The Present State of India’s Economy


Notwithstanding a rosy picture of the Indian economy now and in the years to come painted by the just released Economic Survey: 2005-2006, there are a number perturbing aspects, glossed over by the media. The government seems euphoric about the overall economic growth rate of 8.1 per cent to be achieved in the current financial year and the chances of raising it to 10 per cent in the years ahead. This is obvious from what is stated on the very first page: “The growth trend for the last three years appears to indicate the beginning of a new phase of cyclical upswing in the economy from 2003-04.” It emerges that the government is more concerned about creating favourable conditions for greater and greater inflow of foreign direct investment (FDI) in almost all sectors of the economy than ensuring that the fruits of economic growth are redistributed in such a way that regional disparities and economic inequalities in the society are reduced. This becomes crystal clear after a perusal of the facts presented in the Survey.

To begin with, let us look at what the global Human Development Report (HDR) of the UNDP says. According to it, from the point of view of human development index (HDI) India ranked 124 among 177 countries of the world in 2000, but by 2003 it slipped to 127. Since May 2004, the UPA-led by the Congress has been ruling the country and vigorously pursuing the path of economic reforms, informed by the Washington consensus and opening the doors of the economy for massive inflows of MNCs and their FDI, yet, the ranking does not show any indication of improvement. As is known, this is a composite index and more reliable than the rate of growth of the economy to show the well being of the people at large. The strife-torn Sri Lanka and China have much higher ranks. It is pathetic to read this admission by the Survey that “Between 2000 and 2003, while the absolute values of HDI and Gender Development Index (GDI) consistently improved for India, its ranking remained invariant at 127 consecutively for three years in a row. On the other hand, some of India’s neighbours not only improved their HDI and GDI values, but also improved their relative ranks.”

Ever since the beginning of economic reforms, leading to liberalisation, privatization and globalisation, the two objectives of India’s freedom movement, which were underlined time and again by the governments of Jawaharlal Nehru and Indira Gandhi have been jettisoned. They are: reduction in regional disparities and lessening of economic inequalities. It was quite often emphasized that without striving for these objectives neither national unity nor social harmony could be maintained. The present government talks of fighting separatist tendencies and communalism, yet the outcome of its policies will go in the opposite direction. The Survey admits: “Progress of social development has varied across States. While Kerala stood apart from the rest and achieved high levels of human development comparable to the rich developed countries, the so-called ‘BIMARU’ states (viz. Bihar Madhya Pradesh, Rajasthan and Uttar Pradesh) fared particularly badly.” The Survey pins great hopes on National Rural Employment Guarantee Scheme, launched on February 2, 2006, in spite of great opposition from certain powerful quarters, to provide livelihood security to the rural poor. One has to keep one’s fingers crossed to the effectiveness of the scheme in the absence of other measures. To give just a few facts, expenditure on social sectors as a proportion of total expenditure was 22.3 per cent in 2000-01 and, by the time the BJP-led NDA government was ousted it had declined to 19.7 per cent. Under the Congress-led UPA government it has been increasing, but at a very slow pace. According to the government estimate, it is, at best,  going to be just 20.9 per cent. Similarly, the expenditure on education will be only 10.1 per cent in 2005-06 as compared to 9.7 per cent in 2003-04. In the case of health sector too, the expenditure will be marginally higher at 4.9 per cent in 2005-06 as compared to 4.4 per cent in 2003-04.

The data presented by the Survey do not support the official contention that “The ongoing reforms attach great importance to removal of poverty, and addressing specifically the wide variations across States and the rural-urban divide.” Let us now listen to the Survey, which states in the very next paragraph: “As part of the annual series in the 60th round of the NSSO, an all-India survey on the situation of employment and unemployment was conducted in January to June, 2004 with a moderately large sample of households. The survey points out the large rural-urban and male-female divide in not only literacy, but also in employment and wages.”  

It needs to be noted that almost 72 per cent of households live in rural areas. They account for 75 per cent of the population of the country. In other words, only 25 per cent people live in urban areas. The urban-rural gap has been increasing because most of the attention of the government and of the media is concentrated largely on the cities and towns. Watch electronic media or read the so-called national dailies, you will seldom find any reference to the plight of Kalahandi, Bastar or Palamu while there is ample focus on the models, actors and actresses and fashion shows. The Survey testifies that the literacy rate is much lower in rural areas. To cite the data, male literacy is 62 per cent in rural areas as against 80 per cent in urban areas. The situation is much worse in the matter of female literacy. Only 43 per cent women are literate in villages while in towns and cities 68 per cent females are literate.

