The State of the Economy

The State of the Economy

Jayshree Sengupta 27 May 2015 One year on, Modi government is being judged and assessed for its performance in various fields. Of all the things that have happened on the economic front, Prime Minister Modi's moves on the social sector insurance policy for the poor stand out as an outstanding achievement. The Pradhan Mantri Suraksha Bima Yojana, Paradhan Mantri Jeevan Jyoti Yojana and Atal Pension Yojana have given hope to the poor because they can now be insured against accident, old age and death. Jan Dhan Yojana also has created nearly 15 crore bank accounts though more than half have zero balance. There have been incremental changes elsewhere and a noticeable deterioration on the agricultural front. The increase in the number of farmers' suicides calls for immediate action specially in making farming more profitable and a stable activity. In a recent interview M. S. Swaminathan, noted agriculture specialist, said that the new formula at which Minimum Support Prices for food grains is being calculated should be amended and more allowance for better returns to the farmer should be made (at least 50 per cent above costs). In other words, he has proposed that MSP for wheat and rice should be raised. Food grain output is likely to shrink by 5.3 per cent this year. Agriculture distress as measured by farm output, rural wages and tractor sales indicate that all are going down. Even MGNREGS (Employment Guarantee Scheme), the scheme which guaranteed work for the jobless rural population has seen a decline. The economy according to the noted economist Jagdish Bhagwati is however not looking bad and the pace of reforms is correct. The sharp fall in the Wholesale Price Index to negative 2.3 percent has been hailed as a great achievement of the government. The retail price index (CPI) has come down to a low of 4.87 percent. But a negative inflation is an ominous sign and there can be a fear of deflation due to lack of domestic and external demand that will lead to unemployment. This deflationary trend is now a global phenomenon and needs stimulus packages for reviving demand like interest rate cuts. The Index of Industrial Production IIP recovered to 5 percent in February 2015 but was again low at 2.1 percent in March. For the 2014-15, the IIP was at 2.8 percent which is a small recovery from a negative growth of 2013-14 but it is hardly a sign of vigorous industrial activity!  Reflecting the slowdown in manufacturing is the data on the net profits of the corporate sector which has grown by only 1 to 2 percent. The banking sector is also not showing great results and a mixed picture of profits is emerging. Non-performing assets (NPA) of Banks have continued to grow and credit growth has fallen to 10 percent. India needs to raise $200 billion by 2020 to recapitalize its financial system. The overall impression about the economy is that of a one man show (recently Modi was on the cover of London Economist) and a highly centralized decision making. The liberalization of the economy that Modi promised and was much hoped for, has come albeit in small steps and only in the opening of the railways, defence and insurance sectors. The promised Bankruptcy law has not come about and the Goods and Services Tax and the Land Acquisition Bill are awaiting approval by the Rajya Sabha where NDA does not have a majority.  Infrastructural spending has increased and the government has cleared projects worth Rs 6 lakh crore. But the main promise on the job front of the Modi government has not shown much progress. Just 1.17 lakh new jobs were created in eight key sectors of the economy in the third quarter between October and December 2014 according to the recent 24th Labour Bureau survey. In contrast, 1.58 lakh jobs were created in the previous quarter ending September 30, 2014 and 1.82 lakh jobs in April and June 2014. Automobile sales have been rising slowly and many jobs were lost in both the automobile and the metal sectors. Since exports have fallen for five consecutive months, new job creation has been slow in manufacturing. In the last quarter only 35000 jobs were created in export sector as against 82,000 jobs in non-export units. There has been a large amount of FIIs selling, including selling of rupee debt due to problems in the collection of MAT (Minimum Alternate Tax) from FIIs. The Income tax department has sent notices to only 68 FIIs for non-payment of MAT amounting to Rs 600 crore. MAT is now under scrutiny of an expert committee. FDI however has increased and One window clearances have been announced to attract more FDI and Modi's own road shows in various developed countries have probably made an impact on potential investors. Modi is trying hard to improve India's ranking in World Bank's "Ease of Doing Business" by cutting down red tape and bureaucratic hassles.Many however are adopting a 'wait and watch' attitude till the whole picture becomes clearer about India's GDP growth rate although official forecast remains at 7.5 per cent. The IMF and the World Bank have been impressed by the Finance Minister's ability to control the fiscal deficit at 4 percent. But this has been done at the cost of cutting social expenditure for which the government has received much flak already from various quarters. It is the lowest in terms of percentage of GDP since 2010. The social sector deserves much more attention specially health, education and skill development. Only 2 percent of the population has skills and the quality of education requires much more improvement. The vacancies are plenty but the people who can fill the job requirement are few. That is the anomaly of the job situation today. Much has been said in the western media about Modi not being able to change the archaic labour laws. This, according to them, will bring about a lot of flexibility to the corporate sector but the government is probably weighing the political costs involved in taking such a bold step. There is also the need for greater labour utilization in India which will be the key to its success as the'manufacturer of the world' replacing China.  (The writer is a Senior Fellow at the Observer Research Foundation, New Delhi)

