Opinion
'Inclusive Growth' is Survival Imperative
for Indian Economy
by Sukumar Muralidharan
Early
commentary on India's national budget for 2008-09 has focused almost
entirely on a single parameter: the aggregate level of economic growth.
Missing in all the punditry has been a serious effort to engage with the
sources of growth in the Indian economy.
Evidently, the recent growth dynamic has had little to do with
agriculture. As the Economic Survey preceding the budget pointed out,
growth in the farm sector, despite favourable environmental parameters,
is expected to be a disappointing 2.6 percent this year.
This would, the Survey continues, "be translated into a lower overall
GDP (gross domestic product) growth".
What the Survey does not attend to though, is the nature of the
relationship between agricultural growth and overall GDP. It is no mere
arithmetical relationship. And the untold story of India's growth
experience over the last decade or so has been that it has almost
entirely excluded agriculture.
As a decade in the life of a nation, the 1990s could attract a variety
of descriptions. For one thing, it was the decade of liberalisation,
when India, after a seeming eternity of hesitation, finally decided to
engage with the global economy. For another, it was when the Indian
middle class, thwarted in its ambitions for generations, carried through
its revolution of rising aspirations.
With all this, the 1990s could also be remembered as the decade when
agriculture fell off the radar screen. Two points in time when the
Indian economy was severely buffeted by weather adversities capture the
essence of this transition.
The two worst years over the last quarter-century in terms of weather
conditions have been 1987 and 2002. In 1987-88, when agricultural GDP
fell by 1.39 percent, overall growth clocked in at 3.8 percent. In
2002-03, the impact of adverse weather on agriculture was even more
catastrophic, with GDP in the sector falling by 5.99 percent. Yet
overall GDP registered a growth of almost 4 percent.
The transformations of the last decade-and-a-half have meant that
agriculture, despite being the sector that hosts by far the majority of
the Indian population, is of less consequence for the economy than ever
before. Indeed, much of the growth over this period has been driven by
the revolution of rising aspirations of the great Indian middle class.
This is a story that emerges clearly in the rapid diversification of
consumption patterns. Food, clothing and shelter, the traditional core
of the consumption basket, now comprise a much smaller proportion of
aggregate private final consumption expenditure than it did in 1990-91.
To take merely food: from almost half the aggregate consumption
expenditure in the Indian economy in 1990-91, it today accounts for well
under 40 percent.
Yet this is a story that has stubbornly failed to reproduce itself in
the rural sector. As a 2003 survey by the National Sample Survey
Organisation (NSSO) found, the average monthly per capita expenditure of
farmer households was Rs.503, just moderately above the rural poverty
line of Rs.349 (itself a rather modest indicator). And of the total
consumption expenditure, over 55 percent went into food.
Clearly, the flagging growth momentum in agriculture has meant much more
than an arithmetical failure to contribute to overall GDP growth. It has
meant that the vast majority of the working population in the country
has been unable to participate in the growth story, because their
purchasing power has been under severe pressure.
Various strategies have been advanced over time as possible antidotes to
the persistent malaise of Indian agriculture.
Virtually all agree that investment in agriculture, which has fallen off
rapidly over the years and only shown some hesitant signs of recovery in
recent times, needs to be stepped up.
Others argue that the subsidies given to agriculture in the terms of
cheap fertiliser and assured output prices should be redeployed as
productive investment.
There have been increasingly urgent efforts along both these dimensions
in recent times. Yet it is uncertain how successful these
administratively complicated and politically difficult operations have
been.
Under pressure to do something, the Finance Minister P. Chidambaram has,
unsurprisingly in the light of the political pressures of the imminent
electoral contests, opted for a large-scale write-off of agricultural
debt.
By all indices, the crisis of indebtedness in agriculture is acute. Two
surveys conducted by the NSSO in 2003 have shown that of the 89 million
farm households in the country, 43 million are indebted to some or the
other degree.
Indebtedness is extremely high in states with well-developed farm
practices, such as Andhra Pradesh, Punjab, Maharashtra and Tamil Nadu,
as also in Kerala with its large plantation sector.
Significantly, over 42 percent of the total debt of the agricultural
sector was owed to non-institutional sources such as the village
moneylender or trader. This represents a significant backward movement
for the agriculture sector, which was dependent to a relatively minor
degree of 30 percent on non-institutional credit sources in the
early-1990s.
Evidently, Chidambaram's loan write-off fails to address the huge
problem of the non-institutional debt of the farm sector. But in
alleviating debt-induced distress at least to some extent, it may
generate additional purchasing power in the farm sector, which could
conceivably impart a growth momentum to the economy.
"Inclusive growth" is no mere slogan. It is perhaps a survival
imperative for the Indian economy, with the growth impulse driven by the
great Indian middle class over the last few years now flagging.
Chidambaram's seeming populism perhaps disguises certain hardheaded
calculations of economic pragmatism.
Where the fiscal resources for the loan write-off will be found is of
course, another question. But if the improvement that Chidambaram claims
on the fiscal front is real - rather than the illusory consequence of
cleverly hiving off much of the expenditure burden to public sector
corporations - then the additional burden should not be insupportable.
(Sukumar Muralidharan is an economic commentator. He can be reached at
sukumar.md@gmail.com)
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