The Hindu Business Line : Just intentions

Annual conventions of political parties anywhere in the world are meant for grandstanding and it was no different at the All-India Congress Committee session held over the weekend in the capital. The Prime Minster, Dr Manmohan Singh, slipped into self-congratulatory prose when he spoke of the farmers’ plight under the previous regime and promised an improvement in their condition through measures now in the offing; in fact, he went so far as to hazard a guess that if the nine per cent growth was sustained, the poverty rate could be reduced to single-digit levels within a decade.

Honourable as those intentions are, the nation has heard promises of the farm sector’s revival far too many times, starting with this government’s first Budget of 2005-06. That agriculture is still moribund, that debt and death still stalk the countryside, with tragic consequences in some parts, are by now well known. Every Budget increases allocations for the rural poor and even if employment schemes do succeed, they are far too seasonal in their effects to enable a sustainable rise in standards of living. Even without knowing, the Government that laid equal stress on sound fiscal management and social sector spending with timely deliverables is now unable to do either. The Reserve Bank of India notes in its mid-term survey that the finances of the Central government are “under some strain” on account of higher interest payments and subsidies. Apart from fertiliser and oil subsides, that now total nearly Rs 1,00,000 crore, an equal strain comes from the cost of the Reserve Bank’s sterilisation of capital inflows in the form of interest payments on issued government securities. The burden of controlling capital inflows reduces the government’s capacity to meet its professed social commitments.

So far, the government has mercifully resisted the temptation to shut the door on the inflows. Equally, there has been no attempt to use the part of reserves now sterilised more productively. With forex reserves now more than $270 billion, India with the sixth largest reserves in the world could take a leaf from China and Japan, and now Russia, that have leveraged their reserves to create export markets in Africa and Latin America, or even used them as sovereign wealth funds. Given the surge of inflows — now increasingly through earnings and receipts under Invisibles in the current and foreign direct investment under capital account — policymakers need to be more proactive in interlinking policies that would enable the government to turn some of its liabilities into assets for the economy. That would provide resources for a more inclusive growth without sacrificing fiscal discipline.

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