Economics India

Recent World Bank Report on Indian Economy and Development Issues

2006-07-26T10:12:00.000-07:00

The World Bank has just published a new report on India titled “India Development Policy Review” with a focus on challenges facing the country.

The review notes that while India’s economy is booming, its healthcare, education, water, power and transport – appear to be deteriorating.

Also, large segments of the populationare are being left behind.

Some of the findings of the report are as follows:

-India’s full immunization rates have fallen over the past five years.

-A typical doctor at a Primary Health Center in Delhi is less competent than a counterpart in Tanzania, and substantially less so than one in Indonesia.

-Almost 2/3rd of children in government primary schools cannot read a simple story, and half of them cannot solve simple numerical problems.

-While India’s prosperous states have poverty rates that are comparable with the richer Latin American countries, the poorest states are mired at Sub-Saharan African levels of poverty. And, the gap is growing.

-While the services sector booms, agricultural productivity is declining, constraining the growth of the rural economy.

-Recent growth has generated very little formal sector employment. Of a total labor force of roughly 390 million in 2003, only 8 million were employed in organized private sector.

We will make an independent assessment of various issues raised and recommendations made in the report as we go along -- your participation is very much requested.

Resuming Posts

2006-07-24T22:16:00.000-07:00

We are resuming the blog with immediate effect. Sorry for the break in postings which was due to unavodiable reasons. Thanks for your continued interest in this blog.

Resuming Posts

2006-07-24T22:13:00.000-07:00

We are resuming the blog with immediate effect. Sorry for the break in postings which was due to unavodiable reasons. Thanks for your continued interest in this blog.

Farmers Suicides in India

2006-05-14T15:03:00.000-07:00

A number of posts have since been published in this blog. However, we want to bring to your attention two detailed comments that this blog has since received on this tragic topic. These relate to farmers' lack of knowledge about genetically modified varieties of cotton, the poor state of the extension service, and what needs to be done with a kind of missionary zeal and mass media to eliminate or reduce the incidence of farmer suicides.

Prof. Robert Bates' Recent Research on Political Reforms

2006-05-03T19:56:00.000-07:00

Prof. Robert H. Bates of Harvard University recently made a presentation at the World Bank on the subject of political reform based on his research in Africa. (His paper on "Institutions and Development" is published in the Journal of African Economies, Vol. 15, AERC Supplement 1, pp. 10-61).

Prof. Bates notes that "in late-century Africa, domestic reformers and international community prescribed political reform as a means of securing policy reforms. They sought to put an end to single party and military government and introduced multi-party politics".

Using a principal agent framework, Prof. Bates assesses the logical validity of these efforts. And employing a game theoretic approach, he traces the impact of political reform on political stability. He employs a panel of data from both African and global samples to measure the impact of reform on the economics and politics of Africa.

The evidence suggests that "reform has measurably curtailed opportunistic use of political power, failed to influence the formulation of macro-economic policy, and increased the likelyhood of political disorder".

More on this later...

India's Priorities for the Next Phase of Economic Reforms

2006-04-21T20:09:00.000-07:00

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!

2006-04-14T19:53:00.000-07:00

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

2006-04-09T18:55:00.000-07:00

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

2006-04-09T06:45:00.000-07:00

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

2006-04-09T06:38:00.000-07:00

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

2006-04-08T20:53:00.000-07:00

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.

Larry Summers in India: Provokes Serious Discussion On United States' Unsustainable International Borrowings

2006-03-28T20:38:00.000-08:00

Speaking at the Reserve Bank of India in Mumbai to give this year’s L.K. Jha Memorial Lecture on March 24, 2006, Dr. Summers complemented India for her achievements over the past decade, in terms of remarkable changes in the economy, financial system, education, and health care - and the vast improvement realised in the lives of literally hundreds of millions of people as a consequence. Dr. Summars noted that the change in India's relations with the United States has been a profoundly positive development - he hoped that it will prove lasting.

Dr. Summers focused his speech on three aspects of the prevailing global financial flows which stand out as being without precedent: first, the net flow of capital is substantially from developing countries and emerging markets towards the industrialized world and principally to the United States, as the world's greatest power as well as the world's greatest borrower. Second, the build up in U.S. net foreign debt is substantially mirrored in reserve accumulation by emerging markets. And third, the expected the real returns on the reserve accumulation tend to be low and risks very high.

Dr. Summers called this as the "capital flows paradox" and remarked that it requires a careful thought especially because it is simply nsustainable and problematic. "There is a hard-landing risk – not just an American risk, but a global risk at a time when the U.S. external deficit is creating nearly an export stimulus demand approaching 2 percent of global GDP!"

Dr. Summers suggests that this "capital flows paradox" has made prevailing G7/G8 obsolete, as a dominant forum for international financial discussion. It is neither in a position to discuss many of the most important domestic policy adjustments necessary for global stability nor does these groups include the largest official suppliers of cross border flows of capital. Any attempt to manage jointly any increase in U.S. savings and an offsetting increase in global demand from global sources will clearly require a forum that is broader than the G7/G8 -- so also for any global attempt to think through the implications of the massive reserve accumulation by some of the developing countries. A food for thought to the IMF and the World Bank!

Dr. Summers noted that there is a need for creating a new forum that structurally has political clout over the international institutions and at least some ability to influence domestic policy decisions of individual countries. He noted three areas of focus in the next several years: "First, the formulation of a global strategy for managing U.S. current account deficit downwards without excessive risk to global growth; Second, the role and governance of the existing international financial institutions in the current environment; and Third, the question of (effective and efficient) deployment of developing countries' reserves with acceptable levels of real returns and risk management. Thanks to Dr. Summers for choosing this topic and addressing it so forcefully.

Let us hope Dr. Summers gets back into a key policy-making position where he can make a difference in the changing the course of the World Financial System including the two international institutions, the IMF and the World Bank.

You can read Dr. Summer's full speech on Reserve Bank of India's website.

CHRONIC ABSENTEEISM IN INDIA'S SCHOOLS AND HEALTH CLINICS

2006-03-27T06:53:00.000-08:00

"A recent World Bank survey found that 25% of government primary school teachers in India are absent from work.

Only 50% of teachers are actually engaged in the act of teaching while at work, according to researchers.

These statistics represent average numbers taken across many states. The numbers are not so harsh across all of India and several Indian states fare much better.

The survey is part of a broader World Bank research project on absenteeism, which set out to measure how widespread the problem is in six countries in the world, including India and Bangladesh.

Survey teams paid unexpected visits to random primary schools and health clinics. They recorded that on average 19% of teachers and 35% of health workers weren’t at work on the surveyed day in the six countries.

Teachers and health workers are extremely unlikely to be fired for absence, researchers found. Only 1 in 3,000 head teachers had ever fired a teacher for repeated absence.

Better pay also doesn’t lower absenteeism. Older teachers, more educated teachers, and head teachers have better salaries but are also absent more frequently, according to a related research paper on absence among Indian teachers. Also contract teachers are paid much less than regular teachers but have similar absence rates.

Absenteeism among teachers and medical personnel is widely cited in development literature as a barrier to improving education and health levels in developing countries.

Developing countries often spend 80% to 90% of their education budgets on teachers, without getting the most basic of returns – getting teachers to show up to work. What can policymakers do? Working conditions are more likely to influence teachers’ absenteeism than fear of losing pay."

(Source World Bank Internet Release)

By Leaving Parliament Mrs. Gandhi Might Gain, So Also The Congress Party

2006-03-24T07:10:00.000-08:00

Commenting on Mrs. Gandhi's resignation as a Member of Parliament, the International Herald Tribune’s correspondent Amelia Gentleman says. “In real terms, little has changed. Despite Mrs. Gandhi’s public renunciation of her seat in Parliament, taken to deflate a brewing political dispute over an esoteric bit of parliamentary law, Gandhi remains at the head of the governing Congress party, wielding significant political influence”.

Amelia says the style of Mrs. Gandhi's announcement was strongly reminiscent of her "decision to turn down the position of prime minister in 2004 after rightist opposition politicians said her Italian origins made her ineligible for the post. Then her supporters hailed her "high political morality" and "sacrifice," and supportive newspapers dubbed her Saint Sonia”.

In this context, Mrs. Gandhi said that she is not in politics for a “personal gain” – meaning she is there only to serve India’s vast population. Also, for the Congress party characterized by its infamous greed for power and internal bickering, it is convenient have Mrs. Gandhi as a unifying force.

