Economic Highlights

New Delhi, 22 February 2016

Farm Sector Neglect

FM: RECTIFY BIGGEST MISTAKE

By Shivaji Sarkar

India needs to put the economy back on rails. Towards that end, the country must break its self-imposed restriction on fiscal deficit. As also increase public spending, unleash domestic demand, strengthen rural and farm economy, keep a leash on bank functioning and recover bad loans.

Its eagerness to check fiscal deficit should not deter the Government from launching programmes for the social sector, agriculture, small scale industries and reform taxes. True, anxiety for more foreign direct investment (FDI) is there thus so-called reforms are being contemplated to make the country more investment-friendly.

However, we need to realize that investors do not come merely on the basis of so-called reforms. They look at the overall report card. As it stands, the increasing losses of banks is giving them jitters.

Recall, the South East Asian crisis in 1997 also began as a financial crisis wherein large bank lost huge amounts owing to bad investments in real estate and infrastructure. Blame was apportioned on IMF and World Bank pronouncements on benefits of free-market capitalism.

Notwithstanding, Thailand, Malaysia and Indonesia being open to international market forces, especially FDI and thus were closer to the IMF-WB conventional wisdom.

Notably, the budget process is expected to take this into consideration even as possibility is rife it might not as this would put more stress on increasing the GDP growth while taking satisfaction at “doing better” than China.

Bluntly, in reality, it is not. The Indian economy is just one-sixth of China which has a GDP of $ 12 trillion while India is at $ 2 trillion. Moreover, even at a slower 6 per cent growth, China would move faster than India’s 7.3 per cent.

Think. China through Hong Kong is the second largest recipient of FDI. According to the UN World Economic Situation Prospects (WES) it reached a record $ 163 billion last year and India received a mere $ 59 billion.

Besides, our exports which have been poor virtually since 2008 have become abysmal during the past 12 months. Worse, imports from China especially in many areas where India was strong, at least till mid-1980s, have not come down.

Add to this, the US economy of $ 17 trillion is growing at a robust pace of 2.5 per cent. Its job graph and other fundamentals too are getting better whereby it vaulted back to being the top-most destination with estimated $ 384 billion FDI inflows, according to the WES.

Pertinently, the US move to firm up interest rates would put pressure on India in many ways, though one good aspect would be to raise interest rates here too. Our concern should be on the fast pull-out by foreign institutional investors (FII) which has led to the stock market crash.

This calls for reviewing FII activities which are causing severe volatility in the market. As it helps none but speculators.

Undeniably, the Government is in a quagmire. It is aware that most of its growth figures are due to the services sector. Certainly, this marks a good development though its gains would further consolidate if there were increases in the manufacturing and agriculture sector. This is what the Budget needs to stress.

Besides, the move by the NDA Government to turn the country into a manufacturing hub would take a bit of time. The Budget has to look for short term measures. Especially against the backdrop of the micro and small industries sectors not being in good shape for the past many years.

Besotted with problems and stymied growth of large industries, it would not be easy to turn around the small and mid-sector industries. Some which are not dependent on large sectors find the tax pattern, particularly on raw materials unfriendly. With the Government being in financial crisis it might find it difficult to consider their demand for relief.

Undoubtedly, Prime Minister Modi has taken a positive step on crop insurance. Now farmers would get compensation even at one-third loss of their crops instead of the earlier 50 per cent.

However, agriculture is a much wider and complex sector than mere crops. It has many dimensions which need to be addressed in a holistic manner. As it could become the pivot of sustained manufacturing, empowering about 80 crores people in this sector. By increasing their purchasing power it would give a strong base to the economy.

Statistically, the farm sector’s contribution is under-estimated. Ignoring this segment for industry or manufacturing has been the biggest mistake of the Indian economy since the beginning of the Planning process in the 1950s. Unfortunately, the farmer was not considered a wealth generator.

Importantly, industrialists who were given this tag had earlier swindled public money by launching and controlling banks. Post-nationalisation also they cheated them by not repaying large loans, a phenomenon which has become acute since 2009.

Today, Modi’s Government is saddled with the sins of the previous UPA Administration, which allowed large loans to willful defaulters. Consequently, the focus needs to be changed.

Significantly, the multi-dimensional farm sector needs to be put on the same footing as industry, specially, as losses to the banks from this segment have been minimal. Therefore, by giving priority treatment to the rural and farm sector which have missed the pace of the rest of the economy might change the pattern of our economy.

The first step would be by going back to Mahatma Gandhi or Deendayal Upadhyay for finding our strong roots which could find some small reflections in the Budget. But, in the post-Budget scenario, this should take centre stage to break from the West-centric IMF-WB prescriptions. Our industry and farms divisions have to co-exist and make for robust growth.

Alas, almost seven decades of neglect of the rural and farm sector has seen lopsided growth of a few families wherein wealth has got concentrated in a few hands. Shockingly, disparity has grown in the ugliest manner.

Already, the WES has warned that FDI flows to many world destinations would slow down. India has to understand this. Unless wealth is nurtured and grown domestically in a wide and equitable manner, our nation’s dream of becoming a super power might remain just that --- a dream.

Remember, by doling out rural employment guarantee schemes will not remove inequalities as it fails to trickle down to the person who needs it most.

In the ultimate, India needs to go beyond the Budget and shake up the economy. A robust, wider rural financial system could raise the happiness index and might become the model for the rest of the world. Clearly, Finance Minster Arun Jaitley must fulfill the dreams of people who are less dependent on the Government. ---- INFA

(Copyright, India News and Feature Alliance)