Themes > Current Issues
15.03.2000
Jayati
Ghosh
Even more than usual, this year's Economic Survey
has become a means for the government to attempt to advertise the "success"
of its economic policies and to try and pretend that all is well even when
some signs are clearly to the contrary. This is unfortunate, because the
Survey was not actually intended to be reduced to an unwieldy publicity
handout.
Rather, it is supposed to be a review of the major economic developments of the past year, as well as an overall consideration of the important economic processes and policies at work. As such, it becomes an important source of information not only for those who are currently interested or affected by the workings of the Indian economy, but also for later researchers who will be considering and analysing the economy.
But if the veracity or plausibility of the analysis which the Survey makes of the economy comes under question, then the Survey loses much of its relevance except as a simple compendium of recent data. This is especially marked in the current year's Economic Survey, which could almost be thought of as part of an official advertising campaign if it were not so badly written.
Instead of honestly describing the state of the economy and the material condition of the people, this year's Survey offers a paean to neo-liberal economic reform strategies, especially as practised by the BJP-led government in the past two years. To this end, the positive features of current economic conditions are not just emphasised but repeated over and over again, while the negative features are either hurriedly mentioned and then glossed over, or simply ignored.
This does more than to mislead those who are affected by the economic policies and processes in question. It also distorts the historical record for the future, and constrains the ability of analysts to arrive at a more realistic assessment of what has happened. Such an attempt to massage reality into shapes that suit the ruling powers has already been experimented with by this government in other fields of social science, such as history. In terms of economic assessments, while this tendency has been typical of almost of the "liberalising" governments of the past decade, once again the practice has been stretched to extremes by the current government.
The very ordering of chapters indicates the priorities of the government. Agriculture, the sector which continues to employ nearly 70 per cent of the workforce, and determines the level of food security of most of the population, is relegated to the later part of the Survey. It is wedged in between equally forlorn chapters on industry and infrastructure, which read as if they are covered for the sake of form, even though these sectors together determine the basic conditions of life for most citizens and are crucial to the development process. Critical issues of livelihood and material survival are given a few pages in the final chapter. The bulk of the Survey - covering all the early chapters - is devoted to those issues which are presumably seen as the most important by international investors : public finance, capital markets, inflation and the balance of payments.
Despite the valiant attempts at upbeat presentation in the Survey, the picture of the economy that emerges from a closer look at the data is bleak in several ways. Thus, agricultural growth is expected to decline by more than 2 per cent in the current year, despite a "normal" monsoon. More significantly, foodgrain production, which has barely grown at the same rate as population over the decade, is also slated to decline by 2 per cent.
The Survey seeks to attribute this poor agricultural performance to poor weather conditions, and inadequate or untimely rains in particular areas. What it does not stress is the role that could have been played by the significant deceleration of investment in agriculture, particularly over the second half of the 1990s. While public investment has declined quite sharply, private investment has not grown fast enough to prevent an overall deceleration. This belies the neo-liberal expectation that increasing agricultural prices is sufficient to encourage much more private investment (and therefore output) in agriculture.
The Economic Survey makes much of the apparent recovery in industrial production to 6.2 per cent growth in 1999-2000, seeing in it proof that the economy is turning around from the period of recession and is back on a growth track. But the evidence on the recovery thus far does not really warrant such optimism.
For one thing, while some items of industrial production have indeed shown an improvement in growth, capital goods production continues to decelerate in the current year. This, combined with a fall in the import of capital goods as well as slowdown in credit disbursement for investment purposes by financial institutions, suggests that investment is still depressed. Since investment rates (as a share of GDP) had already fallen sharply from the earlier average of 26 per cent to just 23.2 per cent in the previous year 1998-99, this suggests that the recovery is fragile and could easily be reversed.
There is another aspect that emerges from the cyclical behaviour of industrial growth, and that is how strongly it appears to be related to agricultural growth with a lag of one period. Thus, 1998-99 was a year of strong agricultural output growth, and the industrial recovery of 1999-2000 is seen as being related to this, through both demand and supply linkages.