As the story goes, “Earlier this week no one could have anticipated that a simmering conflict between the head of India's governing political dynasty and the grande dame of the country's leading Bollywood acting clan would result in Gandhi's resignation from Parliament”!

Meanwhile, Mrs. Gandhi is planning to visit her constituency this weekend to begin campaigning for a special election that all observers believe she will certainly win. "India likes people who renounce things. This is something that Sonia has played on before," said one political commentator, Kalyani Shankar. "They like the image of politicians to be people who make sacrifices - like Gandhi, who gave up his clothes, food, his house" she said.

BJP and the leftist parties are on the defensive --- looks like, the country is going back to be ruled by Congress on its own once again. What do you think?

Interest Rate Subsidies on Farm Loans Could Get Out of Hands Soon!

2006-03-23T17:37:00.000-08:00

In their meeting with Finance Minister Mr. P. Chidambaram on March 23, public-sector bank chairmen propose to ask for government subvention equal to 2.5 to 3 percentage points on agricultural short-term loans, to be able to lend at the government-directed interest rate of 7%, if they must cover their banks' transaction costs, and leave them with a reasonable spread. .

The government directive to lend short-term agricultural loans at 7 per cent per annum is applicable only to public sector banks and cooperative banks and not to private banks. Further NABARD refinance packages at subsidized interest rates will be available only to regional rural banks and cooperative banks and not to public sector banks.

If the public sector banks do not receive the needed budgetary subventions, they will inevitably be constrained to cross- subsidize agricultural loans by increasing interest rates for loans to other sectors. Some banks have already announced to do so with a possible increase of 1% p.a. in interest rates on loans to all other sectors.

If past experience is any guide, the government may nominally (on paper) allocate money for subventions to public sector banks and NABARD but in practice there may not be available necessary cash (liquidity) to release these allocations to banks.

If public sector banks are constrained to cross- subsidize short-term agricultural loans, the only alternative for them will be just to reduce their lending for agriculture – which means farmers are denied access to credit. What farmers want is access to adequate credit and not necessarily cheap credit.

What a mess? Instead of making the country's rural financial system market-oriented, competitive and efficient to be able to undertake viable financial intermediation on their own, the government has one more time chosen a subsidy instrument that will hurt all including the government, banks, farmers and borrowers in non-agricultural sectors.

Interest rate distortions do not help the economy, the savers, the borrowers and the financial intermediaries. Should we urge the government to reverse this wrong policy?

Sonia Gandhi resigns as MP! And Many More Resignations To Follow.

2006-03-23T16:37:00.000-08:00

Sorry for my long silence . We must be humble though to acknowledge that the world does not stop for us.

Meanwhile, India's political scene is quite heated up as several MPs are caught in a "conflict of interest" issue for holding offices of profit while being a MP?

Here, earning some income is not an issue as MPs have other sources of funds. Some MPs just want to continue with their old institutions or their supporters want them to stay on so that they can benefit from their (MPs') association.

Mrs. Sonia Gandhi, who declined the Prime Minister's position for reasons best known to her, is also caught in this spiral and had to resign.

May be, there will be several by-elections taking place soon -- leading to some important changes in political allignments and power structures.

In any case, this one event is of great significance to Indian democracy which is indeed maturing as every day passes! This is encouraging.

India’s Budget for FY2006-07: Interest Subsidies on Agricultural Loans

2006-03-12T18:48:00.000-08:00

Do you think if the interest subsidy scheme launched by the new budget is based on rational economic decision-making? Will this program help boost the flow of credit into agriculture – or may end up reducing it? Past domestic and international experience with interest subsidies on rural lending, dependent as they are on government budgetary funds -- does not support this policy.

The interest rate subsidy program also ignores the earlier government committee recommendation that interest subsidy element in credit for the priority sectors (including agriculture) should be totally eliminated! What is important for intended beneficiaries is the timely and adequate availability of credit rather than the cost of credit!

Finance Minister Mr. Chidambaram’s budget speech on February 28 started with a quotation from Swami Vivekanand: “We reap what we sow – we are the makers of our own destiny”. So true! But will India’s millions of farmers, poor and non-poor, be able to reap more produce and improve their own destiny by interest subsides?

At issue is not whether farmers deserve subsidies – we have to address this question taking into account a range of macro-and micro-economic aspects, including the need for targeting scare resources to farmers below certain income levels or those below the poverty line (BPLs) --- but the problem is that the interest rate subsidy might allow prosperous farmers (especially those growing cash crops like sugar cane, horticulture, and livestock) to grab this assistance to the exclusion of the poor farmers – usually those dependent on producing grain crops in rain-fed areas. Since they lack access to bank credit – either because they are not viable or the credit institutions serving them have become non-viable -- how the interest-rate subsidies will reach them?

The new budget initiative is expected to provide a one-time relief to farmers, who availed of crop loans from Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), and Primary Agricultural Credit Societies (PACS) for Kharif and Rabi of 2005-06, in an amount equal to 2 percentage points of the borrowers’ interest liability on the principal amount up to Rs. 100,000. This amount will be credited to their bank accounts before March 31, 2006. GOI will provide a budget allocation of Rs. 1700 crores for this purpose.

Also, with effect from Kharif 2006-07, farmers will receive from SCBs, RRBs and PACS, short-term credit at a low interest of 7 per cent, on loans below the threshold of Rs. 300,000. GOI will provide a subvention to NABARD for this – it is unclear yet how NABARD will administer this scheme. The cost of this new policy to the taxpayer is not readily available but could run into crores of rupees.

In India, the public sector involvement in rural credit started with the All India Rural Credit Survey Report in 1954. It not only did endure over the past five decades but over time deepened and played a dominant role. The government could do this because much of the commercial banking sector came into the public ownership in 1969 and while the cooperatives came to be subject to state control and funding as an outcome of public policy to ensure increased and sustained supply for priority sectors including agricultural production, and for poverty alleviation objectives.

Not long ago, in 1991 and 1998, the two Committees chaired by Mr. M. Narasimham- the Committee on Financial System and the Committee on Banking System Reforms -- took note of the problems with government -directed credit provided on concessional terms (including interest-subsidies) and recommended that it be phased out with required changes in interest rate policies.

As regards commercial banks’ directed credit program (including priority sector lending), Narasimham Committee I (1991) noted that they had played a useful purpose in extending reach of the banking system to cover sectors, which were neglected hitherto. Despite considerable unproductive lending, there was evidence that that contribution of bank credit to growth of agriculture and small industry did make an impact. However, this Committee called for re-examination of the relevance of directed credit programs at least in respect of those (a) who were able to stand on their own feet and (b) to whom directed credit programs with the interest concessionality had become a source of rent.

While recognizing that during the two decades -- 1970s and 80s, - the banking and credit policies had been deployed with a re-distributive objective, the Narasimham Committee believed that the pursuit of such an objective should be the instrumentality of the fiscal sector rather than of the credit system.

In part, the interest subsidy scheme will indeed be funded by fiscal resources but its distortionary effect on the banking sector will be quite serious in that due to GOI regulation that interest rates on agricultural loans up to Rs. 300,000 should not exceed 7% p.a., the banking system will not be ble to lend to these clientele from its own resources -- except without loss, thereby limiting the access of millions of farmers to credit that cannot be subsidized by the government due to fiscal constraints.

Narasimham Committee II (1998) revisited issues concerning banking sector’s directed credit and interest rates and observed that the asset quality had further suffered as a result of directed lending, an outcome not much different from international experience. Directed credit apart from leading to possible misapplication or misallocation of credit resources, had led to an increase in non-performing loans and adversely affected efficiency and viability of banks.

In an environment of directed credit (or priority lending), bank managers are under pressure to meet the targets and in the process credit discipline suffers; borrowers willingly default because they believe creditors will not take legal action against those considered to be in the priority sectors.

Narasimham Committee (II) reemphasized that except for priority lending up to 10% of net bank credit earmarked for lending to weaker sections, the rest of the directed credit be phase out while continuing to lend for agriculture and small scale sector on commercial considerations and on the basis of creditworthiness.

Thus, if the expected benefits of the proposed interest subsidies are so much in question, why did you think the government thought of reintroducing this failed program in this year's budget?

