Author: M. V. Kamath
Publication: Organiser
Date: June 24, 2001
There is nothing more educative
than seeing ourselves as others see us. Finance Minister Yashwant Sinha
may think India, all told, is doing well, but most concerned experts are
likely to take his assurances with a pinch of salt. But when an important
journal like the London based The Economist (June 2) assesses. India's
economic situation one has to sit up and take notice of it.
It may be remembered that both India
and China started their independent careers about the same time: India
in 1947 and China in 1949. Actually India had a head start considering
that it had political stability whereas China had yet to recover from a
terrible civil war. But what are conditions today in both these countries?
The economic indicators for 1999 show that foreign direction investment
in China was $38.8 billion whereas for India it was $2.2 billion. China's
share of world trade was 3.3 per cent while India's share was 0.7 per cent.
Population living in China on less than one US dollar a day was 18.5 per
cent while in India it was 44.2 per cent. Male illiteracy in China was
9 per cent and in India 32 per cent. And life expectancy in China was 70
years whereas in India it was 63 years. Ten years ago, because of a grave
balance of payments crisis, India had to jettison four decades of economic
isolation and planning and free the country's entrepreneurs. Soon after,
says The Economist, "growth picked up, inflation fell and India began to
recapture some of the ground it had lost in world markets". Actually the
growth rate is around six per cent, not high, but not bad either.
As The Economist says, "it is good
enough to make India one of the world's fastest-growing big economies"
but it also adds in the same breath that India "could and should be doing
better still". As it puts it, "Every fraction of a percentage point of
extra growth means faster improvements in welfare for the country with
the world's largest concentration of poverty... it also means more international
clout for India's Government".
But what are the shortcomings? Firstly,
says the journal, "the combined financial deficits of the Central and State
Governments are near where they were before the 1991 crisis. Government
spends lots of money on subsidies, salaries and interest, little of which
helps the poor, and too little on what ought to be their priorities such
as health, education and infrastructure that the private sector cannot
pay for".
Though the Government has given
up the "license raj" which told enterprises what to invest in and how much,
the "inspector rat" is still very much alive and continues to hold the
economy back. Importantly, according to The Economist, what is still holding
back India's economy is red tape, little accountability on the part of
bureaucrats and politicians and lack of judicial resources to dispense
justice quickly. These are real handicaps. The journal has praise for the
leaders of India's ruling coalition who have been sounding increasingly
eager to privatise during their last three years in office but it adds
that "unfortunately, scandals have weakened their moral authority to do
so".
The journal believes that "the state
needs credibility even more to withdraw protection from the economically
privileged". And who are those "economically privileged"? They are organised
labour, whose members, once employed, face little risk of being dismissed,
big industry which wants protection from foreign competition until the
Government makes it easier to sack workers and enacts other reforms and
small-scale enterprises which enjoy an array of sops, including protection
from competition by big firms in some 800 industries. The result is that
labour seldom puts in a full days' work, quality of manufactured products
is poor and Indian goods cannot compete in the world market. Organised
labour recently showed total irresponsibility when it went on a one-day
strike that paralysed Mumbai and was responsible for the loss to the country
of several crores of rupees.
Yet, according to the journal, the
economic reforms ushered in have launched India in the direction most Indians
want to see it go: towards more widely shared prosperity and a position
of influence in the world. But, while the momentum "is not irreversible"
it has created its own problems, environmental, cultural and social. What
are the benefits? These are seen as:
* Having faced the prospect of default
on its external debt in 1991 (gold reserves had literally to be pawned!)
India has now accumulated $40 billion of foreign exchange reserves.
* Consumer-price inflation has fallen
from 14 per cent in 1991 to four per cent last year.
* Software sales have risen from
almost nothing in 1991 to an estimated 58.3 billion in 2000.
* Since 1991, the number of serious
car makers has jumped from three, making 190,000 old-fashioned vehicles
to ten, making 500,000 some of which would sell anywhere in the world.
* The number of daily flights from
Delhi to has gone up from three, on one "slovenly state owned airlines"
to 22 on three competing airlines.
* Liberalisation has made manufactured
goods cheaper relative to farm products.
Other factors have been noticed.
Thus, the percentage of poor from 1993 to 1999 has fallen in Punjab from
12 to 6, in Haryana from 25 to 9, in Kerala from 25 to 13, is Gujarat from
24 to 14, in Rajasthan from 27 to 15, in Andhra Pradesh from 22 to 16,
in Karnataka from 33 to 20, in Tamil Nadu from 35 to 21, in Maharashtra
from 37 to 25, in West Bengal from 36 to 27, in Uttar Pradesh from 41 to
31, in Madhya Pradesh from 43 to 37, in Bihar from 55 to 43 and only in
Orissa from 49 to 47. The only trouble apparently is that the rich are
getting richer, but then, it is made clear, in smaller ways the poor are
also getting richer.
As The Economist put it: "A recent
study of two villages in central Bihar, Bokhila and Kaithi, suggests that
even there, the lot of the poor has increased." But "colossal waste" has
been noticed in many spheres. The Planning Commission has been reported
as noting about one rural development programme of "leakages, misappropriation
of funds, violation of programme guidelines, selection of the non-poor
as a target group, absence of proper maintenance of accounts and poor quality
of assets". For all that, The Economist's survey of India's economy is
hopeful. Not all reforms, it says, may help the poor. "But a reformed state
can soften the blow". India's big business, according to the journal "have
been slow starters and slow learners". But credit is given to India's Information
Technology sector and a growing service-sector. All in all this is an excellent
survey that should be brought to the attention of our policy-makers. It
is so educative.