But this implies that the relationship between agriculture and industry is back to the pattern observed earlier for the Indian economy, which was supposed to have been broken in the 1990s. If such a lagged relationship does still exist, then that is bad news as far as the potential for industrial recovery at present is concerned, because of the poor performance of agriculture in 1999-2000.
The area in which the Economic Survey does reflect relatively positive conditions is that of trade and the balance of payments, which have remained stable despite a deceleration in international trade, increasing oil prices and reduced capital inflows. Exports exhibited a slight recovery from the absolute decline of the previous year, while non-oil imports have been very low, perhaps reflecting the investment slowdown. But once again, software exports and remittance payments have shored up Indian balance of payments.
But this situation, while currently favourable, still does not allow for much complacency on the external front. This is because non-oil imports are likely to increase again because of the removal of quantitative restrictions on 50 per cent of imports next month along with the reduction in peak tariff rates, while exports have not been dynamic enough to cover this contingency. Meanwhile, the new policies which have effectively liberalised capital account transactions could increase financial fragility as well.
Inflation - as measured by the Wholesale Price Index - was contained over the past year, falling to one of the lowest rates over the past two decades at 3.3 per cent. While this is described in highly self-congratulatory tones in the Survey, the main factor behind this has been the international deflation which has seen the value of both primary and secondary goods in world markets fall over 1999. As Indian prices have moved closer to world prices for a range of goods, this deflationary pressure has also similarly been passed on.
However, the price index which matters for the rural poor - the Consumer Price Index for Agricultural Labourers (CPIAL) does not show such a low rate of increase. The main reason is the continuing increase in food prices, with cereal prices in India going up by 9 per cent over 1999-2000 despite the international price fall. It is interesting that despite the behaviour of this price which affects poorer groups directly, the Economic Survey feels that prices of essential items have been contained.
The rise in food prices, which was a marked feature of the 1990s as a whole, was definitely policy-induced. The progressive freeing - and even encouragement - of agricultural exports has caused Indian cash crop prices to rise to close to international levels. Simultaneously, Minimum Support Prices for farmers have been increased, and along with this, the attempts to cut the food subsidy bill have meant that issue prices of foodgrains under the Public Distribution System have also gone up. In consequence, foodgrains, especially cereals, have cost much more for consumers. The amazing thing is that this adverse process for grain consumers is not even resulting in cultivators becoming better off, because of increases in their costs and greater threat of competition from imports.
Food prices have played an important role in determining the extent of absolute poverty, along with the availability of productive employment opportunities. Thus the evidence from national sample Surveys that the incidence of rural poverty has not decreased and is likely to have increased over the 1990s, comes as no surprise. But the Economic Survey is especially disingenuous on this matter. It refers only to the "large" NSS sample survey of 1993-94, even though the "thin samples" conducted annually until the first half of 1998 are statistically valid for identifying all-India trends. It admits that these smaller samples "do not show clear positive trends in poverty reduction" but allocates very little space or even concern for this most pressing issue.
The question of livelihood of most citizens is also given short shrift. The deceleration of organised employment in the 1990s is well known. But the Survey completely ignores the even more distressing evidence on employment generation which emerges from the NSS thin samples, that non-agricultural employment generation has been substantially lower over the 1990s than it was in the previous decade. The point that emerges from these important facts, which are hardly developed in the Survey, is that the entire economic strategy of the 1990s has been one which has failed in terms of generating productive employment and reducing poverty.
Since these are the most pressing problems for the bulk of our citizenry, it would be expected that a democratic government would see these issues as the main priority areas for policy. Instead, the Survey, which spends some time listing the government's aims and priorities, identifies a very different set of issues. Thus, the most important policy item on the agenda of this government is apparently the management of public finance, including possibly a "fiscal responsibility legislation" which would further constrain the state's ability to engage in productive and welfare expenditure, and more downsizing of government.
All this reinforces the perception that this government puts the interests of finance, both domestic and international, well ahead of the material concerns of the bulk of its citizenry. But this is definitely not an unavoidable economic strategy determined by current conditions. Rather, it is essentially a political choice reflecting relative power configurations and the control of particular classes and groups over the apparatus of government. Changing political equations could still alter this undemocratic state of economic affairs.
