The Hindu Business Line : Farm reforms are the key

The key to the future of the Indian economy lies in its agriculture. While effective reforms in this sector will be the toughest to devise and implement, without such restructuring the spurt in the economy will be nothing more than ephemeral.

The good news about the economy is there for every one to see, and for those who set great store by it there is no gainsaying the fact that the country is in the pink of economic health, or (to take into account the sentiments of diehard sceptics) is on the threshold of becoming so.

Thus, in recent days, the thinking citizen has been told that the 2006-07 growth rate has been a super-healthy 9.4 per cent, which is 0.2 per cent higher than the advance-estimates made by the Central Statistical Organisation.

The import of this achievement can be gauged from the fact that this 9.4 per cent growth has been achieved on a 2005-2006 base which itself represented a handsome 9 per cent growth on the previous year (2004-2005), which in turn had chalked up 7.5 per cent growth.

If one goes back a year further, that is, to 2003-2004, the growth rate was 8.5 per cent, indicating firmly that the 2006-2007 growth performance is based on a high-growth base, which makes the achievement truly creditable.

The big leap

When, therefore, it is said that the 2006-2007 growth performance has been the `second highest' compared to the 10.5 per cent attained in 1988-89, the statement needs to be tempered by the realisation that the 1988-89 growth was based on a dismal growth performance the year before when the economy was wracked by a severe drought.

The inference one can justifiably draw from this is that the Indian economy today has taken a quantum leap forward, an achievement that (by definition) is here to stay barring minor hiccups.

This is a happy thought which every Indian citizen will cherish — especially when considering the future of the younger generations — perhaps the most important point being how to ensure that a larger slice of the pie is enjoyed by one's own offspring.

Clearly, this will depend on increased opportunities to earn a higher income, which will be a function of not only heightened economic activity in general but also of a relatively more even spatial and societal distribution of such activity.

This, as is evident from the debate and discussion already taking place on the subject, is a complex and contentious issue. But what is perhaps even clearer is that the conditions for having a larger pie must exist first before there can be any talk of controlling its distribution, the ever-present danger being that the prospects of a larger pie may be harmed irretrievably if the Government of the day gets bogged down in interminable discussions on how to reapportion it.

If economic restructuring (that is, reforms) has been behind its secular strengthening, the obvious questions to ask are: What is the stage in which the reforms are currently in, and what is the future of the drive?

Since the World Trade Organisation is an important multilateral agency which is involved in studying and monitoring the trading structures of its member-states, its views on these issues could be of some interest particularly because of the comparative multilateral setting in which the comments are made.

Recently, the WTO secretariat published its country trade report on India in which a detailed study has been made of the various sectors which are important growth-points in the economy.

In the section on `Summary observations', the report says, among other things, that the "impressive performance is largely due to unilateral trade and structural reforms, which have been continued during the period.

Growth has been led by the services sector, where liberalisation has been most rapid. Manufacturing has also performed well, although further growth may be impeded by infrastructure and other constraints. In contrast, agricultural growth continues to be slow and erratic and dependent on the weather, causing considerable distress, especially among small and marginal farmers."

In the section on `Prospects', the point is made that if the fast overall growth rate is to be sustained, further reform will be required which should address, among other things, `infrastructure bottlenecks' in the transport and power spheres, and "loss-making public sector suppliers (which) remain a drain on public finances".

DEEPER Reforms

As regards agriculture, the report says that "deeper reforms" are required in the sector where, "despite increased public sector spending in recent years and reduced controls on agricultural markets, further efforts are needed to address the sector's relatively low productivity and the problems of marginal farmers, reflected in social indicators, such as poverty and infant mortality".

This is nothing new to New Delhi as is clear from the official concern shown over the poor performance of agriculture (a 4 per cent annual growth rate is considered essential if the 9 per cent-plus GDP growth rate is to be attained more easily than is the case now). The unsatisfactory state of the power sector was recently underscored by the Prime Minister himself when he told a conference of Chief Ministers that a `crash programme' on raising generation capacity was indispensable if the economy was to continue growing at 9-10 per cent.

The seriousness of the issue was evident when Dr Singh told the gathering that time was running out and that, "unless we are able to arrest the growing (power) shortages, the effect on our economy may well prove disastrous."

Disheartening Experience

The question of course is: How does the country go about the task of revamping the power sector keeping the interests of the consumers as well as private sector investors in mind?

If one remembers the case of the fast-track projects, the experience till now has been downright disheartening, but then the options before the authorities are truly limited and, as the Prime Minister has emphasised, time is short.

If the public sector alone is to tackle the task of setting up fresh generation capacity, where will the funds needed to accomplish such a huge task come from?

True, the rich PSUs have more than Rs 2,50,000 crore locked up in their coffers but, then, their efficient utilisation is enmeshed in a web of problems involving the interests of not only the units themselves but also the government departments to which they have to report.

The WTO report does not say so, but it is apparent that the key to the future of the Indian economy lies in its agriculture, the sector currently (2005-2006) accounting for 18 per cent of GDP (it was 23 per cent in 2001-2002) although employing around 60 per cent of the country's working population.

While effective reforms in this sector will be the toughest to devise and implement, it is also true that without such restructuring the current spurt in growth will be nothing more than ephemeral.

More Stories on : Economy | Wide Canvas | Agriculture

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