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The weakest link

Among the Modi government’s many hits was one crucial miss — agriculture.

India’s reforms started with stealth, and started from the top. It benefited those better off more. Poverty halved, but it took 18 years, compared to just six years in China.

Written by Ashok Gulati | Published on:May 25, 2015 12:00 am

The Narendra Modi sarkar’s performance in the first year has at least five major achievements and one major miss. To ensure that this neglect does not become its Achilles’ heel, the Modi sarkar will have to focus on and initiate reforms in this weakest link in the chain — agriculture. Else, it will not let the Indian economy fly at the speed and height that Modi wants.

The Modi sarkar is up for evaluation by everyone. It will be judged by how much it has worked on the promises made to the masses, and if it has put the economy on a sustainable growth path — the key issues in a democracy. Everyone has their own take. Here is mine.

Last year, when the election campaign was at its peak, the headlines that dominated against the UPA government were to do with scams, high inflation and policy paralysis, which were adversely affecting India’s image internationally. All of that seems to have waned or disappeared. In that regard, one can count at least five hits of the Modi sarkar.

Modi’s biggest hit, in my humble opinion, is makingIndia count globally. He is busy sowing early India seeds in all the major global powers, be it the US, Japan, China, France or Germany. He has done so in our neighbourhood, too, from Bhutan and Nepal to Sri Lanka. He is travelling relentlessly, inviting businesses to “Make in India”, and easing visa formalities. Hopefully, these seeds of friendship and prospective investment will sprout soon, and Modi can harvest a rich crop in the ensuing years. The Opposition will, however, term it as a mere PR exercise.
So far, one has not heard of any scams at the ministerial level in Lutyens’ Delhi. There may be, and have been, some goof-ups in policy, but no one has blamed these on corruption. The handling of the coal and spectrum auctions has brought reasonable transparency to the system, and will also help improve the government’s fiscal health.
Policy paralysis is fading fast. Several bills in Parliament bear testimony to this. Indeed, Parliament has been more productive than in the last few years, in terms of debate and clearing bills.

Inflation in general — and food inflation in particular — has been brought under control, partly by policy and partly by luck, since global prices came tumbling down. Although there is scope to bring inflation down further, the Modi government now has time to breathe and plan for a long-term strategy to tame prices.

On the social front, the high priority accorded to financial inclusion, leading to the unprecedented success of the Jan Dhan Yojana, is commendable. The programme could be a game changer if combined with Aadhaar and mobiles (JAM), and if most subsidies are directly transferred to the accounts of beneficiaries, as already done in the case of the gas subsidy. Three recently launched schemes— the Pradhan Mantri Suraksha Bima Yojana, the Pradhan Mantri Jeevan Jyoti Bima Yojana and the Atal Pension Yojana — could together be a major leap in strengthening social security of the masses in the unorganised sector.

There must, of course, be many other hits, especially in socio-political mobilisations like the Swachh Bharat Abhiyan and in the BJP’s membership crossing 10 crore. But let us focus on the economy here.

What is the Modi sarkar’s biggest miss? It is agriculture and increasing farmer distress. There have been two bad seasons, and if the third also goes out of gear, the Modi sarkar may be in for trouble. Raising insurance compensation without putting the insurance system on a strong footing is not going to help much. Neither will soil health cards, if the current system of subsidies is not rationalised.