Rather, it is supposed to be a review of the major economic developments of the past year, as well as an overall consideration of the important economic processes and policies at work. As such, it becomes an important source of information not only for those who are currently interested or affected by the workings of the Indian economy, but also for later researchers who will be considering and analysing the economy.
But if the veracity or plausibility of the analysis which the Survey makes of the economy comes under question, then the Survey loses much of its relevance except as a simple compendium of recent data. This is especially marked in the current year's Economic Survey, which could almost be thought of as part of an official advertising campaign if it were not so badly written.
Instead of honestly describing the state of the economy and the material condition of the people, this year's Survey offers a paean to neo-liberal economic reform strategies, especially as practised by the BJP-led government in the past two years. To this end, the positive features of current economic conditions are not just emphasised but repeated over and over again, while the negative features are either hurriedly mentioned and then glossed over, or simply ignored.
This does more than to mislead those who are affected by the economic policies and processes in question. It also distorts the historical record for the future, and constrains the ability of analysts to arrive at a more realistic assessment of what has happened. Such an attempt to massage reality into shapes that suit the ruling powers has already been experimented with by this government in other fields of social science, such as history. In terms of economic assessments, while this tendency has been typical of almost of the "liberalising" governments of the past decade, once again the practice has been stretched to extremes by the current government.
The very ordering of chapters indicates the priorities of the government. Agriculture, the sector which continues to employ nearly 70 per cent of the workforce, and determines the level of food security of most of the population, is relegated to the later part of the Survey. It is wedged in between equally forlorn chapters on industry and infrastructure, which read as if they are covered for the sake of form, even though these sectors together determine the basic conditions of life for most citizens and are crucial to the development process. Critical issues of livelihood and material survival are given a few pages in the final chapter. The bulk of the Survey - covering all the early chapters - is devoted to those issues which are presumably seen as the most important by international investors : public finance, capital markets, inflation and the balance of payments.
Despite the valiant attempts at upbeat presentation in the Survey, the picture of the economy that emerges from a closer look at the data is bleak in several ways. Thus, agricultural growth is expected to decline by more than 2 per cent in the current year, despite a "normal" monsoon. More significantly, foodgrain production, which has barely grown at the same rate as population over the decade, is also slated to decline by 2 per cent.
The Survey seeks to attribute this poor agricultural performance to poor weather conditions, and inadequate or untimely rains in particular areas. What it does not stress is the role that could have been played by the significant deceleration of investment in agriculture, particularly over the second half of the 1990s. While public investment has declined quite sharply, private investment has not grown fast enough to prevent an overall deceleration. This belies the neo-liberal expectation that increasing agricultural prices is sufficient to encourage much more private investment (and therefore output) in agriculture.
The Economic Survey makes much of the apparent recovery in industrial production to 6.2 per cent growth in 1999-2000, seeing in it proof that the economy is turning around from the period of recession and is back on a growth track. But the evidence on the recovery thus far does not really warrant such optimism.
For one thing, while some items of industrial production have indeed shown an improvement in growth, capital goods production continues to decelerate in the current year. This, combined with a fall in the import of capital goods as well as slowdown in credit disbursement for investment purposes by financial institutions, suggests that investment is still depressed. Since investment rates (as a share of GDP) had already fallen sharply from the earlier average of 26 per cent to just 23.2 per cent in the previous year 1998-99, this suggests that the recovery is fragile and could easily be reversed.
There is another aspect that emerges from the cyclical behaviour of industrial growth, and that is how strongly it appears to be related to agricultural growth with a lag of one period. Thus, 1998-99 was a year of strong agricultural output growth, and the industrial recovery of 1999-2000 is seen as being related to this, through both demand and supply linkages.
But this implies that the relationship between agriculture and industry is back to the pattern observed earlier for the Indian economy, which was supposed to have been broken in the 1990s. If such a lagged relationship does still exist, then that is bad news as far as the potential for industrial recovery at present is concerned, because of the poor performance of agriculture in 1999-2000.
