NEW DELHI - In mid-September,
John Pilger, writing for Britain's New Statesman,
claimed that India's "new" prosperity is a "myth" and an
"invention". Pilger's tightly reasoned charge was based
on a wealth of data. The article should have been
welcomed by the new United Progressive Alliance (UPA)
government in New Delhi because it was elected in part
by calling attention to the fraud perpetuated by the
previous government that had demanded votes on the basis
of its economic success.
But New Delhi ignored
Pilger. Despite all the "pro-poor" sound and fury prior
to the April-May parliamentary elections, it is now
evident that the UPA government led by Prime Minister
Manmohan Singh is pursuing the agenda set forth by its
predecessor. Manmohan, the architect of India's economic
reforms in the 1990s when he was the finance minister,
has already declared there will be no "rollback".
During the past two years, New Delhi has been
beating the drums announcing India's emergence as an
economic power. While there is no question that with a
billion-plus people, India is an economic power by
virtue of sheer numbers, the country's economy has in
fact remained in the doldrums. A few years of higher
growth was cited as proof that the Indian economy had
suddenly become strong. Evidence: the success in the
information-technology (IT) sector, though it makes up a
paltry 3.2% of India's overall gross domestic product
(GDP).
Rampant poverty In reality, the
macroeconomics of growth never percolated to alleviate
poverty in India. The growth that has taken place has
benefited a handful, mostly in the middle- or
upper-middle-income groups, increasing disparity between
this layer and the hundreds of millions of India's poor
and low-income groups. The vast number of poor - 350
million of whom live on less than $1 a day - neither
bought the numbers nor the campaign. At the
parliamentary polls in April-May, they voted for better
infrastructure, farm subsidies and employment
opportunities, and they demanded basic education and
drinking water.
The "India Shining" campaign of
the erstwhile National Democratic Alliance government
prior to the polls was a lie perpetuated to collect
votes. In reality, the poor - both rural and urban -
have suffered greatly because of the higher growth rate.
This is evident now more than ever. Under the "pro-poor"
UPA government, India is experiencing 8.3% inflation -
the highest in almost four years. In a country with such
a high percentage of people living in poverty, inflation
can be devastating. The government attributes the
inflation to the oil-price rise and India's central
bank, the Reserve Bank of India (RBI), has increased the
cash reserve ratio (CRR) by 50 basis points to reduce
the money flow into the overheated market.
There
is no question that worse is yet to come. It is almost a
certainty that the price of oil will not go below $40
per barrel in the months to come and could even settle
well over $45. In either case, the Indian economy, like
many others, will suffer and inflation will continue.
Moreover, the recent monsoon was poor. Since Indian
agriculture is still largely dependent on seasonal
rains, the agricultural sector will show a drop in
production. With almost 60% of the workforce associated
with agriculture, this can wreak havoc on the economy.
Poor agriculture New Delhi has said 7%
economic growth this year will increase its revenues by
25%, helping curb the fiscal deficit. But analysts say
the economy is unlikely to achieve the growth forecast
as some crop development has already been hurt by the
lack of rainfall. A record monsoon helped generate 8.2%
economic growth in the last financial year, marking the
biggest annual expansion in 15 years. So 7% growth is
pretty much out of the question this year.
"If
[the] monsoon revives properly, I expect 6-6.5% growth.
If it fails, it will be around 5.5-6%," said M R
Madhavan, a Singapore-based strategist at the Bank of
America. "In any case, given the high base of last year,
even if it rains well, crop output is unlikely to grow
more than 3-4%. And bad rains could get this into
negative territory."
Madhavan could be too
optimistic. According to India's Planning Commission,
agricultural growth this year could be as low as 1.5%.
The approach paper for mid-term appraisal (MTA) for the
Tenth Plan presented to the prime minister at a meeting
this week noted that average agricultural GDP growth in
the first two years of the plan period was 1.8% and is
unlikely to exceed 1.5% in the current year against the
targeted 4%.