While Modi made significant strides during his visit to China, landing 26 business dealsworth $22 billion, none of of these was related to agriculture. But the biggest lesson that the Modi sarkar could learn from the China visit lies in agriculture. China produces more than 600 million tonnes of foodgrain, compared to India’s 251 million tonnes in FY2015, from a cropped area that is less than India’s and with a holding size that is almost half of India’s (1.15 hectares).

Moreover, it is important for Indian policymakers to know that China started its economic reforms with agriculture, not industry. During 1978-84, the period which marks the beginning of China’s economic reforms, the country abandoned the commune system and graduated to the household responsibility system in land. This is well known. What is not known widely is that China also liberated controls on agriculture pricing to a large extent. As a result, its agriculture grew by 7.1 per cent per annum, while farm incomes increased by 14 per cent per annually, and rural poverty halved in the six years between ’78 and ’84.

It is this “firing from the bottom”, or starting with agriculture, that gave political legitimacy to economic reforms in China, as it benefited the largest number of people. This unprecedented rise in rural incomes also created huge demand for simple industrial products, ranging from televisions and toys to refrigerators. And this opportunity was grabbed by town and village enterprises, which led to themanufacturing revolution in China. The rest is history.
India’s reforms started with stealth, and started from the top, correcting exchange ratesand industrial licensing etc. It benefited those better off more. Poverty halved, but it took 18 years (1993-2011), compared to just six years in China, as India had to rely on the trickle-down effect.

Investment in agriculture, especially irrigation, research and development in thissector, and one common all-India market, are critical. These will have high payoffs, politically and economically. Remember, the three BJP chief ministers who came back to power three times in a row (in Gujarat, Madhya Pradesh and Chhattisgarh) all headed states where agricultural GDP grew at more than 7 per cent per annum over a decade, that is, from 2001-02 to 2011-12. Nobody knows this better than Modi himself, as he has harvested the biggest political crop from it. If only he would now focus on this weakest link, and make sure that India’s growth story is put on a sustainable trajectory.

The writer is Infosys chair professor for agriculture at Icrier.

A diminished House

Parliamentary scrutiny is necessary for maximum governance. Modi government has yet to acknowledge this.

Written by D Raja | Updated: May 26, 2015 12:12 am

The Narendra Modi government is completing a year in office. One has to critically look at its functioning and its paralysing impact on our parliamentary democracy, particularly the institutions of Parliament. The framers of our Constitution consciously adopted parliamentary democracy to ensure regular and continuous accountability of the government. B.R. Ambedkar had eloquently stated that the parliamentary system of democracy is based on accountability and the presidential system is based on stability of the executive.

Ever since the NDA won office, the government’s accountability to the legislature has been consciously compromised and eroded on account of the deliberate strategy followed (by the government) to bypass parliamentary scrutiny. During the last Parliament session, the government purposefully did not refer many bills to the department-related standing committees for examination and scrutiny, even though several Rajya Sabha MPs, across party lines, demanded that these be properly scrutinised by parliamentary committees. The calculated measure of the government to ignore Parliament is unacceptable. It constitutes a negation of parliamentary oversight of the legislative proposals, which have a far-reaching impact on our people, polity and society.

It strikes at the very root of Parliament and parliamentary democracy in India. It is all the more unfortunate that Finance Minister Arun Jaitley, a Rajya Sabha MP who occupies the exalted position of the leader of the House, made a statement that an unelected body like the Rajya Sabha cannot sit over the judgement of the Lok Sabha, which is an elected House.

Such statements from top leaders of the governmentdo not augur well for our democracy. The resilience of the bicameral system in India, in a way, reflects the resilience of our democracy. Instances of getting some bills labelled as money bills so that the Rajya Sabha would have no effective role in the passage of such bills and the government, with its clear majority in the lower House of Parliament, could easily pass them would jeopardise our bicameral system.

The Modi government’s slogan is “minimum government, maximum governance.” But the ominous trend manifested in bypassing parliamentary committees for the early passage of bills goes against the very spirit of governance. It is well stated in a report on the Modernisation of the House of Commons in the UK that “better scrutiny leads to better governance.” Those who swear by minimum government, maximum governance should subject all their decisions to better parliamentary scrutiny to realise in practice the ideals of maximum governance. The tragic abandonment of parliamentary scrutiny will endanger the democratic method of governance that Ambedkar so eloquently proclaimed in his last speech in the Constituent Assembly in order to save India from what he called the “grammar of anarchy”, which, he said, would prevail if unconstitutional methods were adopted for the redress of grievances.

