India's Priorities for the Next Phase of Economic Reforms

At a meeting organized by USINDIA Business Council and the Confederation of Indian Industry today (April 21), Deputy Chairman of India's Planning Commission, Mr. Montek Singh Ahluwalia, spoke on India's priorities for the Next Phase of Economic Reforms.

Mr. Ahuluwalia noted that President Bush's recent visit to India was indeed a milestone in Indo-US collaboaration that is emerging in a range of areas including nuclear energy for civilian use. A CEO Group comprising of 10 CEOs each from India and the USA is working on a detailed framework for implementing such collaboration. The recommendations of this Group are keenly awaited and must be monitored for implementation.

Talking about the "real" economy, Mr. Ahuluwalia observed that it grew by 7.8% during 2005 but this rate could decelerate a bit during 2006 to about 7.5%. Over the next five years, if no major macroeconomic mistakes are made and the World economy as a whole does not slow down on account of increase in crude oil prices, India should be able raise the economic growth rate to about 10% in about 5 years from now, with an average of 8-9% for the five-year period.

As for the likely impact of rising oil prices on India's growth scenarios, Mr. Ahuliwalia noted that it was difficult to estimate at this time what would be the likely impact but clearly, the market should help bring about more efficient use of engery including of India's vast reserves are coal.

Emphasizing that progress must be made on all fronts, Mr. Ahuluwalia noted three areas that must receive high priority: 1. Health & Education; 2. Infrastructure; and 3. Agriculture. Agriculture is lagging behind with a growth rate of only about 2% as against the target of 4% over the past several years due to a range of constraints including the lack of investments. Growth in agriculture is critical to reduce rural poverty.

According to Mr. Ahuluwalia, the UPA government has accelerated, over the past two years it has been in power, the progress toward privatization, with emphasis on public-private partnerships, in a range of infrastructure sub-sectors including airports, ports and roads.

Mr. Ahuluwalia expects that the country would would want to invest some $200 billion over the next five years of which as much as $50 billion must come from the private sector on a competitive basis. Where revenue generation may not be adequate to attract the private sector, the government would provide viability gap funding up to say 50% of the project cost.

Already contracts for construction of some 1400 km of roads have already been awarded with GOI grants starting from as low as 8%. In the case of airports in Mumbai and Delhi, the public sector Airport Authority of India will have some 26% share in the modernization deal with the private sector. Telecom sector needs no public sector involvement.

Referring to the fact that some 250 million people still below the poverty level (BPL), Mr. Ahuluwalia observed that overtime their incomes levels must improve as an outcome of growth in urban and rural sectors, it is critically important to improve the delivery of public services such as water, sanitation, health and education.

India is on the go and US investments are welcome... hopefully, one of the formidable obstacles to India's economic growth stroy -- its bureaucracy will respond effectively and efficiently to make this possible. From what we observe, this does not seem to be happening as expeditiously as it should!!

Farmer Suicides In India: New Findings and Debatable Solutions!

We wrote earlier in this blog about high incidence of farmer suicides in India, especially in rain-fed, cotton-growing areas of Gujarat and Maharashtra and the possible causes of and the solutions to this tragic situation. Between 2001 and 2005, some 8927 farmers committed suicides in the states of Andhra Pradesh, Karnataka and Kerala, not counting Maharashtra.

This high incidence of farmer suicides is beginning to receive attention from the Press, the state and national governments and financing agencies. A recent survey report issued by Daily Sakal, published from Pune (India), reported in the last blog on this subject, covered 120 cases of farmer suicides in two districts of Maharashtra (Yeotmal and Amravati) and reported that some 40% of the farmers who committed suicide were in the age-group of 36-45 and the majority of them (73%) were educated, of which 5% were college graduates. Only 23% of those committed suicides in the two districts were illiterate. This tells us a lot -- even educated farmers are cornered both socially and financially and have no way to get out of the trap except by suicide -- this is a serious situation especially when most religions in India strongly despise "suicide", however serious one's personal problems may be!

A recent study published by NABARD’s Department of Economic Analysis and Research observed that the plight of farming communities in Andhra Pradesh and Maharashtra was worsened by concerned state governments' inefficiency. According to NABARD study, the government extension machinery has failed completely. This meant that private players took over extension services, which in view of their vested interest in selling farm inputs, led to all kinds of malpractices -- the prime reason considered to be behind farmer suicides.