Poor agriculture would mean less
buying power in the rural sector. Weak harvests reduce
rural income, hitting the corporate sector that provides
the bulk of the government revenue. A study by an
independent think-tank, the National Council for Applied
Economic Research (NCAER), found that nearly 55% of
India's motorcycles, 56% of soaps and detergents, and
nearly 50% of watches were sold in rural areas.
The number of households with an annual income
between $1,000 and $4,000 in rural areas is double that
of the urban ones, making rural purchasing power crucial
to India's manufacturing sector and for the country's
growth. "If the crop output is not good, rural demand
will fall. Urban households are anyway saturated. So the
real growth lies in the rural areas and a fall in their
incomes will hurt demand," said Rajesh Shukla, principal
economist with NCAER.
Cacophony of
growth The Planning Commission has now announced
that the lower-than-projected growth of 7% in the first
two years of the Tenth Five Year Plan (2002-07) would
make it difficult to achieve the targeted 8.1% growth in
the remaining three years of the plan period. According
to the approach paper, "The current year's GDP growth is
likely to range between 6% and 6.5%, so the achievement
of the Plan target is only possible if the GDP growth in
the last two years averages 11%, which is clearly not
feasible."
The approach paper also cites India's
poor infrastructure as a reason 8% annual growth under
the present circumstance is not viable. Terming
infrastructure in India "far below" the level required
for an 8% economic growth, the Planning Commission has
decided to review the regulatory mechanism in each
sector and blames the states' populism for the
"disappointing" performance in the power sector.
"The mid-term appraisal will make an assessment
of the position in each major infrastructure sector,
including in particular the scope for increasing
capacities through a combination of enhanced public
investment and also attracting private investment where
feasible," the approach paper states. Listing
electricity as the "single largest cause for concern",
the commission warns that "populism by state governments
continues to be an impediment to following a rational
electrification strategy". The warning comes ahead of
elections in Maharashtra, where the Congress-led
coalition government has announced free power and loan
waivers for farmers.
According to Prime Minister
Manmohan Singh, the deterioration in the economy since
the mid-1990s has been largely due to neglect of the
agriculture sector. "In these circumstances, it is
hardly surprising that the perception has grown that the
benefits of reforms have bypassed a substantial section
of our people," Manmohan noted at the recent Planning
Commission meeting. He added that the government needs
to give more attention to agriculture and rural
development to reduce regional imbalances.
But
Manmohan, as the architect of the economic reforms that
began in 1991, is as responsible for neglecting
agriculture as others. A recent study of Andhra Pradesh
farmers shows that an agrarian crisis in 1991 swept
across the state, driving farmers to penury and suicide.
Ignoring Infrastructure It is
unlikely, however, that Manmohan Singh will translate
his observations at the Planning Commission meeting into
action. The problem is that the primary focus of
Manmohan's economic team is growth and trade, not the
physical economy. What India needs now is a commitment
to building up a strong and modern infrastructure
similar to China's. But as the present Indian economic
team is imbued with the World Bank-IMF (International
Monetary Fund) mantra, which considers large fiscal
deficits the source of all evil, it is most unlikely
that such an approach to improve India's infrastructure
will be actually undertaken.
In the coming days,
to keep hopes up, a lot more will be said about the
impending "flood" of foreign direct investment (FDI)
into India. At his maiden press conference in New Delhi
on September 4, Manmohan Singh set the tone. "There is
no change in attitude on FDI. This country needs large
doses of FDI," he said, adding that it would be the
endeavor of his government to create a "conducive"
atmosphere for attracting more FDI.
All that is
fine. But will the FDI flow into infrastructure? There
is very little chance of delivering India from the
current mess if it doesn't.
(Copyright 2004 Asia
Times Online Ltd. All rights reserved. Please contact content@atimes.com for
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NEW DELHI - In mid-September,
John Pilger, writing for Britain's New Statesman,
claimed that India's "new" prosperity is a "myth" and an
"invention". Pilger's tightly reasoned charge was based
on a wealth of data. The article should have been
welcomed by the new United Progressive Alliance (UPA)
government in New Delhi because it was elected in part
by calling attention to the fraud perpetuated by the
previous government that had demanded votes on the basis
of its economic success. 