In the Constituent Assembly, when discussion was taking place on the draft article on Parliament, a member insightfully observed that Parliament belongs to the opposition. If that is so, then the functioning of Parliament greatly depends on the role played by the opposition. It is because of the constructive role of the opposition during the past one year that the government could pass a number of bills. Had the present opposition behaved like the BJP in the last Parliament, the government would have cut a sorry figure and Parliament’s image would have been tarnished. The opposition’s demand that the government’s legislative proposals be scrutinised in parliamentary committees speaks volumes for the role of Parliament in ensuring accountability of the executive.

PM Modi reverentially bowed and touched his head on the steps of Parliament while entering this temple of democracy after he and his party won the last general election. It is rather ironic that his demonstrated reverence for Parliament is not in harmony with the policies and actions of his government vis-à-vis Parliament.

Mahatma Gandhi was a critic of Parliament. However, during our struggle for independence, he said on one occasion that India was struggling in a non-violent manner to attain parliamentary swaraj. Yet, on another occasion in 1917, he had said, “What then would our Parliament do if we had one? When we have it, we would have aright to commit blunders and correct them. In the early stages we are bound to make blunders. But we, being children of the soil, won’t lose time in setting ourselves right. We shall, therefore, soon find out remedies against poverty.”

Will the NDA government set its actions right to strengthen Parliament? That would be a fitting tribute to the founders of our republic, who had a vision of banishing poverty and developing our nation without compromising the freedom and liberty of the people.

The writer is national secretary of the CPI and a Rajya Sabha MP.

First Published on: May 26, 2015 12:05 am

Farmer awaits achche din

Without shared political commitment, we cannot save farmers from the era of agrarian distress. Time has come to pay serious attention to problems arising from monsoon and market.

Written by M S Swaminathan | Updated: May 26, 2015 12:21 pm

The prime minister has announced a more glorious future for farmers and farming. He has initiated a major programme on irrigation, since water security is fundamental to food security. He has also promoted greater attention to soil healthcare through the provision of soil health cards to all farmers. Unfortunately, the monsoon has not been kind. Drought, floods, hailstorms and unseasonal rain have caused total food production in 2014-15 to decline by 5.4 per cent. Thus, production this year, a four-year low, will
be 251.12 million tonnes. The weather is not under the control of the government, but weather management is possible.

The Union budget for 2015-16 has increased the allocation for agriculture credit, but much of it will go to large companies and not small farmers. Other pronouncements by the government, as well as the agriculture minister, are yet to be implemented. The hope is that state governments will invest more, since there will be greater transfer of funds to the states. It is rather premature to judge the performance of the government in the farm sector. Unfortunately, suicides by farmers have not stopped and agrarian distress has become more severe. The land acquisition act has generated considerable controversy.

I would like to concentrate on a few issues, important for converting the hope of achhe din aane waale hain into reality. Our green revolution has been sustained only because of public procurement of wheat and rice at a fairly reasonable MSP. In the farmers’ commission report, we have recommended that the MSP be the total cost of production plus 50 per cent. Unfortunately, a recent panel set up by the government has recommended only a margin of about 10 per cent more than the cost of production. No other profession has such low return. At the same time, farming is the riskiest profession due to uncertain weather conditions arising from climate change. The future will belong to nations with grains and not guns. Moreover, agriculture is the major livelihood industry in our country. It is our duty to safeguard the interest of small farmers who have limited marketable surplus. This is why I urge the government to implement our recommendation on the MSP. This is the only way to attract and retain youth in farming, to bring small farmers out of the poverty trap and to ensure sustainable food security.

The purposes for which farm land is to be acquired, and the procedures, have become a subject of considerable public and political controversy. The bottomline should be public good and not private profit. Food security has to be safeguarded, since in the coming years foodgrains will not be easily available in the international market andprice volatility will be high. There is a need for an all-party consensus on preserving good farm land for farming and for adequate consultation and compensation before farm land is acquired for other purposes.

