September 7,1998
|
|
|
|
EXCLUSIVE: P CHIDAMBARAM What We Need is a Breakthrough The BJP's tax-and-spend policy is no recipe for survival. Is there a recession? The debate has raged for several months and there is no sign of its end. Notwithstanding the finance minister's promise that revival will begin in September, let's closely examine the "recession". Recession, according to its classic definition, means negative growth in two successive quarters. Nothing like that happened in 1997-98, nor is it likely to happen in 1998-99. Slow growth is unacceptable. Thank God, we no longer pat ourselves for achieving the "Hindu" rate of growth that the country witnessed for three decades -- 1950 to 1980. We must accelerate growth. But where? The services sector continues to grow at a healthy rate of over 7 per cent. This must be sustained. It can be done by more reforms that directly impact the services sector. For instance, banking reforms, opening up insurance, allowing Tata Airlines to take off, giving autonomy to port managements (and not arbitrarily transferring inconvenient chairmen), resolving the problems of cellular and basic telephony licensees and so on. While each of these requires technical decisions, each also requires, most importantly, a political decision. If the decisions at the cabinet-level are taken NOW, we may expect a spurt in the growth rate in the last quarter of 1998-99. Until then, we may settle for 7-8 per cent, and thank the policy decisions of yesteryears. Next comes agriculture. Thanks to another good monsoon, and despite the floods in some parts, agricultural production is poised to bounce back to the record level attained in 1996-97. Statistically, that will translate into sectoral growth rate of 2-3 per cent. The Government will be happy, but I would be disappointed. What we need is a breakthrough. We need to get out of the plateau levels reached in wheat and paddy production; we need a significant break in cotton and oilseeds output; we also need larger exportable surpluses of tea, coffee, tobacco and spices. The term "revival", in the context of the agricultural sector, would be appropriate only when the sectoral growth rate exceeds 4 per cent and is sustained at that level for at least a decade. Many steps are possible. The Accelerated Irrigation Benefit Programme (AIBP) must be closely monitored and targeted acreage brought under assured irrigation. Small and medium farmers must be given access to farm credit. All controls on the movement of agricultural products must be scrapped forthwith. Finally, I turn to the real problem area which is industry. It is the revival of manufacturing which will turn the tide and lift the spirits of the nation. Demand for industrial goods has slackened over the last 12 months. Not because there is a lack of money or purchasing power. Witness the fact that in 1997-98 the target of Rs 14,000 crore for "small savings, PPF and deposit schemes" ballooned to Rs 25,478 crore. In the same period, bank deposits grew enormously. People are earning and saving. They are not spending. Nor are people -- mainly entrepreneurs -- investing. Industries are not adding to capacity or upgrading machinery or investing in new technology. Everybody seems to have adopted a wait-and-watch attitude. The reason is not far to seek. Everyone, but everyone, is worried about the uncertainty. Uncertainty began in April 1997 when the Deve Gowda government was brought down, it deepened after the fall of the Gujral government and the mood has worsened in the past four weeks.The BJP Government is not helping matters either. It still swears by its ill-conceived "tax-and-spend" policy. It has given up the pretence of inflation control. Political uncertainty and rising inflation have affected consumer spending and investment. A recipe for revival of the manufacturing sector must address the core issues. The ball is squarely in the court of the Government. Public expenditure will, no doubt, help. But not all public expenditure is necessarily productive. Besides, the effort must be to complete ongoing projects, not merely start new projects, and add to the portfolio of projects which have suffered time and cost over-runs. The BJP Government has set store by public expenditure, and the means of financing it are largely Internal and Extra-Budgetary Resources (IEBR). Not much, I am afraid, will be accomplished this year. Another approach is possible to revive specific segments of the manufacturing sector. The ones that are most sluggish are steel, automobiles, textiles and construction. The Government could take courage in both hands and slash excise duties on these products. A special package of incentives could be given to boost export of steel and textiles. Tax benefits could be given for housing starts made in 1998-99. To do all this, the requirements are political stability and loads of courage. To a government fiercely devoted to a "tax and spend" policy, the slew of measures I have advocated would be anathema. So, settle for industrial growth of 6-7 per cent. The year 1998-99 will therefore witness not recession or stagflation, but modest GDP growth and high inflation. I can hear the BJP saying, "That will do nicely, thank you." Revival, in a true sense, would have to await better policies and determined governance. |
|
|
Issue Contents | Write to us | Subscriptions | Syndication INDIA TODAY | BUSINESS TODAY | INDIA TODAY PLUS | COMPUTERS TODAY © Living Media India Ltd |
 |
 |