(Note: The views expressed in this post are purely personal).

"End of Great Poverty Debate In Sight" says Mr. Surjit Bhalla

2006-03-06T16:42:00.000-08:00

For the past several years, there has been a considerable debate going on among “real” economists and “political” economists about what happened to poverty in India during 1990s.

The debate concerned both political and statistical issues in India's poverty. Following the introduction of economic reforms in early 1990s, India witnessed high rates of economic growth but the effect of this growth on poverty remained a controversial topic. GOI’s official numbers showed an acceleration in the rate of poverty reduction from 36 percent of population in 1993-94 to 26 percent in 1999-2000. Many economists challenged these numbers as showing both too little and too much poverty reduction!

Mr. Bhalla says that the 1999-00 NSS survey which provided the basis for these numbers became controversial for two reasons: first, it showed a largish poverty decline in the post reform 1990s; second, the NSS had asked for food consumption according to two separate recall periods—7 and 30 days. The critics from the leftist parties said that because of this statistical “lapse”, the 1990s poverty decline was more mirage than reality, and therefore how economic reforms had not produced extra growth, etc. In response to this criticism, NSSO changed the survey design to that which prevailed in 1993-94 and before.

Both sides of the poverty debate perceived the poverty reduction claims as political, as hidden were important statistical issues such as discrepancies between surveys and national accounts, the effects of questionnaire design, reporting periods, survey non-response, repair of imperfect data, choice of poverty lines, and interplay between statistics and politics. However, there was general consenses that even if official numbers seemed too optimistic, particularly for rural India, the poverty in India did reduce during 1990s.

Mr. Surjit Bhalla expects this poverty debate should end soon as the data from 2004-05 NSS data becomes available. His educated speculation is as follows: "Per capita consumption in the first pre-reform 10-year period (1983 to 1993-94) rose at a low rate of 1.7 per cent per annum. In the next 11-year post-reform period (1993-94 to 2004-05), per capita consumption has risen at more than twice that rate—3.9 percent per annum. These data merely reflect the higher GDP growth that has occurred in India post the 1991 economic reforms, introduced first by the then reformist Congress. These rates are for national accounts data; the NSS survey mean consumption, the basis for poverty calculations, increased at a lower 1.0 percent annual rate in the 1983 to 1993-94 period; this survey growth rate is also expected to more than double, in keeping with the trend revealed by national accounts data”.

We will have further updates on this topic as we go along, as poverty numbers have underlying political implications. They tell us which government did better or worse than the other….and the party in power generally wants to tell the poeple that no other except itself is concerned about improving the lot of India’s poor..... they also do not want to loudly say that the other party had in fact done better?

On our part, we should look at these data and government policies as objectively as we could, without worrying about which party is in power.

What do you think? Please comment.

Congratulations Mr. Prime Minister

2006-03-02T09:54:00.000-08:00

Congratulations to India and its Prime Minister, Mr. Manmohan Singh for reaching an historic understanding with the US President Mr. George Bush, on the US sharing its nuclear know-how with India.

The understanding when turns into a formal treaty will take India out of a five-decade old stalemet on NPT and allow it to secure new technology that is vital to generate much needed electricity to sustain India’s economic development including international competitiveness in the new era of globalization.

The new agreement will open doors for US and India to collaboaratively work on many other scientific fields including high-end electronics, biotechnology, space science, and nanotechnology.

Hopefully, the political battles both in India and US on the new necluear energy deal for civilian purposes will get sorted out soon. India loses nothing by separating its civilian atomic power plants from those engaged in production of military weapons to satisfy the World that India is taking all needed precautions to prevent proliferation.

India was consistent in saying that NPT was in principle discriminatory and without diluting this position, it has succeeded in securing a remakable deal with USA, thanks to the Prime Ministers political acumen and bold leadership.

FINANCE MINISTER CHIDAMBARAM PRESENTS A FEEL GOOD BUDGET FOR 2006-07

2006-02-28T20:10:00.000-08:00

The General Budget for 2006-07 presented by the by the Finance Minister, Shri P. Chidambaram today in the Parliament was well-received in the Indian press and the business community. It’s a FEEL GOOD and will probably be a DO GOOD budget as well, if the Finance Minister does not ignore issues in public expenditure efficiency, for reasons of political expediency and poor budget management!

The budget includes a number of initiatives that will help spur economic growth and provide justice to the disadvantaged sections of the society. The bulk of the budgetary resources will go for UPA government’s eight flagship programmes – Sarva Siksha Abhiyan, Mid Day Meal Scheme, Rajiv Gandhi Drinking Water Mission, Total Sanitation Campaign, National Rural Health Mission, Integrated Child Development Services, National Rural Employment Guarantee Scheme and Jawaharlal Nehru National Urban Renewal Mission. The total allocation for these programs at Rs.50,015 crores will be 43.2% more (in nominal terms) compared to the last year's allocation of Rs.34,927 crores.

The central government’s total revenue receipts are estimated at Rs.403,465 crores, revenue expenditure at Rs.488,192 crores, and consequent revenue deficit at Rs.84,727 crores (about 2.1% of the GDP). Allowing for the capital expenditure, the fiscal deficit is estimated at Rs.148, 686 crores (3.8% of the GDP). The Finance Minister has tried to keep the fiscal deficit within acceptable limits with the hope that inflation will be contained. Much of the increases in international oil prices are being subsidized by GOI and state governments to contain inflation. In this process, the budgetary funds available for capital investments remain very much constrained. We need to watch how far the domestic and interntional borrowing programs, FDIs and private sector investments help raise the savings/investment rates.

Continuing the emphasis on tax reforms, the Finance Minister has proposed rationalization of some of the indirect taxes while expanding service tax net, given that this sector now contributes about 54 per cent of GDP. As a step in the direction of a progressive convergence of the service tax rate and the CENVAT rate, the Finance Minister has proposed to increase the service tax rate from 10 per cent to 12 per cent. The net impact of this increase is, however, likely to be very small. The Finance Minister has set April 1, 2010 as the date for introducing national level Goods and Service Tax (GST).

As for the direct taxes, the good news is that there will be no change in the rates of personal income tax or corporate income tax, nor any new taxes are being imposed. The Finance Minister has proposed to revise certain tax rates in the quest of equity. And which government can afford to take the political risk of imposing direct taxes on agricultural incomes, even after excluding a substantial threshold to cover subsistence farming as well as risks in farming. Certainly not the UPA government --- the previous BJP-led government could not do this. The Kelkar Committee Report which attempted to deal with this topic remains on shelf, gathering dust.

The Finance Minister’s tax proposals on the direct taxes are estimated to yield about Rs.4,000 crores. On the indirect tax side, the gain is estimated at Rs.2,000 crores. These amounts are negligible relative to total revenues, expenditures and revenue/overall fiscal deficits. It remains to be seen if the rationalization of indirect and direct taxes proposed in the budget will help maintain the growth in revenues that was seen during 2005-06 --- if not, increase in fiscal deficit will be inevitable --- RBI is already on its way to increasing interest rates to contain expected inflation.

The Finance Minister noted that while the world has recognized the potential of India. “It is now for us…..to rediscover the greatness of this country and the potential of its people. The young people of India are building castles, it may appear that those castles are in the air….it is our duty to put the foundations on which the young can build their castles.” So true.

In the same spirit, this blog is concerned with efficiency of public expenditure and overall budget management including delays in or shortfalls in release of funds against budgetary allocations approved by the Parliament; expenditures incurred on activities without approval of the Parliament; use of quasi-budgetary sources of funds to finance government programs; and continuation of inefficient, untargetted, subsidies that not only contribute to distortions in the economy but also perpetuate inequity and doll-out mentality at various levels. Improved budget management is critical to achieve goals intended by the new budget.

Let us address some of these questions as we go along in the context of various programs funded by the budget while recording satifaction that the new budget will help to sustain the overall economic growth rate of about 7% p.a during 2006-07.