The failuare of the public extension system is seen as a major embarrassment for the state governments as the subject falls within their constitutional mandate. The NABARD study further notes that government extension machinery was not visible in providing information, while the extension services provided by private traders focussed on selling particular brands of inputs to farmers, led to a supply-induced demand. The NABARD report says inputs supplied by private dealers were not certified, often leading to spurious or poor quality, especially for seeds and pesticides for cotton. The NABARD study also reflects the conclusions of three other studies conducted by the Tata Institute of Social Sciences (TISS), the Indira Gandhi Institute of Development Research (IGIDR) and the National Institute of Agricultural Extension Management.

Other factors which contributed to farmer losses and eventual suicides included adverse weather, lack of or poor marketing infrastructure, low output prices, crop failures, and credit-related aspects. NABARD has since launched a mass counselling in one of the districts of Maharashtra, which has reported a large number of farmer suicides in recent times. NABARD would include bankers, agricultural experts, psychiatrists and priests in its mass counselling drive. This drive aims at restraining farmers from taking the extreme step of committing suicides. Such exercises will likely be repeated in Karnataka, Andhra Pradesh and Kerala as well.

The NABARD and other reports raise a number of questions concerning productivity and profitability of agriculture in India, especially in rain-fed areas, but the answer is not necessarily in reviving the government extension system which has been in shambles for the past several decades due to lack of budgetary funding, inadequate skills, the absence of serious research on crops grown in rain-fed areas and poor research-extension linkages. Instead, ways must be found to make extension services available through modern methods of communication and information systems through public-private partnerships and keeping vested interests in marketing of inputs out of the extension business. The ICAR and various agricultural universities need to strengthen research and make it available in "adaptable" forms to farms. This is an important subject for another day.

Forest Management in India Needs Urgent Attention

A recent World Bank report on forest management in India observes that over a quarter of India’s poorest people, many of whom are indigenous people, depend on forests for part of their livelihoods. Almost half the country’s forests have been degraded, and their average productivity is a third of potential.

If national and state level reforms are introduced and forest productivity improved, forests can significantly reduce rural poverty and increase government revenues. Globally, many governments are increasing the rights of forest communities to use and manage forest resources. This has raised communities’ incomes and has improved forest cover.

The World Bank Report advocates that India should:

1. Give communities greater rights to use forest resources and wider responsibilities for forest management after building local capacity. This will enable communities to tap the enormous forest potential and also conserve valuable forest cover;

2. Introduce stronger forest management systems. This includes the provision of more reliable maps of forest tenure, computerized databases of forest resources, monitoring systems that track forest and livelihood changes, and market information for timber in national and global markets;

3. Improve communities' access to more open markets. As communities gain capacities and confidence, better access to unregulated markets can help them capitalize on new domestic and international opportunities; and

4. Build capacities and strengthen local governing institutions. This can help all community members to benefit equitably from commercial forestry. Forest department field staff can benefit enormously from training in new approaches to community forest management. Greater investment and training in forest monitoring and regulation will help support conservation.

I recall having worked on a Bank-assisted Forestry Project in China some 20 years back. The focus of that project was precisely to assist China to implement a forestry development program on the above lines, which became a model for nationwide implementation.

Clearly, India is behind China by two decades in many respects including forestry development. Also, India’s implementation capabilities in the public sector tend to be bureaucratic and inefficient with little or no incentives available to local communities to take charge and use forestry resources judiciously with emphasis on renewal. Instead, communities (on their own or in conjuction with corrupt forest officials) exploit forestry resources indiscriminately for personal benefit, without any regard to the renewal and sustainability of this crucial natural wealth.

Hopefully, GOI and state governments will act on a priority basis on World Bank recommendations and end this sorry state of affairs in the nation's forestry sector in the interest of povery reduction, environment protection and welfare of future generations.

