTORS, BY Dr Vinod Mehta, 2 January 2008 |
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ECONOMIC HIGHLIGHTS
New Delhi, 2 January 2008
Economic Reforms’
Report Card
TOUCH FARM
& FINANCE SECTORS
By Dr Vinod Mehta
(Former Director,
Research, ICSSR)
Thanks to economic reforms, India has been able to make a
complete break with the Hindu rate of growth in just one-and-a-half decade. For
almost four decades since Independence the country registered an annual growth
rate of between three to five per cent; and in the past decade and a half it
has been steadily rising and is currently hovering between nine and ten per
cent.
This does not mean that we have solved all our economic
problems; we still have to go along way.
It only shows that if we persist with this growth rate we can now
confidently tackle the problems of poverty and unemployment.
It is common knowledge that the need for economic reform was
felt in the early eighties, but there was no political will to initiate the
process of economic reforms in any meaningful manner. It was initiated only after the nation was
thrown into the worst-ever economic crises when it had to mortgage its gold to
save itself from the humiliation of being labelled as a defaulter in relation
to the repayment of its foreign debts.
The disintegration of the USSR, at that point of time, which
underlined the deep economic malaise of a planned economy, also provided a kind
of an ideological weapon to justify the reform process.
The rate of growth of the real Gross National Product (Gross
National Product measured in terms of constant prices, which are currently
1980-81 prices in the case of India) had fallen from 5.3 per cent in 1990-91 to
0.6 per cent in 1991-92 and the real Net National Product (Gross National Product
minus depreciation) fell from 5.2 per cent in 1990-91 to zero in 1991-92.
Therefore, it must be underlined that the process of
economic reforms was initiated in India not as a well-thought out
strategy but as a fire-fighting exercise to save the economy from the deepening
economic crises. But whatever the push
factor the reforms had a salutary effect on the economy.
Compared to the year 1991-92, the economy today stands at a
more sound footing and is receptive to more doses of economic reforms, provided
we have the political will to further the process of economic reforms,
The process of economic reforms, till date, has touched
mainly the industrial sector of the economy and to some extent the service
sector, but the agricultural sector and the financial sector have remained almost
untouched by it. Some sub-sectors of the agricultural sector have benefitted
indirectly via the reforms in the industrial sector, for instance, the food
processing industry.
On the positive side, the following could be considered as
the achievements of the past decade and a half of economic reforms: Firstly,
the process of economic reforms has
brought about a kind of change in the mindsets of a large number of people who
have come to realize that a large number of Government controls in the economic
sphere actually hampers growth, breeds corruption and that the Government is
not always the best manager of resources.
A very large amount of scarce resources locked up in
inefficient and sometimes irrelevant public sector units are actually a drain
on the economy. This cannot go on for
ever. The acceptability of the need for
economic reforms among the people today is much more than what it was a few
years ago.
Secondly, the numerous industrial licensing controls have
been done away with. A few remaining
industries which are still subject to licensing control account for only 15 per
cent of the value added in the manufacturing.
The number of industries reserved for the public sector has
been reduced to six --- defence products, atomic energy, coal and lignite,
mineral oils, railways and minerals specified in the schedule to Atomic Energy
Order of 1953. However, in the case of defence products it has been thrown open
to public-private partnership.
Thirdly, automatic approval of foreign investment up to 51
per cent for 35 priority industries which account for about 50 per cent value have
been added in the manufacturing sector.
The Government has also allowed Indian companies not only to raise funds
abroad but also buy out foreign firms. Something which was unthinkable five years
ago.
Fourthly, the rupee has been made convertible on the current
account and the exchange rates are now market determined. The apprehension that
making the rupee convertible on current account would lead to an exodus of foreign
exchange has been totally belied. The
rupee has in fact, become stronger which is giving sleepless nights to the exporters.
While the market determined rate of exchange now reflects
the real value of the rupee, it has at the same time, dealt a severe blow to the
illegal foreign exchange business, if not totally eliminated it. The country is
now slowly moving towards the full convertibility of the rupee.
Fifthly, the import duties have not only been streamlined
but also reduced and brought in tune with the structure of import duties
prevailing in other countries. The excise duty on almost all the items has been
greatly reduced and streamlined.
Again, the direct and indirect tax rates have been greatly
simplified and rationalized compared to the earlier years. With these
reductions in tax rates, the tax collections have gone up substantiating the
view that lower tax rates lead to more tax compliance. Moreover, the fiscal deficit of the
Government is now more manageable than what it was between 1990-91.
The process of
economic reforms has, however, faltered on the following: Firstly, the process of economic reforms did not touch the
agricultural sector to any significant extent. The subsidies under the various
guises have continued to grow for the agricultural sector.
Though the production of grain and other agricultural
products have significantly increased (but gone down in the past two years),
there has been very little impact of the final prices of agricultural products.
No attempt has been made in the past 15 years to bring agricultural incomes in
the tax net and thereby widen the tax base.
Secondly, the financial sector had been crying for reforms,
but not much has been achieved. Interest
rates for the maturity period of two years and more have been deregulated, but
the health of the some of the nationalized banks remains precarious.
All the attempts to create mega banks to take on the foreign
banks have come to a nought so far.
Again the SEBI has not been highly successful in taming the capital
market --- price rigging and other malpractices in the bourses still persist.
Thirdly, the public sector disinvestment has been handled in
a very bureaucratic and amateurish fashion. The privatization of the public
sector units, where even a 5 per cent privatization could have brought in
crores of rupees has brought only peanuts.
The Government also failed to restructure its management and
change its management style. For months
and years, the posts of chairmen and chief executive officers of various public
sector units have been kept vacant.
Fourthly, the Government failed to come out with an exit
policy for the industry. As a result, a lot of capital is locked up in the sick
units. Again, in the absence of any meaningful exit policy a large number of
foreign investors are fighting shy of committing their funds to India, as no
foreign investor would like to be tied down to a sick unit.
Finally, though the fiscal deficit of the Government as a
proportion of the GDP has come down, in absolute terms it is still very high.
The Government has been unable to either curb its expenditure to any
significant extent or streamline the structure of subsidies.
Moreover, the success in controlling inflation is going to
be short-lived as it is a result of the tight monetary policy and not a product
of the demand and supply management. We need to produce more of everything to
increase the supply of products, for instance, cement.
To sum up, going by the above, the economic reforms can be
said to have a salutary effect on the economy as a whole. Compared to the
pre-reform period, almost all the economic indicators show improvement. It has also set at rest some of the
apprehensions, which were raised when these reforms were introduced. The
question now is how we can deepen the process of economic reforms to cover the
sectors which have remained untouched so far. ---- INFA
(Copyright India News & Feature Alliance)
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