LAST WEEK, THREE apparently unrelated official announcements provided an underlying text for economic growth in the medium term. The Finance Minister, Mr P. Chidambaram, said that the banking system would maintain a stable interest rate regime for productive purposes such as investments in plant and machinery, civil construction and machinery imports during the current fiscal. On the same day, the Minister of State for Company Affairs, Mr Prem Chand Gupta, hoped that amendments to the Competition Act would soon be finalised. The Act was introduced in 2002 as a prelude to the Competition Commission of India that was to replace the Monopolies and Restrictive Trade Practices Commission. The new Act is in line with legislation being pursued the world over to create an open and transparent field for investments and consumer rights. Finally, the National Sample Survey released its latest data on employment that appear to put paid to some age-old beliefs. The data showed that joblessness was higher among the more educated than the uneducated in urban and rural areas.
While experts may debate the reliability of the NSS data, the idea that unemployment could be higher among the more literate has a ring of truth to it because it suggests a different set of expectations from those without any education. Those with secondary or higher levels of literacy expect better jobs than their illiterate cousins. That is an ambition that a modern economy creates in the young and the NSS data show that it has yet to be fulfilled. This is where the Finance Minister's assertion that interest rates will stay firm for the moment and Mr Gupta's claim that the Competition Act will soon see the light of day, acquire significance beyond their literal meaning.
That industry has been spared a higher interest rate on borrowings can only mean that part of the onus of ensuring higher and sustainable growth in industrial production has fallen on public sector banks. Note, also, the element of cross-subsidy because banks have been left to decide housing loan interest rates. The priority is clear: current growth in manufacturing, at 11.3 per cent in the first quarter of 2005-06, according to CSO estimates, needs to be sustained if not overtaken. The unfortunate part of the story is that industrial growth tends to be concentrated in some pockets of the country. Data from Annual Survey of Industries show that 56.7 per cent of total factory employment in 2001-02 was located in just five states.
The Competition Act will create a more level playing field for new entrepreneurs and enterprises and hopefully address this unequal dispersal of investments. By ensuring that enterprises play by the rules of fair competition, the economy can expect to benefit by the entry of fresh investments and entrepreneurs, thus ensuring a greater number of jobs across the country. So far banks have been shy of lending to SMEs at below PLR rates but with the RBI ordering a fresh look at the Prime Lending Rate and wider options for companies to source funds, SMEs should have a fresh lease of life. All of this can only impact positively on the educated and unemployed.