Anonymous Comments on Bush Visit: A Brief Response

2006-02-26T17:10:00.000-08:00

Readers:

Your attention is invited to the following comment by the Anonymous on the earlier post: Quote: Let us get serious. There is a Railway budget and you have not commented on it. There are all the reports that Planning Commision has prepared - which I presume has the talent to prioritize all development issues. All this buzz about Bush visiting India is of no use. Look at the past history - it did not result in anything meaningful.India has to seize its development by itself.And if this blog is to have impact it should have seriosu commentary - like Paul Krugman / Paul Samuleson or Larry Kudlow on CNBC.Otherwise it is just shooting the breeze. It should be provocative, insightful, unique, analytical and not superficial.What do you think ? Unquote:

I would indeed agree with the tenor of the comments above. However, is not "energy" a critical input that is required to sustain India's economic development -- and therefore the objectives and the outcomes of President Bush's visit to India of relevance to this blog? In the past, on most domestic and international issues, Indian and US wavelengths were not in sync. President Bush's forthcoming visit is the first of its kind that will address an economic issue of great importance to India, in spite of its dominantly political overtones. Afterall, the political economy of a country tends to dominate economic decision-making in any country.

That said, I agree that we should not not lose sight of more urgent economic issues and one such issue is the Railway Budget. Yes, I looked at the Railway Minister, Laloo Prasad's budget speech which very well lays out the financial and performance improvements achieved by the Railways over the past 2-3 years and the system's modernization plans -- including the politically attractive aspect of keeping the passenger fares unchanged and economically important proposal of rationalizing freight structure. I am, however, looking at "efficiency" indicators used by the Railways in presenting this budget. As the Railway Minister has himself put it -- the user of the Railway system should be treated like a "king" -- meaning the quality of service must be improved to the satisfaction of the users. More on this subject soon after we complete the inquiry. However, the readers should feel free to comment on the pros and cons of the Railway budget proposals.

Meanwhile, we will make every effort to improve the quality of the posts we issue on various economic topics. Thanks to the Anonymous for his/her comments.

Who Needs Nuclear Pact More: India or USA?

2006-02-25T18:39:00.000-08:00

Perhaps, both -- but more so, India if the country must generate sufficient electric power to sustain its economic growth, continue progress on poverty reduction, and improve quality of life for the millions.

It was indeed creditable for Prime Minister, Mr. Manmohan Singh -- BJP Prime Minister, Mr. Bajpai had started the process earlier -- to secure an exception from President Bush that it should be enough for India to separate its civil nuclear program from military nuclear program and bring only the former under IAEA supervision -- this exception is important especially in the context that India has consistently declined to sign NPT while the US law prohibits sale of nuclear technology to nations that are not part of NPT or have tested a nuclear bomb -- thus India does not qualify to receive US nuclear technology on both these grounds. President Bush says India deserves an exception as it is the largest democracy and can be trusted for good governance!

While some political parties in India are against the proposed pact on the ground that it compromizes the pious principle of "non-alignment", at home, President Bush and his party in Congress would need to make a special effort to push the related legislative process that is so critical to make India eligible to receive US nuclear technology.

While there remains much uncertainty surrounding the proposed pact, there is hope that the India-US nuclear pact will eventually materialize, especially because the prevailing world political situation seems to be in India's favor. Yet, India on its part may have to work hard with President Bush as well as the democratic party caucuses to get this deal through the Congress and the Senate, especially if one takes note of Senator Kerry's diplomatic double talk that he did after his recent visit to Pakistan that immediately followed the one to India.

India on its part has to do a lot of lobbying in Washington. Looks like India's Ambassador, Mr. Ranendra Sen is doing an excellent job in his chacteristic sober style of mobilizing support from both Republican and Democratic parties.

Readers, please do publish your comments on this sensitive issue in this blog.

Who Needs Nuclear Pact More: India or USA?

2006-02-25T18:26:00.000-08:00

Perhaps, both -- but more so India if it must generate sufficient electric power to sustain its economic growth, continue progress on poverty reduction, and improve quality of life for millions.

It was indeed creditable for Prime Minister, Mr. Manmohan Singh -- and possibly BJP Prime Minister Mr. Bajpai who started the process -- to secure an exception from the US Government that it should enough for India to separate its civil nuclear program from military nuclear program and bring only the former under IAEA supervision -- especially against the background that India has consistently refused to sign NPT while the US law prohibits sale of nuclear technology to nations that are not part of the NPT or have tested a nuclear bomb.

While some Indian parties are still against the proposed India-US Nuclear Pact, at home, President Bush would need to make special efforts to push through the legislative process to qualify India to receive US nuclear technology for civil purposes. Thus, uncertainties abound. India on its part may have to work with President Bush to get this deal through the Congress and the Senate as India cannot be sure about a democratic President to be of help on this issue if the statements made by Senator Kerry after his recent visit to Pakistan that immediately followed the one to India are any guide -- that was kind of a diplomatic double talk?

Readers, please do publish your comments on this sensitive issue in this blog.

From India, President Bush Goes to Pakistan: His Key Themes for Pakistan!

2006-02-23T20:06:00.000-08:00

President Bush in his speech to Asia Society on February 22 referred in the post below noted that Pakistan is a key ally in the war on terror, referring to the country’s contribution to end Taliban regime in Afghanistan; stopping al Qaeda operatives at its border; and sharing intelligence on terrorist activities and movements with USA and its allies.

President Bush believes that Pakistan now has an opportunity to write a new chapter in its history as the United States wants to build a broad and lasting strategic partnership with the people of Pakistan. In his meeting with President Musharraf, Mr. Bush will be discussing areas that are critical to the American-Pakistan relationship—especially in terms of continued cooperation in confronting and defeating terrorists and making progress on the road to democracy by strengthening local institutions that will help guarantee civil liberties and lay foundations for a democratic future for Pakistani people.

The United States wants help in promoting Pakistan's economic reform and growth including opening up of markets and expanding trade. The two countries are currently engaged in improving educational opportunities for the people of Pakistani. "Young men in Pakistan need a real education that provides skills required in the 21st-century workplace. Pakistan needs to improve literacy for its women and help more Pakistani girls have the opportunity to go to school". By helping Pakistan increase the educational opportunities for its people, the United States hopes to help its people raise their standard of living, and marginalize terrorists and extremists.

President Bush believes that good relations with America can help both India and Pakistan in their quest for peace. “Not long ago, there was so much distrust between India and Pakistan that when America had good relations with one, it made the other one nervous". Changing that perception has been one of Bush administration's top priorities. “Pakistan now understands that it benefits when America has good relations with India. India understands that it benefits when America has good relations with Pakistan". And President Bush is pleased that India and Pakistan are beginning to work together to resolve their differences directly.

President Bush observed that “ India and Pakistan are now engaged in dialogue about the difficult question of Kashmir. For too long, Kashmir has been a source of violence and distrust between these two countries”. President Bush believes that India and Pakistan now have an historic opportunity to work toward lasting peace. During his forthcoming visit, Mr. Bush hopes to encourage both Prime Minister Singh and President Musharraf to address this important issue. “America supports a resolution in Kashmir that is acceptable to both sides”!

The World will be keenly watching the impacts and outcomes of Presidents Bush's visit to India and Pakistan within the two countries and vis-a-vis the Unisted States and the rest of the world. Indeed, very interesting and challening times ahead.

President Bush Sets Out Key Themes for his forthcoming Visit to India!

2006-02-22T19:50:00.000-08:00

In his eloquent speech today to Asia Society in Washington, President Bush said USA’s relationships with India and Pakistan were important for USA’s economic security and national security. He hoped to discuss with Prime Minister Singh in India and President Musharraf in Pakistan, the ways that the three nations must work together to make the world safer and more prosperous by fighting terrorism, advancing democracy, expanding free and fair trade, and meeting our common energy needs in a responsible way.

President Bush’s first stop will be in India. According to President Bush, “India is the world's largest democracy. It is home to more than a billion people -- that's more than three times the population of the United States. Like our own country, India has many different ethnic groups and religious traditions. India has a Hindu majority, and about 150 million Muslims in that country. That's more than in any other country except Indonesia and Pakistan. India's government reflects its diversity. India has a Muslim president and a Sikh prime minister. I look forward to meeting with both of them. India is a good example of how freedom can help different people live together in peace. And this commitment to secular government and religious pluralism makes India a natural partner for the United States".

In his meetings with Prime Minister Singh, President Bush proposes to discuss ways to advance the strategic partnership that the two announced last July. Through this partnership, the United States and India are cooperating in five broad areas: (a) defeat the threat of terrorism; (b) support democracy around the world; (c) promote global prosperity through free and fair trade; (d) improve human health and the environment; and (e) help India meet its energy needs in a practical and responsible way - addressing three key issues: oil, electricity, and the need to bring India's nuclear power program under international norms and safeguards.

