Prescriptions for Growth

Published: 06th June 2014 06:00 AM  |   Last Updated: 06th June 2014 11:22 AM   |  A+A-

Until a few months ago, the Congress-led UPA government had been tweaking the economic growth rate figures to its convenience. The latest data released by the Central Statistics Office give a lie to its boastful claims. India’s Gross Domestic Product (GDP) grew by 4.7 per cent in 2013-14 against the projected 4.9 per cent.

If the rain god had not been benevolent, the growth rate would have slipped to the lowest in recent decades. In fact, agriculture is the only area which has actually grown by 4.7 per cent, three times more than last year’s 1.4 per cent.

The manufacturing and mining sectors declined by 0.7 per cent and 1.4 per cent respectively, compared to the previous year. The service sector, including housing and construction, has the same story to tell. If one goes by the per capita GDP calculated at constant prices (2004-05), the growth rate falls to 3.4 per cent. Thus, barring agriculture, other sectors witnessed either negative or zero growth.

Some apologists of the UPA may argue that the situation is much better than that of the developed economies. Yes, the country is in a better position as far as figures are concerned. But is it appropriate to compare India with, say, the USA?

True, the UPA government failed to deliver on most of its commitments. Its much-flaunted populist schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) neither helped in garnering votes nor brought any respite to the people. Its ambitious Aadhaar scheme ended up as constitutionally invalid.

Imagine the amount of money that went into such schemes, which could have been utilised for creating infrastructure, boosting manufacturing and service sector and reviving investor confidence and investment. The government also failed to take strong policy decisions.

The Narendra Modi government has an uphill task of not only restoring India’s 8 per cent growth rate but also bringing it close to double digits. Though the latest data reveal that the UPA government was able to restrict its fiscal deficit to 4.5 per cent of the GDP, the actual story is different. The provisional figure of `508,000 crore excludes unpaid subsidy bills of `70,000 crore which, if taken into account, will raise the figure to `578,000 crore—roughly 5.1 per cent of the GDP.

Subsidies were introduced during the initial years of planning to give a level playing field to those who could not afford basic amenities like food and fuel but only a small percentage of the poor gets the benefits. It is the rich, who derive maximum benefit from subsidised fuel. A recent paper published by the IMF says the “top 20 per cent of Indian households get six times higher benefits from subsidies in fuels than the poorest 20 per cent”.

India distributes 4 per cent of its GDP as subsidies. Cash so inducted does not create any asset or produce any output. On the other hand, it disturbs the demand-supply equilibrium and contributes to inflation. The government should scrap subsidies on petrol and diesel.

As regards subsidies on fertilisers, the benefit should be given directly to farmers, instead of fertiliser manufacturers and importers. Another area that requires immediate attention is creation of enough jobs to employ the youth to reap benefits of the demographic dividend.

The manufacturing sector needs to be rejuvenated by adopting new technology to produce competitive products in adequate quantity to meet domestic and export demands. This shall also reduce the pressure on the Current Account Deficit, a situation where the foreign exchange outgo is higher than the inflow.

The UPA government launched MGNREGA to provide 100 days of employment to everyone in rural areas with a daily wage of `120. There are some states where the scheme has produced results. But cases of non-payment of wages has raised eyebrows. No doubt, the scheme should be modified to prevent leakages. There is one area where the MGNREGA can do wonders. A recent report released by the UN says even today 597 million in India defecate in the open. A less-developed country like Afghanistan has moved from open defecation to toilets which produce biogas and fertilisers. The MGNREGA can be used to construct toilets, which shall take care of health and sanitation, and also give employment and produce electricity.

India is largely an agricultural country. But, the agriculture and irrigation techniques in use are outdated. The government can promote use of new techniques like permaculture—it encourages sustainable farming keeping intact ecological balance—and organic farming to improve the yield without using pesticides.

The extreme dependence on rainfall has been a bane. When a small nation like Israel can manage its water problems by using techniques like desalination and reuse of waste water, why can’t India? Doles like free electricity to farmers not only burden the exchequer but also promote the overuse of water, soil degradation and reduction in underground water table.

Every year, the government announces a minimum support price to help farmers fetch a good price for their produce. But, the mandis meant to give farmers an accessible market and good price actually rob them. Most farmers don’t even recover their cost as the middlemen tend to buy their produce at lower rates to sell it at higher prices. Ultimately, the end user suffers due to high prices and the farmers are deprived of benefits. The law governing such mandis should be repealed and a pan-India food supply chain should be established, based on Amul’s model of distribution.

Low growth rate and moves like retrospective implementation of taxes on corporate deals like that of Vodafone-Hutch hurt the sentiments of foreign investors. The government should win the confidence of foreign institutional investors and evolve a stable taxation policy.

India has a long way to go to develop infrastructure. Thankfully, the Modi government has started thinking on these lines. Creation of 100 new cities is a step in this direction. The government can experiment with a new technology evolved by US inventors Scott and Julie Brusaw who innovated with roads made of glass and solar panels inside.

All this needs political will and strong leadership, which the Modi government is blessed with. Market sentiments also suggest a positive attitude. But will it be able to live up to the expectations it created? Only time will tell.

The author is a company secretary and can be reached at jassi.rai@gmail.com

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