Economic Highlights

New Delhi, 11 January 2007

Tips For Next Budget

Action Needed on Three Fronts

By Dr. Vinod Mehta

The whole country is ogling over the nine per cent growth rate during the first half of the current fiscal. This achievement has been despite the fact that we are still plagued by problems in the infrastructure, including power, agricultural sector as well as labour market.  The budgetary exercise has started and the Finance Minister would like to see that this trend is not disturbed but strengthened during the next fiscal.

This could be an occasion for the Government to move simultaneously on three fronts; one, take workers into confidence regarding economic reforms, two, develop infrastructure on a priority basis and three, have a meaningful agricultural policy.

In the whole process of economic reforms the perception still lingers that workers are opposed to economic reforms. Neither the Government nor the Trade Unions and the political parties that back these unions have not done anything to correct this perception.  Likewise, the business and industry have also not done anything to take the workers into confidence.  Industrial peace is needed to sustain this high growth rate.

It is not enough to talk about the freedom to enterprises to hire and fire labour at their own will.  This is what the enterprises have been harping all along for the past one and a half decade.  As far as the unorganized sector is concerned, hire and fire is the order of the day.  But the organized worker is opposed to it from the very beginning and for some good reasons. 

When one talks of hire and fire of workers in developed countries, one is talking of it in the context of social security net.  Along with the freedom to hire and fire theory, goes the social concern of the society to assure the workers and their families a minimum wage in the form of unemployment benefit so long as they are not able to find the next job.  Simultaneously the workers, who lose jobs because of technological changes or closure of the firm because of continuous losses, need help to acquire new skills through retraining to make them fit to take up another job.

In India, there is no social security net, no unemployment benefit and there are no institutions to retrain the workers in newer skills.  In the early years of the economic reforms, the then Finance Minister, Prof. Manmohan Singh, in his first budget speech, had talked about the setting up of a social security net.  However, none of the successive governments has come out with any social security net.  Will the Finance Minister redeem the promise made by Professor Manmohan Singh in his first budget fifteen years ago? 

Therefore, unless the social security net is in place we cannot expect the workers to be partners in the economic reforms.  Employment in a country like India is simply not an economic problem to be thought of in terms of hiring and firing of workers, but a human problem where it is essential for the livelihood and existence of a large number of people and their dependents.  Therefore, the next year's budget should address the human aspect of  economic problem of hire and fire and set up the social security net. 

Apart from making workers as partners in economic reforms, it is also essential that the economy grows at a much faster rate so that whosoever enters the job market is assured of a job.  But for the economy to grow at a faster rate it is also important to do something about the infrastructure and the agricultural sector. 

The under-developed infrastructure is one of the weakest links that could hold up our economic growth in the near future.  It is shameful that after 59 years of development we have not been able to ensure uninterrupted supply of power to our industry, continuous supply of safe drinking water to our citizens and yet we feel happy to call ourselves as an emerging economic power.  The roads are in bad shape, there are hardly any expressways; the local as well as intercity transport is in shambles, even the organized private transport system is outdated by world standards. 

The airports and the harbours are acting as a brake in the large potential movement of passengers and cargo.  The telecommunication infrastructure is also in a bad shape.  The mobile telephone has come in a big way but the network is very poor and breaks down frequently when a large number of people start using the mobile simultaneously at any one point of time.

The Rakesh Mohan Committee Report on infrastructure has been gathering dust for almost one decade.  None of the recommendations of that Committee have been seriously addressed by the Government yet.  How then can we expect our remote villages and towns to grow in economic terms unless they are linked with proper roads and the communication system? 

What the development of infrastructure has done to the economy of South Korea has to be seen to be believed.  After the partition of Korea into North and South Korea all the industries went to North Korea while the agricultural land came to South Korea.  One of the South Korean Prime Ministers who went to Germany to seek help was impressed by two things:  One, the supply of power and two the express highways.  On return, apart from other things he concentrated on the development of power as well as express highways.  Today, South Korea is not only self sufficient in agriculture but also highly industrialized while North Korea stands not only deindustralised but has also been an agricultural disaster. Therefore, development of infrastructure needs our serious attention.

True we need enormous funds for the development of infrastructure but it is the Finance Minister’s job to find them.  Either we allow FDI in a big way or the Government issues infrastructure bonds or we allow domestic private sector to invest; considering the volume of investment required we may have to have a combination if these,

Last year the Deputy Chairman of the Planning Commission had suggested to use the foreign exchange reserves for this purpose.  The idea was to use about US $ five billion of foreign exchange reserves every year for the next three years for the development of infrastructure.  This idea was not taken seriously by the FM then for the fear that it may add to inflation and may also erode the reserves.  But considering the state of our infrastructure the FM now seems to be receptive to this idea and one could expect a suitable strategy in the budgetary proposals for the next fiscal.  The foreign reserves already stand at US $ 170 billion and spending five billion out of it may not be a big deal.

In the past one decade of economic reforms we have failed to come out with a sensible and sound agricultural policy.  Though one has been hearing of agricultural policy for the past many years yet we continue with the same old agricultural policies which are coming in the way of realizing its full potential.  No attempt has been made to replace subsidies as a system of incentives to farmers to goad them to grow more.

The system of procurement prices is artificially keeping the production costs very high. As a result the subsidies have to be provided to keep the price of grain low for the consumers.  It is high time that we come out with an agricultural policy which encourages farmers to grow more and that too cost effectively, as well as a policy which enables us to have surplus of almost all the agricultural products and make us a major player in the international agricultural market.

The UPA Government is committed to rural development as in its very first budget it propounded the idea of Bharat Nirman to give rural orientation to economic development but one has yet to see this idea in the economic policies to the Government.  If this were so there would not have been suicides by the farmers or developments as in Singur or Nandigram.

In other words, the government should seriously turn its attention to handling the three weakest links in our economic reforms namely workers, infrastructure and agriculture so that the country can maintain a relatively higher growth rate and improve the living conditions of a large number of people.---INFA

 (Copyright, India News and Feature Alliance)