Member, Planning Commission, Government of India, Member XII Finance Commission, and former union Agriculture Minister, speaking at the international conference “Globalization: Embracing Opportunity, Creating Synergy”, at Asia Plateau, Panchgani, India

Member, Planning Commission, Government of India, Member XII Finance Commission, and former union Agriculture Minister, speaking at the international conference “Globalization: Embracing Opportunity, Creating Synergy”, at Asia Plateau, Panchgani, Maharashtra (extracts):

“It may be asked if we can use telephones in rural areas to make people drink water or spray their crops with.”

These days politicians and planners are the dislike of all, and unfortunately I happen to be both. Therefore, what I say here may be discounted if you so please. I commend the choice of the topic of today’s discussion – Globalisation: National Policies and Structural Changes.

Market-driven economy is the global buzzword today. All policy initiatives in the field of economic management during the past one and a half decades, even in the erstwhile totalitarian economies, are being dictated by the consideration of unleashing market forces and allowing them to manifest as freely as possible. This is sought to be done not only within the national economies but globally too.

The whole paradigm of international exchange has accordingly undergone a drastic change. As we see it today, it is no more a border paradigm confined to trade in goods. It includes services, capital, know how, personnel and so on. The hype of liberalization and globalization has been taken to such heights as to call for a free flow of persons, application of labour and social standards and compulsory adoption of clean technologies conforming to internationally prescribed specifications. Therefore, there is the universal motto of integrating every economy into a global one or establishing a global village. At least in one field, i.e. communications, it has almost already come true.

This quest for a global economy led to the protracted multilateral negotiations culminating in the delivery of the WTO to the contemporary world in 1994 to become effective in 1995. India has been a party to these negotiations and now part of the new trading regime, which is supposed to be “free, fair and equitable” to every participant.

India’s liberalization

Having sensed this global movement, India started with its first phase of liberalization in 1991, which is supposed to be complete and over by now. Currently, the need for a second more comprehensive programme of reforms is under discussion and said to be on the way. In the area of international trade, the watershed for India, as for many other countries, was marked by the emergence of the WTO in 1995. Compliant to the requirements, India has taken many steps, removing quantitative restrictions, lowering tariff barriers, and bringing about many legal, institutional and administrative changes. All these are supposed to enable freer exchange and attract finance, investment, including foreign, not only in manufacturing but also in sectors such as insurance, management, consultancy, construction, infrastructure and the capital market.

Whether these have helped or would do so in the economic development of our country is too early to judge. It is, however, unanimously accepted that globalization is inevitable. Therefore, my job today is to analyze whether the policies and structural changes brought about so far are adequate and in the right direction to meet the emerging needs of our economy within and the challenged posed by globalization from outside.

Majority grossly bypassed

So far as the first aspect is concerned, most of the liberalization has served the purpose of a few people, who belong to the top bracket of our economy and society. The major part of our economy and the majority of people representing small businesses, small-scale industries, housing, construction, and the common man have been grossly bypassed. If they have been benefited at all, it is only marginally and peripherally as remote consequences of benefits accruing to big business and industry, e.g., telecoms companies, importers and exporters of consumer goods. The cost of concessions to exporters is another phenomenon that needs proper assessment. All other sectors of the economy continue to linger under the burden of legal, procedural and administrative restrictions and rigors, which tend to impede economic development in a big way. More important, these do not allow people to participate in economic activity.

For example, we have removed almost all quantitative restrictions on imports of agricultural commodities and processed items, but many restrictions on exports, movement, trading, stocking, credit, finance, processing of agri-produce are still maintained. So much so that there is a ban on use of an efficient technology known as the vacuum pan by the tiny rural industry, the Kandsari. Apart from being anti-liberal, this is highly discriminatory and is resulting in an annual loss of 1.8 million to 2.0 million tons of sugar by way of lower recovery to the extent of 40 per cent. On the other hand, we have the equally bizarre case of protecting inefficient production systems. The most conspicuous of these is the fertilizer industry. Under the Price Retention Scheme, there is a unit at the front end, which gets Rs 276 per ton of subsidy, and at the last end, a unit gets Rs 13,000 plus for the same 46 per cent in area (?). All others in between are getting varying amounts of subsidy. Similarly, Indian manufactured phosphate fertilizers are priced much higher than the imported ones. These are protected against competition from imports and all their inefficiencies are on the government’s account. The fertilizer industry, therefore, is called the gold plated industry of India.