Also, for a population that may reach 1.5 billion in two decades, there is a need to create special agriculture zones (SAZs), where land will be utilised only for farming. SAZs should be designed to conserve prime farm land so that we do not revert to a ship-to-mouth existence. This will be an appropriate commemoration of the International Year of Soil (2015). The Punjab-Haryana agricultural area could be the first SAZ.

Recent IMD data reveal that at least 8.5 million hectares of crops were affected by unseasonal rains and hailstorms. Rainfall between March 1 and April 15 was almost double the normal. Experience shows that if the southwest monsoon begins early, there may be a lull in rainfall later. We should start preparing now. The following steps will be prudent. One, mandatory rainwater harvesting in all farms for crop-life-saving irrigation if there is a prolonged dry spell. Wherever farms are small, community rainwater harvesting can be promoted. Equity in water-sharing is essential for cooperation in water-saving. Some method of community management, like a pani panchayat, will be useful. Two, in case there is a prolonged dry spell between rains, seedlings may wither. Therefore, seed banks with alternative short-duration crops should be built up and the choice of alternative crops could be according to both home needs and market demand.

Three, contingency plans to adapt to different weather probabilities should be prepared jointly by agriculture universities and farmers’ associations. Women farmers in particular should be consulted. Unless such joint work is promoted, the technical advice may remain on paper. Four, our grain reserve is dwindling and climate change is posing unforeseen threats. Thus, codes of coping with weather probabilities like drought, flood and good weather should be prepared jointly by scientists and farmers. Eternal vigilance is the price of stable agriculture and sustainable food security. This will call for an inter-disciplinary monsoon management strategy.

The aim of the International Year of Soil (2015) is to highlight the importance of land and soil to meet the zero-hunger challenge. Land is a shrinking resource and we have to produce more and more from less and less land. The following steps are essential: One, declare areas characterised by fertile soils capable of sustaining two-to-three goodcrops a year as SAZs. SAZ identification and declaration may be done by state governments in consultation with farm people. Special facilities may be provided to farmers to maintain

SAZs as the custodian of national food security. Two, establish in each of our 130 agro-ecological zones a soil health monitoring and amelioration centre. These should not only help farmers with soil health cards but also extend assistance to rectify soil defects. Three, pay special attention to soil organic matter, since this is essential for improving the hydraulic conductivity (physics), chemistry and microbiology of the soil. Four, popularise local-level soil health assessment systems, such as earthworms and nitrogen-fixing and phosphorus-solubilising micro-organisms. Five, train a cadre of local-level soil health managers (both men and women) to help soil health monitoring and amelioration.

If we do not attend to soil health and improvement, we will not be able to end hunger. No further time should be lost in establishing SAZs. Farmer Gajendra Singh taking his own life in public was an example of the lack of social protection and commitment for saving farmers’ lives and livelihoods. I hope our collective conscience will lead to steps that provide farmers with a reasonable income and a decent life. Unless there is a pan political commitment, we cannot save our farmers from the era of agrarian distress. Today, there is a temptation to make political capital of such inexcusable human tragedies. Such political rivalry will not help solve farmers’ problems. The time has come to pay serious attention to the basic problems confronting farmers, as a result of both unfavourable monsoon and market. The prediction for the forthcoming southwest monsoon is discouraging and steps like SAZs, mandatory water harvesting, etc should be promoted.

The writer is founder chairman, M.S. Swaminathan Research Foundation.

Modi Government, one year After: A new manual for diplomats

C Raja Mohan
21 May 2015

As Prime Minister Narendra Modi completes the first year in office, his greatest momentum has been in the least expected domain — foreign policy. As a state chief minister with limited exposure to the world of international relations, Modi, it was widely believed, might face a handicap on the diplomatic front and would concentrate on his presumed strength in economic management. 

If Modi's performance on the economic front has drawn mixed reviews, many have acknowledged the vigour and purpose he has brought to India's renewed engagement with the world. Modi's frequent high-profile travels abroad have, in fact, generated some concern among the PM's supporters that he is spending far too much time abroad at a time of slipping domestic primacy. 