President Bush today talked about the most contentious issue that “India must first bring its civilian energy programs under the same international safeguards that govern nuclear power programs" which also involves "separation of civilian and military nuclear programs”. President Bush says “ I'll continue to encourage India to produce a credible, transparent, and defensible plan to separate its civilian and military nuclear programs".

President Bush recognized that while India and US have an ambitious agenda to work on, " it builds on a relationship that has never been better. India is a global leader, as well as a good friend, and I look forward to working with Prime Minister Singh to address other difficult problems such as HIV/AIDS, pandemic flu, and the challenge posed by Iran's nuclear ambitions". President Bush hopes that " his trip trip will remind everybody about the strengthening of a important strategic partnership -- to work together in practical ways to promote a hopeful future for citizens in both our nations".

This blog will closely follow on this historic visit of President Bush' to India and its outcomes -- and will cover in later posts the key themes that he will be pursuing during his visit to Pakistan that follows. President Bush believes that "good relations with America can help both nations in their quest for peace. Not long ago, there was so much distrust between India and Pakistan that when America had good relations with one, it made the other one nervous. Changing that perception has been one of our administration's top priorities, and we're making good progress. Pakistan now understands that it benefits when America has good relations with India. India understands that it benefits when America has good relations with Pakistan. And we're pleased that India and Pakistan are beginning to work together to resolve their differences directly."

Farmer Suicides Again in the News

2006-02-22T18:56:00.000-08:00

Mrs. Sonia Gandhi Gandhi, Congress President, while in Ahmednagar on February 22, expressed concern over rising incidents of farmer suicides in Maharashtra! She wanted such cases to be thoroughly investigated. She wondered why farmer suicides should be growing when government has taken so many steps to safeguard farmer rights -- she was probably referring to National Rural Employment Guarantee Scheme that was recently launched by her jointly with Prime Minister, Mr. Manmohan Singh. Maharashtra’s Chief Minister Vilasrao Deshmukh added that from next kharif season, the state was going to "declare" loans at six per cent interest that should benefit farmers. Mrs. Gandhi probably knows by now that government schemes do not necessarily reach farmers who need them most and Mr. Deshmukh also knows that his government has no money to disburse credit cheap or provide interest subsidies and the cooperative credit system that his government administers is already in doldrums. Rural India needs a community-owned and-administered "social safety net" to save lives of desparate farmers --- NREG scheme is a partial answer if it is administered well and reaches the rural population soon!

Mr. Peter Milford's Comments on the Post below

2006-02-16T15:32:00.000-08:00

Readers should please take note of Mr. Peter Milford's comments on the post below, which tell us a lot. Experience of Russia, China and other communist countries has abundantly shown that "forced equality" perpetuates poverty and deprivation by killing entrepreneurship and incentives in the society and in turn economic growth. I had a chance of looking at Chinese and Russian economies in the early stages of their respective economic reform and talk to several Chinese and Russian households. What I saw and heard was that in the so-called equal and egalitarian societies there were some people, especially those who happened to be coveted members of the communist party, were "more" equal than others -- how about that?

India's Leftist Parties Letting Out Anger

2006-02-12T08:58:00.000-08:00

India's leftist parties are upset over India’s vote at the IAEA in favor of the referral of Iran nuclear issue to U.N. Security Council, embarrassed by the fact that their mentors, China and Russia, also voted in favor. Are India’s leftist parties feeling isolated? Looks like the leftist parties must revisit their respective ideologies and programs, rooted as these must be in Indian soil.

There are other issues over which India's leftist parties have yet to come to grips including privatization, public-private partnerships, and the role of FDI in the country's economic development. During 1970s, China’s Communist Party Chairman, Late Mr. Deng Xioping, told his people, guys, GET RICH FIRST and then we will see how we distribute our wealth? He opened the country’s borders, especially coastal regions -- special economic zones -- to foreign capital and technology.

Throwing away the garb of extreme socialism, in early 1990s, Russia's former President Yeltsin embraced capitalism and went on with mass privatization of many of the state-owned enterprises and state farms. He too encouraged the flow of foreign capital and technology to begin the process of economic renewal from what was then a big junk-yard.

Of course, Indian form of communism or socialism, – which was never close to what China and Russia preached and practiced over decades -- has a limited focus on protecting interests of working class and peasantry-- and not on nationalizing private property. Even the leftist parties do not expect Indian farmers to give up an inch of their land in favor of state ownership.

It is clear that time has come for India's leftist parties to chart out their own medium to long-term paths with clarity and conviction for the country's economic development, that they want to purse to further reduce poverty and deprivation and ensure social safety nets to millions of people. They need to go to the people at large with their own well thought out agenda rather than blaming coalition partners for not doiong what they would want to achieve under their own platforms. The leftist parties need to face the winds of change that are blowing all over the world including through the lengths and breadths of their mentors, Russia and China, and explore what they must need to do in India including changing their own orientation in some ways!

WHAT DO YOU THINK? Please comment

Should India Expect Early General Elections?

2006-02-07T18:39:00.000-08:00

India’s leftist parties have made it known that they are opposed to privatization. Yet they seem to concede to privatization on a case-by-case basis, as they did recently for the proposed modernization of Mumbai and Delhi airports with private sector participation.

Clearly, the main political concern behind the leftist parties' approach is to keep UPA government remain in power as long as feasible and prevent rightist parties' (likely or unlikely?) chance of coming back in power – or at minimum, they want to discourage (Sonia) Congress going on its own in national elections without alliance with leftist parties, until the current five-year term ends!

The politics of India's leftist parties with regard to the country's agenda economic reform is indeed complex and confusing to many, especially when you see that China and Russia to which they look for intellectual guidance or framework are going aggressively for market-based economic development --- knowing well where they want private sector to have a free hand and where the government would continue to play a role on social grounds.

In China, for example, provincial and local governments have set up numerous independent economic entities outside the government administration, which function just as any private sector entity would do -- although notionally, public ownership of asset remains. Russian privatization is much deeper than that -- it is real in most cases but not so real in some cases. Do we see any attempt on the part of India’s leftist parties to clarify their positions in a transparent manner on the privatization question and outline what they see as right and as wrong?

India's leftist parties include the Communist Party of India (Marxist), the Communist Party of India (CPI), the Revolutionary Socialist Party and the Forward Bloc? All these parties publicly supported the recent airport workers’ strike. The strike was withdrawn only after the government assured the leftist parties and airport workers that the latter’s jobs would be protected even under the new arrangment. One wonders how the country would fully realize the potential benefits of privatization if private sector entities bringing in capital and management skills and taking the underlying financial risks are constrained by restrictive labor policies?

For CPI, the struggle on the privatization issue does not seem be yet over -- it has announced that if the UPA government uses now-agreed private sector participation in modernization of Mumbai and Delhi airports as a precursor for further privatization initiatives, it will fight against these at all levels.

What do you think will be the likely political outcome of all this? Should India expect early General Elections? May be not, but at the cost of slowing down mobilization of domestic resources and FDI and, in turn, the country's economic progress which is critical to reduce the poverty at large?

India Launches A Revolutionary National Rural Employment Guarantee Scheme

2006-02-04T20:01:00.000-08:00

The Parliament has recently passed NREGS bill that will directly or indirectly benefit some 80 per cent of India’s 260 million poor who live in rural areas. NREGS is indeed revolutionary as it provides for the first time in India, a right to employment to the rural poor, backed by the national government's commitment .

NREGS aims to guarantee a minimum of 100 days' work per year to all (adult) men and women seeking work in rural areas and if the scheme cannot provide work for any of the guaranteed 100 days, it is expected to pay equivalent amount of wages for the work foregone as "unemployment allowance".

NREGS will be implemented in 80,000 villages in 200 districts and will initially cost about Rs. 28,000 crores but eventually the annual outlay could go up to Rs. 100,000 crores. The state governments are expected to contribute about 10% of the total outlay in their respective states, while the balance amount will be provided by the central government. Some state governments have already expressed difficulty in raising the required funds.

Massive cash transfers under NREGS are expected to reduce rural poverty, malnutrition, disease and indebtedness, and improve availability and productivity of assets through critical infrastructure development, which may also help reduce rural to urban migration to an extent.

