Shivaji Sarkar
India needs to break the self-imposed restriction on fiscal deficit. It needs to increase public spending, unleash domestic demand, strengthen rural and farm economy, keep a leash on banks’ functioning and recover bad loans to put the economy back on rails.
An eagerness to check fiscal deficit should not deter the Government from launching programmes for social sector, agriculture and small-scale, industries and take up tax reforms. The anxiety to have FDI is there. The so-called reforms are being contemplated to make the country more investment-friendly.
It needs to be realised that investors do not come merely because they are told about reforms. They look at the overall report card. In some cases, like the growing losses of banks, give them jitters. The South East Asia crisis of 1997 also began as a financial problem, large bank losses owing to bad investments in real estate and infrastructure. It has been blamed on the IMF and the World Bank pronouncements on the benefits of free-market capitalism. Thailand, Malaysia and Indonesia were open to international market forces, especially foreign direct investment and thus closer to the IMF-WB conventional wisdom.
The Union Budget process is expected to take this into consideration. But possibly it will not. It may lay more stress on increasing the GDP growth and may take satisfaction at ‘doing better’ than China. In reality, it is not. The Indian economy is just one-sixth of China’s, which is having a GDP of $12 trillion. India is at $2 trillion. Even at slower six per cent growth, China would move faster than India’s 7.3 percent. China, through Hong Kong, is the second-largest recipient of FDI. That nation reached a record $163 billion in 2015, according to the UN World Economic Situation Prospects.
India is a recipient of $59 billion. Its exports have been adverse virtually since 2008 and abysmal during the past 12 months. Imports from China, many in areas where India was strong at least till the mid-1980s, have not come down.
The US economy of $17 trillion is growing at 2.5 per cent, which is a robust pace. Its job graph and other fundamentals are getting better. The US vaulted back into the topmost destination with estimated $384 billion FDI inflows, according to the WESP.
Its move to firm up interest rates would put pressure on India in many ways; one good aspect would be to raise the rates here too. The concern should be on fast pull-out by the foreign institutional investors. It has led to a stock market crash. It also calls for reviewing FII activities, thus causing severe volatility as an investment. It helps only the speculators.
The Government is in a quagmire. It is aware that most of its growth figures are due to the services sector. This marks a good development though its gains would further consolidate with progress in the manufacturing and agriculture sectors. This is what the Budget needs to stress on.
The move by the Narendra Modi-led NDA Government to turn the country into a manufacturing hub will take a bit of time. The Budget has to look for short-term measures to boost growth and employment. Micro and small industries have not been in good shape for the past many years. It would not be easy to turn the small and mid-sector industries, besotted with problems and stymied growth of large industries. Some industries, which are not dependent on large sectors, find the tax regime, particularly on raw materials, unfriendly. The Government, grappling with balancing its finances, may find it difficult to consider any demand for relief.
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 much wider and complex than mere crops. It has many dimensions. This needs to be addressed in a holistic manner. It can become the pivot and sustain manufacturing also. Empowering about 80 crore people in this sector and increasing their purchasing power will give a strong base to the economy.
Statistically, the farm sector’s contribution is under-estimated. Ignoring it while just concentrating on industry or manufacturing has been the biggest mistake of economic policymakers since the beginning of the planning process in the 1950s. The Indian farmer, unfortunately, was not considered a wealth generator.
Industrialists who were given this tag had earlier swindled public money by launching and controlling banks. Post-nationalisation, too, they swindled by not re-paying large loans – a phenomenon that has taken acute shape since 2009. The NDA Government has been saddled with the sins of the previous regime, which had merrily allowed large loans to willful defaulters.
The focus needs to be changed. The multi-dimensional farm sector needs to be put on the same footing with industry. The losses to the banks from the farm sector have been minimal. Prioritised treatment to the rural and farm sectors that have missed the pace of the rest of the economy, may change the pattern of economic growth. Going back to Mahatma Gandhi or Deendayal Upadhyay would be the first step in finding strong roots.
These issues may find small reflections in the Budget. In the post-Budget scenario, the matter should take centre-stage in a bid to break from the West-centric IMF-WB prescriptions. Industry and farming have to co-exist and make growth robust.
Almost seven decades of neglect of the rural and the agricultural sectors has seen lopsided growth of a few families. Wealth has got concentrated in a few hands. Disparity has grown in the ugliest manner.
The WESP has warned that FDI flows to most world destinations would slow down. India has to understand: Unless wealth is nurtured and grown domestically in a wide and equitable manner, the nation’s dream of becoming a superpower will remain a dream. Mere rural employment guarantee schemes cannot remove inequalities. There is no trickle down.