The total amount of fertilizer subsidies over the last three years, including the current financial year, is about Rs 42,000 crores. During the same period about Rs 60,000 crores have been invested in communications in the public sector. It can be nobody’s case that we should not develop our communications. But the question is one of priority, whether we first develop our water resources, health, education, rural and other roads, electricity or have telephones and so on. Equally important is the fact that the resources needed for investment in communications could have come from the private sector. It may be asked if we can use telephones in rural areas to make people drink water or spray their crops with. This has to be seen alongside the fact that in the same three years irrigation has received only something over than Rs 1,300 crores and on a check it was discovered that hardly anything out of this paltry allocation has been spent on development of water resources. The whole amount is consumed in meeting the salary bill of more than 7,000 engineers and officials employed under various Plan schemes of the Water Resources Ministry.

Dismal agricultural investment

The situation seems to be more dismal if we have a look at the figures of investment in the agriculture sector. It receives only 1.3 per cent of the total investment in the economy, which is of the order of around 26 per cent. Agriculture contributes 24.2 per cent of GDP, provides direct employment to 56.7 per cent of the work force and has 69 per cent of the country’s population dependent on it. By these parameters agriculture must have minimum 6.5 per cent of total investment, and 14 to 18 per cent according to the two others. In addition to the above, agriculture is the producer and supplier of all food and nutrition, important raw materials for our major industries like sugar, jute, cotton textiles, silk, rice and flour mills, food and milk processing, etc. Most of our manual labour and personnel for the forces and para-forces come from rural areas that are mainly dependent on agriculture for their livelihood. Therefore, their health and well being is of great importance for the country. Moreover, 40 per cent of our industrial production has its market in the rural areas, which derive purchasing power from agricultural surpluses. Last but not the least, the agriculture sector is the major source of finance for other sectors. This is borne out by the, as low as, 30-32 per cent CD ratio of all the rural branches of major banks of India. This means that the major part of savings of the rural poor is financing the development of other sectors. In the most backward state of Bihar this ratio is still lower: 18-20 per cent.

Approximately one third of the country’s population is living below the poverty line, having negligible purchasing power to participate in the internal market and thus are not integrated into our own economy. But there is an orchestrated hype to integrate the Indian economy into the global, which obviously sounds hollow, patently ambivalent and grossly misleading. Any process of development, which does not make large numbers of people, more so the poor, participate in it, is of no relevance to them and a country like India. The high tech jobless growth is likely to create more problems than solve them.

Abysmally low land holdings

Another serious imbalance that needs immediate correction is in agricultural production. Three commodities—wheat, rice and sugar—are in abundance, while edible oils and pulses, which are important sources of nutrition in preponderantly vegetarian India, are in chronic shortage and, therefore, regularly imported in large quantities. It is important to note in this regard that lower tariffs on edible oils and lack of price support to both are the main reasons for their low production, in addition to the failure of development of pulse technology by the agriculture research system. Added to these is the issue of continuously lower terms of trade for agriculture, which have been hovering between 82 per cent to 95 per cent throughout the period of 1961 to date. These suppressed agri-prices coupled with all sorts of restrictions and frequent imports, and abysmally low land holdings (98.3 per cent being below 10 hectares) has rendered the whole agri-economy economically unviable. Historically adverse terms of trade have been responsible for large-scale transfers of resources from agriculture to other sectors.