NREGS was formally launched the other day jointly by India’s Prime Minister, Mr. Manmohan Singh, and Congress President (UPA Chairperson), Mrs. Sonia Gandhi in a village in Andhra Pradesh. Singh and Gandhi believe that benefits of the scheme would reach the targeted poor (living below the income level of about $2 per day equivalent) and that there would be no room for corruption.

The people are urged to make use of the Right to Information Act to ensure NERGS' proper implementation with required transparency. It is hoped that corruption will come down if there is a fear that truth will become public. The scheme provides for a mechanism to help people with grievances to secure justice.

While NREGS is designed to provide national coverage to rural employment and poverty issues for the first time, it is not entirely new in concept. A first such initiative was started in Maharasthra as back as in early 1970s, with a focus on undertaking construction or maintenance of rural infrastructure, especially rural roads, percolation tanks, and other smaller infrastructure, with payment of wages generally linked to food for work program.

The Maharastra EGS had mixed results though fraught as it was with many implementation problems including the lack of adequate annual budgetary allocations, diversion of allocated budgets to other (not necessarily priority) activities, inefficient project designs which meant lack of sustainable outcomes, and above all corruption that could not be easily detected and checked. Hopefully, NREGS will not suffer from these problems.

While one should not sound negative at the very start of NREGS, which undoubtedly is a well-intentioned and well-targeted program, what seems to be problematic is the NREGS implementation might involve a plethora of government officials at various levels, especially in Zilla Parishads, including a Program Officer at Village Panchayat level and a Program Coordinator at Block level to "assist" Gram Panchayats (village level local governments). The communities of rural poor may not necessarily be in the driver's seat?

This blog believes that unless this nation-wide scheme is implemented as a community-driven program in which resources are directed to range of small-scale investments, identified by poor communities to improve their own livelihoods, it will be doomed to fail. Active community participation in planning, decision-making and use of development funds is fundamental for the success of the scheme.

The Indian Press has come down heavily on some aspects of NREGS which says: Imagine the scope for corruption where village level Program Officers and block level Program Coordinators are expected to prepare muster rolls for use by Pachayats? Hopefully, these muster rolls will be verified in community meetings? Why not use local NGOs, acceptable to communities, to assist them exercise oversight over the implementation of the NREGS and the preparation of muster rolls and payment of wages?

Under NREGS, the rural poor are expected to get information about the works to be taken up under the scheme through local newspapers. How many such people read local newspapers on a regular basis, if at all? For this reason, the rural poor need to get information from the communities themselves who should be in charge of the preparation of work lists, hiring their own experts -- governmental and non-governmental. Government budgetary procedures need to be changed and/or adapted to suit the community driven development approach!

While Gram Panchayats and their Chairpersons' political commitment may help to drive the program, this could lead to biases against those who do not belong to the political party in power – this problem cannot be addressed unless communities are in charge of NRGS funds and drive the work programs outside the political allignments.

When communities are in charge on a non-political basis, one can expect that the NREGS financed accretion to rural assets to become demand-driven (rather than supply-led) and the choice of investments determined by the communities themselves, going beyond construction and maintenance of rural roads and drinking water facilities to include construction of primary healthcare centers, schools and the like that are required to improve their quality of life and welfare.

One provision of the scheme that is particularly difficult to implement is the payment of unemployment allowance to those rural adults who do not get work under the scheme. Will rural communities be able to ensure that this process remains transparent and objective and does not benefit the politically powerful? And why not ask people who do not get work at their home locations to move to another location where there is work -- instead of receiving cash for no work? Will the unemployment allowance approach for the rural sector, though justified on socio-economic grounds, be constitutionally equitable and valid, if not made available to urban unemployed/underemployed poor? Also, imagine the administrative work and litigation that will be plague the scheme unless local arbitration is used to resolve the problems? And who will finally pay for NREGS? Is the UPA government and participating states ready to raise taxes – reduce subsidies on grain, fertilizers, oil, power that go to non-poor to raise resources for NREGS?

This blog wishes all success to the NREGS and hopes to monitor its implementation and outcomes on a regular basis. Dear readers, your active participation in this effort is keenly solicited.

India's Economic Growth in 2005-06 Likely At 7.5%

2006-01-31T16:38:00.000-08:00

This is what India’s Finance Minister Chidambaram indicated yesterday. He attributed this high rate of growth to peoples’ realization that hard work and efficiency alone will take them to prosperity! The change in the earlier estimate of growth rate at 6.9% however came about primarily due to the change in the base year from 1993-94 to 1999-00.

Mr. Chidambaram recognized that rising international prices for oil was a problem but in the interest of price stability, government would not pass on the full burden of rising oil prices to consumers. While commending RBI for doing an excellent job of containing inflation to about 5 to 5.5%, Mr. Chidambaram emphasized the importance of prudent fiscal polices.

To sustain this growth rate, Mr. Chidambaram wants more investment in roads, air and sea ports and railways and cooperation from trade unions in their implementation. In earlier posts, we noted the importance of increasing the savings rate in the economy, attracting FDIs through the medium of public-private partnerships, and reducing (or increasing efficiency of) public expenditures by reducing waste and untargetted subsidies within the limits of well-defined social safety nets. It may also become necessary to inject a "larger dose of prudence" in state governments' fiscal policies.

Mr. Chidambaram hopes to address some of these questions in the forthcoming issue of the Economic Survey and the Budget for 2006-07. We are looking forward to these documents and do more detailed work on individual topics.

At WEF: India says Rural Infrastructure and Rural Employment Critical For projected 8% Growth

2006-01-29T21:16:00.000-08:00

At the on-going World Economic Forum at Davos (Switzerland), India's Deputy Chairman of the Planning Commission, Dr. Montek Ahluwalia, made a big pitch for rural infrastructure and rural employment, which he said were crucial to achieve the projected growth of 8 per cent -- he also said that it was important to review policy issues that hold development in rural areas? Wow...looks like he is beginning to shake up the Planning Commission and Ministries of Agriculture and Rural Development. Will he succeed? Can he get the state governments on board?? This is what this blog has been harping upon -- see earlier postings.

Finance Minister, Mr. Chidambaram, who was also at WEF wanted to raise resources for capital investment by increasing domestic savings, opening doors wider to foreign direct investment, and making India a major manufacturing hub. He is reported to have said that India and China were not competing with each other (what?), that both countries were following different models for growth and development (really?), and there was enough capital in the world for the two countries to attract (Is it ?). Mr. Chidambaram, if this is so, why not international capital flowing to India as much as it does to China? And what about China's phenomical growth in exports relative to India's.

Let us watch how Mr. Chidambaram's forthcoming budget proposals for the fiscal year 2006-07 respond to these challenges?

Farmer Suicides in India

2006-01-28T20:23:00.000-08:00

I propose to shortly put out a brief analysis of the farmer suicide syndrome in India for purposes of discussion in response to Chandra's recent comment on the poverty issue that is being discussed in this blog.

The growing numbers of farmer suicides in India is a tragic topic -- in an environment of a rapidly growing economy, involving complex political, social and economic issues --- especially in the area of rising disparity in incomes in rural India per se and between rural India and Urban India.

There are many reasons that lead farmers to commit suicide but perhaps the most prominant of those are those which affect farmer incomes and increases his indebtedness to money lenders.

These include:

-- crop failures due to irregular and inadequate rains, drought or flooding; lack of crop insurance in terms of coverage and products that are cost effective;

-- lakc of access to working capital due to failure of the formal credit system and/or fully used up credit rating and eligibility with local money lenders and family friends;

-- farmers' resultant inability to buy inputs such as seeds, fertilisers, draft power and water;

-- serious problem of spurious or poor quality seeds and fertilizers that are sold in the market fradulently using brand names; severe land fragmentation and resultant uneconomic farm sizes;

-- slow progress on land reform; large number of land-less labor exacerbated by lack of employment opportunities in rural areas;

-- ineffective implementation of public employment guarantee schemes; and

-- undeveloped and inefficient marketing infrastructure; and government procurement and support price policies though prima facie helping some farmers, leading to serious market distortions and inequalities.

Small and marginal farmers' economic situation is additionally exacerbated by age-old social enviornment that involves payment of huge dowries in marriages of daughters, and huge expenditures on obligatory feeding of village communities in the event of a death in the family. An integrated social safety net for farm households is yet to emerge in India.