Reservations for "Other Backward Classes" In IITs and Other educational institutions

This issue needs a clarification. There is already a reservation system in place in IITs, IIMs and central universities for scheduled castes and scheduled tribes. The new proposal is to extend this reservations to more social groups classified or to be classified as “other backward classes” which will take the overall reserved seats in these institutions from about 27 per cent to almost 50 per cent. Some student organizations are concerned about the proposed move as it will result in denying so many eligible students (including the poor in so-called upper classes) and have charged the government of playing the "vote bank" politics. It seems that the Election Commission has called for an explanation from Union Human Resource Development Minister, Mr. Arjun Singh, for making the proposal at a time when five states in the country are going for assembly polls. The Constitution had provided for quotas for seats in educational institutions and jobs in government-funded organizations for socially backward castes and tribes initially for only 10 years but over the years, the quota system continued unabated, with more and more castes being added to the list. We will have more details as the GOI proceeds with this proposal ....if at all?

Reservations for "Other Backward Classes" In IITs and Other educational institutions

This issue needs a clarification. There is already a reservation system in place in IITs, IIMs and central universities for scheduled castes and scheduled tribes. The new proposal is to extend this reservations to more social groups classified or to be classified as “other backward classes” which will take the overall reserved seats in these institutions from about 27 per cent to almost 50 per cent. Some student organizations are concerned about the proposed move as it will result in denying so many eligible students (including the poor in so-called upper classes) and have charged the government of playing the "vote bank" politics. It seems that the Election Commission has called for an explanation from Union Human Resource Development Minister, Mr. Arjun Singh, for making the proposal at a time when five states in the country are going for assembly polls. The Constitution had provided for quotas for seats in educational institutions and jobs in government-funded organizations for socially backward castes and tribes initially for only 10 years but over the years, the quota system continued unabated, with more and more castes being added to the list. We will have more details as the GOI proceeds with this proposal ....if at all?

Quotas for Private Sector & Government Supported Educational Institutions such IITs? A Politically Cautious Debate Underway

On eve of elections in some states, UPA government ministers are making promises to voters that they would propose a Constitutional amendment to require the private sector to introduce job reservations for scheduled castes, scheduled tribes and other backward classes, which currently enjoy such privileges mainly in government organizations and public sector institutions.

The Constitutional provisions that reserve jobs to scheduled castes, scheduled tribes and other backward classes in the government sector for the past over five decades were intended to reduce, if not end, the social discrimination contributed by the age-old caste system on the basis of which the Indian society was organized for the past over five thousand years. Remarkably, the country has made much progress in this area in a relatively short period of fifty years -- the UPA government now wants to deepen the process by extending job reservations to private secotr organizations.

Initially, UPA government was talking about requiring the private sector to implement job quotas for ST/SC and backward classes on a voluntary basis – but now it wants to pass a Constitutionnal amendment to enforce the quotas--- looks like even in educational institutions which received government aid, like IITs which currently admit students only on a competitive basis. The Law Ministry in the UPA government has recently announced that it does not agree with India's Attorney General’s view that there is no room in the Constitution for getting the private sector to implement quotas.

There is much debate going on in the country on this sensitive issue – but most political parties especially those not participating in the UPA government remaining very guarded – they surely would not openly oppose this move publicly. It seems that the question whether the “private sector” could legally be forced to implement a reservation policy as dicated by the government, will go to the Supreme Court to determine its constitutionality! Yes, the Constitution can be amended provide UPA government secures at least two-thirds majority at the center.

Meanwhile, at least on the question of reservation of seats in government-supported educational institutions like IITs, BJP has taken a position that this will discourage merit and damage India's reputation as a talent hub. One of the BJP Vice-Presidents is reported to have said that "India has world-class merit, especially in science and technology, but the UPA's reservation proposals, which are nothing but manifestation of the Congress-led government's 'great' appeasement policy, will just damage India's reputation as a talent hub and discourage merit". This is indeed a bold statement for BJP to make at a time when there is much erosion in the support it enjoys.

Let us watch what how India's social scientists and economists say on this issue ... usually as the experience goes, they will also tend to be "cautious" --- with their characteristic “intellectual integrity” often failing them! The private sector believes that while the quota system may have certain social benefits, it will certainly affect its "efficiency" -- a cost to be borne by the society in general and the owners/investers in particular. The issues involved are highly complex and politically sensistive -- far greater that what one sees in the case of Affirmative Action Programs in U. S. A.