Over the last one year, Modi has shown a surprising personal enthusiasm for diplomacy and revelled in the international attention he has got. While following the broad foreign policy direction set by his predecessors, Manmohan Singh and Atal Bihari Vajpayee, Modi has been bold enough to make some important departures. The PM's main foreign policy objectives have been revitalisation of the stalled partnership with the United States, better management of the China challenge, more productive engagement with neighbours in the subcontinent and Asia, leveraging India's inherent strengths in soft power and moving New Delhi towards pragmatic internationalism. 

In two summits with President Barack Obama, Modi moved quickly to address differences with the US on food subsidies and nuclear liability, inject new energy into defence cooperation and signal flexibility on climate change. Discarding the defensiveness that had crept into relations with the US during the second term of the UPA, Modi, despite his visa problems with Washington, has put America at the heart of India's international strategy. For the first time since 2005, when the UPA government signed the historic but controversial defence and nuclear agreements with America, there is renewed optimism about the future of Indo-US relations. 

Just as he put ties with America back on track, Modi has begun to reset India's relations with China. He has sought deeper economic ties with Beijing, while prudently managing the border dispute. Unlike the UPA, Modi does not view the relationships with the US and China in terms of non-alignment. He has laid out a framework of greater security cooperation with America and a strong economic partnership with China. 

In the neighbourhood, Modi has got trapped in the familiar roller-coaster with Pakistan. Though he reached out to Prime Minister Nawaz Sharif immediately after the elections last year, Modi later suspended talks with Pakistan, objecting to political contacts between Islamabad and separatist groups in Kashmir. If his Pakistan policy seemed to flip and flop, Modi has moved decisively to improve relations with smaller neighbours like Bangladesh, Nepal and Sri Lanka. He has connected directly with the political classes and people in the neighbouring countries. Above all, he has shown the will to resolve long-pending problems with them — whether it is through the development of shared water resources with Nepal or getting Parliament to approve the historic land boundary agreement with Bangladesh. 

Modi has rebranded India's "Look East" policy as "Act East", with special emphasis on strengthening economic and security ties with Asian neighbours like Japan, Vietnam, South Korea, Australia and Mongolia. His concept of the extended neighbourhood also includes the maritime domain, as he travelled to the far seas — from Fiji in the South Pacific to Seychelles in the Western Indian Ocean. 

An intensive outreach to the diaspora and promoting India's religious and cultural links with the neighbours have been special features of Modi's diplomacy. Although the engagement with the diaspora had begun to gain some traction since the Vajpayee years, Modi has elevated it to a new level. Equally important has been his emphasis on the projection of Indian culture abroad. 

Modi's most significant contribution could turn out to be his effort to build a new foreign policy identity for India. If India, obsessed with the notion of "strategic autonomy" in recent years, has been able to dump the residual ideological baggage on it, Modi has now begun to develop the idea of India as a "leading power". For decades, India saw itself as a balancing power trying to limit the West or the Chinese. Modi is now suggesting that India, with its growing national capabilities, must view itself as a power that takes greater responsibility for the construction and maintenance of the global order. 

This has translated into a more self-confident engagement with the other great powers. It has also resulted in a more positive Indian approach to dealing with such global challenges as climate change, where the country was long looked at as part of the problem rather than the solution. 

As a leader with a strong mandate, Modi has been well placed to impart a new momentum to India's diplomacy. But it is by no means clear, in the middle of 2015, if Modi can engineer structural changes in the way the bureaucracy and political classes think and deal with the world. The slow pace of reforms and limited institutional capability to deliver on promises made to foreign interlocutors could re-emerge as important constraints on Modi's diplomacy. As at home so abroad, Modi has generated expansive expectations. The current global warmth towards Modi could begin to fade if India is seen as returning to a defensive and non-performing mode. 

Meanwhile, there are threats to internal peace and harmony that have not gone unnoticed in the rest of the world. The Modi government's tolerance of the BJP's extremist fringe and its crackdown on liberal civil society groups have begun to draw criticism, especially in the US. Unless checked decisively, the negative dynamic on the domestic front will, sooner rather than later, cloud Modi's efforts to project India's cultural strengths and democratic values. At the end of the first year, Modi faces a paradox: his success in creating significant external opportunities for India could easily be undermined by potential failures on the domestic front. 

(The writer is a distinguished fellow at the Observer Research Foundation, Delhi)

Courtesy : The Indian Express, 21 May, 2015.