Nevertheless, the problem of accurate statistical assessment of farm suicides remains: we really do not know how serious is this problem vs. other suicides in rural areas and those in rural areas vs. urban areas.

Or is there much media hype on this issue -- especially for political reasons? It is well known that the issue of farmer suicides led to the fall of the government of Chandrababu Naidu during AP's last assembly elections -- Mr. Naidu's remarkable work on modernizing the provision of public services did not help.

At the national level, BJP which made a big story of "India Shining" during the last Loksabha (Parliamentary) elections ended up in losing power at the Center on account of farmer perception that they were not getting a fair deal in an otherwise growing economy. All this seems to suggest that India's programs for rural areas are screwed up in many dimensions, excerbated by fast-melting social support framwork at the village level that was in the past readily accessible to farm families. The village communities generally did not allow a hunger death to occur among them.

We need to get back to all these issues but with a constructive effort toward nailing down an approach that is practical and capable of implementation not only with more efficient and effective public sector involvement but with greater community ownership and involvement.

Swaminathan on Indian Agriculture

2006-01-23T17:42:00.000-08:00

Agriculture Minister Sharad Pawar is concerned that India could not be internationally competitive in the field of agriculture without sufficient investments! He said "the demand for foodgrains would go up in the next five to seven years and to meet this demand, the country would need a second Green Revolution". Food security essential for national security.

True, but how do we get to the Second Green Revolution? Mr M. S. Swaminathan, father of the first Green Revolution recently observed that the Second Green Revolution was not possible unless the prevailing neglect of the farm sector was halted and cutting edge technologies were taken to farmers.

Okay, but why farmers should adopt cutting edge technologies if there are no financial incentives to do so; access to quality inputs is not assured; and markets are distorted by government policies and regulations?

Indian agriculture's problems are one way or other contributed by faulty government policies and programs, perpetuated for decades in the so-called interests of farmers, largely guided by socialist ideologies that have since failed in former Soviet Union including Russia as well as in China.

China rejuvenated its agriculture by gradually introducing principles of market economy, which became an engine of growth during 1980s, the first decade of China's recent economic miracle and continues to be so. Russia is on her way to do so as many other FSU countries.

Indian Government must reform its agricultural policies on a priority basis to allow market forces to play their role, within the framework of a social safety net, and promote public-private partnerships to assure a better deal to the farm sector -- promoting flow of new investments and cutting edge techologies.

This blog knows that all this is easy to say but difficult to achieve in the prevailing political economy of India, where failed socialist ideologies are still rampant and misused. A classic example of this is the opposition by some political parties to Mr. Pawar's recent proposal to reduce food subsidies to largely urban population that is above the poverty line and use this money to increase investments in agriculture?

Wake Up India, Wake Up --to face this challenge!!

Some Comments on the Recent Poverty Reduction in India

2006-01-18T15:57:00.000-08:00

As per the Planning Commission’s official statistics based on 55th round of National Sample Survey, BPL population declined from 36% in 1993 to 26% in 2000, i.e. by about 100 million. However, this number has been a subject of hot debate among economists because the survey methodology that was used for the 55th round of the National Sample Survey was not compatible with that used in earlier quinquennial, 50th round survey. However, it is acknoledged by experts that even if alternative methods were used there was a fall in poverty rate though it could be lower than that shown by the official statistics.

Scaling Up Poverty Reduction in India

2006-01-16T21:58:00.000-08:00

There is much debate among economists, academicians and policy-makers in India and abroad about how poverty is officially defined in India. India’s Planning Commission for many years defined poverty in terms of level of per capita consumer expenditure sufficient to provide an average daily intake of 2400 calories per person in rural areas and 2100 calories per person in urban areas, plus a minimum allocation for basic non-food items. Based on these benchmarks, estimated state-level poverty lines vary according to cost of living differentials. The poverty line at all-India level in terms of monthly per capita during 1999-2000 ranged at about Rs. 328 for rural areas and Rs. 454 for urban areas. In terms of the progress in reducing poverty, the All-India head count of the population below the poverty line (BPL) declined from 46 per cent in rural areas and 41 per cent urban areas in 1983 to about 30 per cent and 25 per cent respectively in 1999-00. While this is a remarkable progress, there are still about 300 million people in India who live below the poverty line with the majority of them in rural areas.

In taking stock of the progress being made in India in the sphere of scaling up poverty reduction, this blog hopes to track, on a continuing basis, a range of issues including emerging disparity in incomes and concentration of wealth, and explore how the country’s policies and programs for reducing poverty could become more efficient and equitable. In particular, this blog would focus on ongoing and prospective poverty reduction strategies; explore how opportunities for the poor can be enhanced to increase their welfare, especially in the context of deepening of economic reforms and the expanding role of globalization; and assess if the national, state and local governments are indeed improving the governance, which is so vital for reducing poverty.

Please comment and share your thoughts on this important topic.

Watch Forthcoming Posts On Critical News Items

2006-01-14T19:21:00.000-08:00

Friends: We have important topics on hand to write about:

1. Poverty in India: India has made impressive progress in reducing poverty over the past five decades, more so during the last two decades with economy growing at rates ranging from 5 to 7% p.a. Yet, there are important issues coming up including efficiency of poverty alleviation strategies and program, and growing ineqality in income distribution.

2. Agricultural Subsidies. Agriculture Minister, Mr. Sharad Pawar's recent attempt to reduce food subsidies that go to the population above the poverty line (APLs), which had the cabinet approval, was abrumptly stopped by some political parties that support the national government. What is behind this opposition to reducing food subsidies to APLs, a courages move by Mr. Pawar to reduce inefficiencies in public expenditures and better target subsidies? Are so-called communist and socialist parties scared of losing votes of industrial union workers? Is emerging political economy in India contributing the country to grow or slowdown the growth?

3. Equal Treatment to India and Pakistan on Nuclear Energy Issue? Senator John Kerry, in his recent visit to India, supported US-India deal on technology transfer for nuclear energy for civil use. Mr. Kerry wants US to give equal treatment to Pakistan in this area. Looks like there is little change in the democratic party's mindset ....its leaders are not reckoning that while India is the World's single largest democracy, Pakistan is still a dictatorship. Mr. Kerry, are you trying to rock the very rationale for the emerging US-India relationship based on the foundation of the two countries' faith in democracy? Let us explore this topic further as we go along?

Meanwhile, please feel to comment and contribute.

Save a Girl Child India?

2006-01-09T10:43:00.000-08:00

According to a study published in the Britain’s leading medical journal, the Lancet, some 10 million female fetuses may have been aborted in India over the past two decades following pre-natal gender checks! says Google

Fewer daughters have been born to couples who have not yet had a boy. This was the conclusion of a study on female fertility from a continuing Indian national survey of 6 million people in 11 million households.

Analyzing information about 133,738 births, the researchers found that the deficit in the number of girls born as second children was more than twice as great among educated mothers than among illiterate ones. The Lancet study noted that by conservative estimate, pre-natal sex determination and selective abortion accounted for 0.5 million missing girls yearly for over the past two decades.

This reminds me of China’s failed one child policy, pursued by the government since 1979 in order to control population. , which also led to millions of abortion of female fetuses. The inhuman practice of killing female fetuses raises serious ethical, social and economic questions, whatever may the underlying reasoning. What do you think?

Rethinking Bank Regulation: Till Angels Govern

2006-01-05T14:59:00.000-08:00

I must bring to your attention the recent publication of the new book -- Till Angels Govern -- by the Cambridge University Press. Edited by James R. Barth (Auburn U and Milken Institute), Gerard Caprio Jr (The World Bank and Williams College), and Ross Levine (Brown U), the book "provides a striking evidence (using a unique data set created at the World Bank) that strengthening of discretionary powers of prudential supervisors in countries with weak institutional environments leads to lower level of bank development, greater corruption in lending, and banks that are less safe and sound. Following the Basel II recommendations of strengthening supervisory powers, therefore, may do more harm than good in developing countries, unless it is unaccompanied by substantial progress in institutional development. This book provides an important warning to policy makers that what works for advanced countries may not work for developing countries." Reserve Bank of India and its Board of Supervision may take a note. One reviewer has commented that "developing countries need to place far more emphasis on policies that promote market discipline, like disclosure requirements, than on command and control regulations that often translate into discretionary abuse". More later ....