The above is corroborated by the evidence of low gross capital formation in the agri-sector, which as a portion of total capital formation in the economy used to be as high as 21 per cent in the decade of the 1970s, but has come down to 7.1 per cent. The most disappointing is that, in the public sector over the same period, it has been reduced to as low as 4.9 per cent from around 18 per cent. Even the proportion of Plan allocation to agriculture and allied sectors has fallen from 16 per cent to 4.9. Never more than 15 per cent of the total credit given by the banks to all sectors has come to agriculture, and this includes moneys transferred to the Rural Infrastructure Development Fund that in turn are lent to the States by NABARD on a higher rate of interest that it gets the money. This is in spite of the fact that the incremental capital output ratio (ICOR) is the lowest (1.99) in agriculture as compared to most of the other sectors – manufacturing 7.77, communications 8.33, Power 15.43, Railways 14 and so on.

Access to international markets denied

The international trade scenario too is not very inspiring. The promise of access to the markets of developed countries for the exports of developing nations has not been redeemed. The rich nations, instead of lowering their tariffs and subsidies and removing quota and other restrictions, have not only increased these but also have been blocking the exports of developing countries on one or the other pretext including malicious application of sanitary and phyto-sanitary measures. The European Union, Japan and the USA have enhanced their subsidies. On top of all these they are trying to bring in the issues of labour, social and environmental standards. The question to be asked from them is, if they are so serious about labour and wage conditions and environment in poor countries, why they do not allow free movement of natural persons and lower their own energy consumption, which are too high to be sustainable, if applied globally. Therefore, the design is known and the game easy to see through.

Surging exports

The fact, however, remains that globalization has come stay, at least in the foreseeable future, and the only option available is to accept the challenge and siege the opportunity it offers, which it does in many a way. Our recently surging exports, including those of agri-products and software, etc. are the testimony. For doing so, a stock of our strength, weakness, opportunity and threat (SWOT) has to be undertaken. It must, however, be understood that in any situation, whether bilateral or multilateral, it is the internal strength of a country that matters. Obviously, our strength lies in our agro-climatic variation and bio-diversity, cheap labour, agriculture, English-speaking people and scientifically trained manpower. The weaknesses are scarcity of capital and efficient technology. The threats are cheaper imports and deliberately twisted rules used by the richer nations and the clouts they are creating in form of various pressure groups.

The set of some important policy measures and structural changes that are needed to meet the situation could be as follows:

Reordering investment, particularly public investment, priorities. Invest big money in development of water resources for drinking as well as irrigation.

Allot all unutilized land resource (approximately 70 million hectares) to the people in rural areas with adequate capital from government and financial institutions.

Remove all barriers and restrictions on agriculture sector.

Protect the multiple cropping systems with adequate price support and sufficient import duties.

Mass conservation of our bio-diversity in-situ, ex-situ and legally against theft and misuse by developed countries.

Prepare product profiles of all exportable items, especially agri-products, right from sowing to harvesting and value addition stages targeting niche markets and create price discovery and market information services in the public sector.

Promote organic farming in a big way, as it is labour intensive and can help our products fetch several times the price of chemically grown ones. India has ideal conditions to produce these round the year.

A nation-wide programme of upgrading our native breeds through selective breeding has to be launched as these have several distinct advantages as compared to imported exotic ones, both in terms of cost and nutrition.

Same is true of our native cultivators of food grains, vegetables and fruits.

There is tremendous potential for export of medicinal and aromatic plants and our traditional medicine, including Yoga, for which there should be a large scale validation and training programme to meet international standards.

Export of food grains, especially the elite varieties like Durum of wheat and Basmati and other varieties of rice, and coarse grains for animal feed within the Asian region has good scope.

Ethnic and health tourism to be developed to suit the needs of foreign tourists. The rural youth and women be trained in the art and assisted under self-employment schemes.

On the issues of IPRs , S&PS , CODEX and GMOs there is need to have common positions with all like minded nations. In the matter of plant variety patents, India should push for a stipulation to make the declaration of origin of genetic material used compulsory and non-compliance a punishable offence; and payment of royalty.

Setting up of adequate capacity and development of capability to handle the S&PS, CODEX, and issues of toxic residues is imperative.

Lastly, the issue of sustainable life styles, especially high consumerism requiring huge amounts of energy to sustain them, has to debated internationally. A cultural campaign for propagating need-based consumption needs to be initiated. NGOs like Asia Plateau can play a major role in this regard.

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