The callousness of successive governments may be highlighted by referring to another instance. As early as 1986 when Rajiv Gandhi was in power, the National Policy on Education (NPE) was formulated, which was modified in 1992. It laid stress on universalisation of elementary education. To quote the Survey, it specifically said three things, namely, “universal access and enrolment, universal retention of children up to 14 years of age, and a substantial improvement in the quality of education to enable all children to achieve essential levels of learning.”

Notwithstanding all the lip service to the positive role that education is supposed to play and reiteration of commitment to NPE, no government has achieved the target of spending 6 per cent of the GDP. To quote the Survey, “As against this target, the combined total expenditure on education by Central and State Governments was 3.49 per cent of GDP in 2004-05 (BE).” Even this figure of 3.49 per cent is likely to go down because it is based on budget estimate, which is seldom reached in this country. Dropout rate at the elementary school level is more than 31 per cent. If one investigates, one is sure to find that the actual dropout rate is far higher.

So far as the health sector is concerned, a comparison with neighbouring countries reveals the shameful state of affairs in India. Life expectancy at birth in India is 63 years as against 71 years in China and 74 years in Sri Lanka. In other words, an average Chinese or Sri Lankan hopes to live much longer than an average Indian. Similarly, in the matter of infant mortality rate India is far behind these two neighbours. Under-five mortality rate per 1,000 live births is 87 in India as against 37 in China, 15 in Sri Lanka, 69 in Bangladesh and 82 in Nepal. We talk of the empowerment of women and giving them 33 per cent reservation in the legislature, but we seldom worry about the high maternal mortality ratio. In 2005, it was 540 per 100,000 live births in India as against 56 in China, 500 in Pakistan, 92 in Sri Lanka and 380 in Bangladesh.

About 75 per cent of the population lives in villages and more than 60 per cent of labour force is directly dependent on agriculture, but agriculture accounts for only 25 per cent of the GDP. It is obvious that the distribution of the national cake is highly inequitable. Had the burden of population on agriculture declined as happened in most countries of the world when they embarked on industrialization, the plight of the rural population would have improved. For years, in spite of all the glib talk, the growth of agricultural production has been quite dismal. In 2004-05 it was negative. Food grains production declined by 4.2 per cent. This year, it is hoped to increase by 2.3 per cent. Even if this expectation comes true, it is not going to make any difference in view of the decline last year. It will not even make up for the loss of output last year. The incidence of suicides by farmers, especially in the advanced states, has been on the increase. Strangely enough the Economic Survey has completely ignored this. One of the factors responsible for this is the growing dependence on farmers on non-institutional sources of credit and stringent terms and conditions that go with them. Between 2004-05 and 2005-06 the flow of institutional credit is to increase marginally from Rs 1,15,2430 million to Rs 1,17,8990 million if every thing goes well. The shares of cooperative banks and regional rural banks are to decline. The government is directly responsible for the present pitiable plight of agriculture and the people dependent on it. The Survey admits that there has been a fall in agricultural sector’s capital formation in GDP from 2.2 per cent in the late 1990s to 1.7 per cent in 2004-05. “The declining share was mainly due to the stagnation or fall in public investment in irrigation, particularly since the mid-1990s.”

From the Survey, it is amply clear that the government is banking on FDI for lifting up the rate of economic growth and realizing the dream of making India a ‘superpower’ as early as possible. To attract FDI, it is ready to bring out all the policy and procedural changes demanded by the MNCs and their patrons. Mining and retail sectors are to be opened for them as early as possible. The idea of ‘contract farming’ is very much there. One does not know why the leader of the UPA, i.e., the Indian National Congress, has discarded Nehru-Mahalanobis model. The country expects an official explanation, and, if possible, a debate. The big question needs to be answered is: What is the purpose of economic growth and for whose benefit it is to be undertaken? There are ample hints that the government intends to wash its hands of minimum support prices for agricultural products and discontinue public procurement, the banks are to look at credit to small and medium enterprises and agriculture as an opportunity for profit rather than social obligation under directed subsidized credit, and wide-ranging labour reforms are to make it explicit that aam adami (common man) does not figure in this reckoning. Obviously, people indulging in this thinking forget that aam adami is powerful enough to pull down the government at the polls and cannot be easily duped.

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