Bharat Nirman: What Are the Risks?

2006-01-04T16:34:00.000-08:00

India faces a near crisis situation in all categories of urban and rural infrastructure requiring billions of dollars of investments, which public sector is unlikely to be able to raise on its own. There is thus a clear need for private and foreign investments in infrastructure, which will happen only if the policy environment is right. The private sector will not step in unless financial returns on investments are attractive and risks are manageable, especially the political risk which in India has many dimensions including bureaucratic delays, corruption, and interference in procurement and pricing of inputs and outputs. The flow of FDI is growing in recent years but is still not a scale that is sufficient to meet the massive resource gap – FDI will be of help only at the margin and that too predominantly for urban projects.

Against this background, the “Bharat Nirman” initiative, launched by Prime Minister, Dr. Manmohan Singh, in December 2005 is an ambitious plan for strengthening India's rural infrastructure including water supply, power, housing and roads involving an outlay of about $40 billion during the next four years or so (2006-09). Most of this funding is expected to come from the Government's development outlays. Government is also proposing a specific financing window through the National Bank for Agriculture and Rural Development (NABARD) for selected components of Bharat Nirman.

It is indeed gratifying to note that GOI has thought of public-private partnership (PPP) in rural infrastructure, previously unthinkable, with involvement of local governments (panchayats). The Planning Commission is reportedly working on models to be used for rural PPPs. State governments will be the key implementing agencies, with panchayats engaged in generating demand without which service delivery would not be effective. Bharat Nirman has set ambitioous goals in six selected areas of rural infrastructure - irrigation, water supply, housing, roads, telephony and electrification.

It remains to be seen if GOI and state governments which together account for annual budgetary deficits equal to about 10% of GDP will be able to provide required priority in allocating resources for the Bharat Nirman initiative and if pachayats could mobilize required capacity to efficiently plan and implement the program. Also, unless local communities are directly made responsible to design, oversee, implement, and manage finance for various elements of the program (outside the pachayat bureaucracies), Bharat Nirman seems to be at risk!

Increasing Public Savings Crucial to Sustain Economic Growth

2006-01-03T16:13:00.000-08:00

We all know that one of the major obstacles in sustaining India's economic growth (including the agricultural sector) is the scarcity of capital. Recent years have seen some improvement in the country's savings and investment rates, though with marginal reversal in the trend of growing dissavings of the public sector. The public sector savings rate still remains negative. It is the private sector that is largely contributing to recent improvments in savings and investment rates. We will watch what GOI's forthcoming issue of Economic Survey has to say on this question. Unlike in the past, characterized as it was by politicians, we now have three well-known professional economists -- Messrs. Manmohan Singh (Prime Minister), Chidambaram (Finance Minister) and Montek Ahluwalia (Dy Chairman, Planning Commission) at the helm of India's macroeconomic affairs. The country should expect to have sound macroeconomic policies in place that are conducive to much-talked about increases in the rate of economic growth, currently at 7% going to 10%. Without determined effort to increase both public and private savings and investment rates, the launching of programs such as Bharat Nirman or Mission 2007 will prove to be merely populous, with limited or no outcomes? What do you think?

Mission 2007: Every Village A Knowledge Center

2006-01-03T12:42:00.000-08:00

WITH an accent on broadening the benefits of science and technology to rural India, the on-going 93rd Indian Science Congress seeks to focus on issues relating to multitude of problems faced by rural India. The 93 rd Indian Science Congress is focusing on the familiar theme of “integrated rural development". The President, Mr. A.P.J. Abdul Kalam, will be launching a "Mission 2007: Every Village — A Knowledge Center" at the Congress. Let us watch if and how this new programs reaches rural India and its outcomes? Although the President himself is a well-known scientist and a serious individual concerned with the welfare of rural India without looking for votes, he can do very little without the help of the vast bureaucracy of the Indian national and local governments, which has time and again proved to be ineffective in reaching the local communities. What is important is to prepare communities to take upon themselves the responsibility to take advantage of the new program and benefit form science and technology. The local governments' prevailing extension systems are poorly equipped any way. This blog provides a high priority to the subject of rural development and will watch what shape the new Mission 2007 takes and if it can potentially make Every Village A Knowledge Center?

Renewed Emphasis on Agricultural Research

2006-01-03T10:13:00.000-08:00

India's Research in Agriculture is practically stalled. The second Green Revolution sought by the Prime Minister Mr. Manmohan Singh and Agriculture Minister Mr. Sharad Pawar is unlikely to take roots without new directions to and investments in agricultural research including the appropriate use of biotechnology. At the inauguration of the 93rd Science Congress in Hyderabad (India), Prime Minister Manmohan Singh recognized this need and asked the community of scientists to provide a greater thrust on research to step up farm productivity and value addition. According to him, there are three challenges that Science and Technology must address to promote rural development: (a) augmenting agricultural productivity, (b) affordable technologies for energy and water and (c) efficient farm and non-farm technologies. This blog will get back to this topic soon looking at what various public sector research institutions are working on and what role the private sector reserch institutes are playing in this effort.

Are Incentives Right for Indian Agriculture? Where is the New Deal For Rural India?

2006-01-02T11:35:00.000-08:00

India’s Finance Minister Mr. P. Chidambaram, in his new year message to the country, noted that Indian economy would grow by about 7 % during 2006 following an investment boom particularly in infrastructure, agriculture and the social sectors.

While infrastructure and social sectors have their own problems, my immediate reaction was: are incentives right for greater investment in India’s agriculture?

As recently as in the 2005 Agricultural Summit, Prime Minister Manmohan Singh noted that there has been a neglect in agriculture in the past decade. If we must step up the rate of growth of the economy to 7 to 8%, India must accelerate the rate of growth in agriculture; unfortunately, there has been a deceleration.

While the Tenth Plan assumed that agricultural production would grow at the rate of 4%, during the first three years of the plan, the growth rate has been below 1.5%. The Prime Minister said “to reverse this neglect, his Government would give a New Deal To Rural India".

We need to know where that New Deal stands today? The "New Deal" hopes to reverse the declining trend in investment in agriculture by stepping up credit flow to farmers; increasing public investment in irrigation and wasteland development; increasing funds for agricultural research and extension; creating a ‘single market’ for agricultural produce; investing in rural healthcare and education; investing in rural electrification; investing in rural roads; setting up commodities futures markets; and, insuring against risks which are inevitable in an increasingly commercialized agrarian economy.

Indeed, an ambitious agenda! As we go along, we must take stock of how effective the implementation of this agenda is? On December 9, 2005, Agriculture Minister, Mr. Sharad Pawar told the Parliament that India could not be internationally competitive in the field of agriculture without sufficient investment! Yes, Mr. Pawar, but this “investment” will not be forthcoming unless GOI and state governments implement major policy changes in pricing of agricultural inputs (fertilizers, water and power) and outputs (especially grains), and generates incremental resources by making full cost recovery of publicly-funded inputs, which is currently as a very low level. Also, the focus should be on public-private partnership in agriculture, which has much potential, if agriculture sector must grow.

Mr. Pawar told the Parliament that the demand for foodgrain would go up in the next five to seven years and that the country would need a second Green Revolution? Let us hope, Mr. Pawar who indeed knows what rural India and agriculture, will succeed in this effort, at least in setting up the right policy environment for revitalizing agriculture on which 80% of India’s population depends for employment and livelihood.

India's Demography Fueling Economic Growth

2005-12-29T13:58:00.000-08:00

India’s demography is helping the country to grow. The proportion of workforce to total population currently at about 64% will increase to 68% over the next decade, which means that by 2015, some 825 million people will be contributing to economic growth.

Will Indian Economy Soon Grow At 10%?

2005-12-29T08:11:00.000-08:00

Yes, India’s Prime Minister, Dr. Manmohan Singh, hopes so! The Indian economy is currently growing at 7-8% p.a. but there are formidable constraints to sustain even this rate. If the economy must grow at 10%, India will have to work on improving its savings (and investment) rate; increase agricultural productivity and output; and upgrade infrastructure. We will address these questions as we go along and explore if and where the prevailing economic environment hurts and must improve. If you have any thoughts, please do post.

Happy New Year

2005-12-25T18:40:00.000-08:00

Happy New Year. Starting from January 1, please look forward to interesting articles and comments on Indian economy, politics, sociology, environment and public interest issues.