The area in which the Economic Survey does reflect relatively positive conditions is that of trade and the balance of payments, which have remained stable despite a deceleration in international trade, increasing oil prices and reduced capital inflows. Exports exhibited a slight recovery from the absolute decline of the previous year, while non-oil imports have been very low, perhaps reflecting the investment slowdown. But once again, software exports and remittance payments have shored up Indian balance of payments.
But this situation, while currently favourable, still does not allow for much complacency on the external front. This is because non-oil imports are likely to increase again because of the removal of quantitative restrictions on 50 per cent of imports next month along with the reduction in peak tariff rates, while exports have not been dynamic enough to cover this contingency. Meanwhile, the new policies which have effectively liberalised capital account transactions could increase financial fragility as well.
Inflation - as measured by the Wholesale Price Index - was contained over the past year, falling to one of the lowest rates over the past two decades at 3.3 per cent. While this is described in highly self-congratulatory tones in the Survey, the main factor behind this has been the international deflation which has seen the value of both primary and secondary goods in world markets fall over 1999. As Indian prices have moved closer to world prices for a range of goods, this deflationary pressure has also similarly been passed on.
However, the price index which matters for the rural poor - the Consumer Price Index for Agricultural Labourers (CPIAL) does not show such a low rate of increase. The main reason is the continuing increase in food prices, with cereal prices in India going up by 9 per cent over 1999-2000 despite the international price fall. It is interesting that despite the behaviour of this price which affects poorer groups directly, the Economic Survey feels that prices of essential items have been contained.
The rise in food prices, which was a marked feature of the 1990s as a whole, was definitely policy-induced. The progressive freeing - and even encouragement - of agricultural exports has caused Indian cash crop prices to rise to close to international levels. Simultaneously, Minimum Support Prices for farmers have been increased, and along with this, the attempts to cut the food subsidy bill have meant that issue prices of foodgrains under the Public Distribution System have also gone up. In consequence, foodgrains, especially cereals, have cost much more for consumers. The amazing thing is that this adverse process for grain consumers is not even resulting in cultivators becoming better off, because of increases in their costs and greater threat of competition from imports.
Food prices have played an important role in determining the extent of absolute poverty, along with the availability of productive employment opportunities. Thus the evidence from national sample Surveys that the incidence of rural poverty has not decreased and is likely to have increased over the 1990s, comes as no surprise. But the Economic Survey is especially disingenuous on this matter. It refers only to the "large" NSS sample survey of 1993-94, even though the "thin samples" conducted annually until the first half of 1998 are statistically valid for identifying all-India trends. It admits that these smaller samples "do not show clear positive trends in poverty reduction" but allocates very little space or even concern for this most pressing issue.
The question of livelihood of most citizens is also given short shrift. The deceleration of organised employment in the 1990s is well known. But the Survey completely ignores the even more distressing evidence on employment generation which emerges from the NSS thin samples, that non-agricultural employment generation has been substantially lower over the 1990s than it was in the previous decade. The point that emerges from these important facts, which are hardly developed in the Survey, is that the entire economic strategy of the 1990s has been one which has failed in terms of generating productive employment and reducing poverty.
Since these are the most pressing problems for the bulk of our citizenry, it would be expected that a democratic government would see these issues as the main priority areas for policy. Instead, the Survey, which spends some time listing the government's aims and priorities, identifies a very different set of issues. Thus, the most important policy item on the agenda of this government is apparently the management of public finance, including possibly a "fiscal responsibility legislation" which would further constrain the state's ability to engage in productive and welfare expenditure, and more downsizing of government.
All this reinforces the perception that this government puts the interests of finance, both domestic and international, well ahead of the material concerns of the bulk of its citizenry. But this is definitely not an unavoidable economic strategy determined by current conditions. Rather, it is essentially a political choice reflecting relative power configurations and the control of particular classes and groups over the apparatus of government. Changing political equations could still alter this undemocratic state of economic affairs.
© MACROSCAN 2000