Chal­lenges for the New Gov­ern­ment

THE STATE OF AGRI­CUL­TURE AND A SLOWLY SHRINK­ING BAL­ANCE OF PAY­MENTS MAY HIN­DER IN­DIA’S GROWTH STORY.

Business Today - - ECONOMY > COLUMN - BY ASHOK V. DE­SAI

To call it the new gov­ern­ment is per­haps too dar­ing. Bharatiya Janata Party may well re­turn in the com­ing gen­eral elec­tion. But its ma­jor­ity may be smaller – per­haps small enough to make it seek part­ners. If it loses and the Op­po­si­tion forms the gov­ern­ment, it is bound to be a coali­tion. This will be the biggest change af­ter the elec­tion: The gov­ern­ment will be less de­ci­sive, what­ever its com­po­si­tion. In his Q&A ses­sion on New Year’s Day, the Prime Min­is­ter gave a long list of his gov­ern­ment’s achieve­ments. Oth­ers may not see all of them as achieve­ments; in any case, there were many that were not sig­nif­i­cant. In­dia, for in­stance, has over half a mil­lion vil­lages; giv­ing elec­tric­ity to the last few thou­sand was a mar­ginal feat. The list may give the im­pres­sion that this gov­ern­ment would leave In­dia a per­fect na­tion. That would be wrong. De­spite a decade of high growth, the next gov­ern­ment is go­ing to face some ur­gent eco­nomic prob­lems.

The first one is the state of agri­cul­ture. One does not have to look at fig­ures; the farm­ers’ agitations that have erupted from time to time leave no doubt that they feel ag­grieved. It is not clear what they are up­set about. All the marches and de­mon­stra­tions they had or­gan­ised were spon­ta­neous; there were no clear lead­ers, and no man­i­festo. One is­sue that has made head­lines for years is agri­cul­tural debt. It is one is­sue on which ev­ery gov­ern­ment has been osten­si­bly ac­tive. In the past 15 years, gov­ern­ments have forced banks to give loans to farm­ers re­gard­less of debt wor­thi­ness. That is one – although not the main – rea­son for the dire state of the banks. Agri­cul­tural prices have not been ris­ing as fast as ex­pected. While the Congress gov­ern­ments pushed up min­i­mum sup­ply prices year af­ter year, the BJP gov­ern­ment has been less punc­til­ious. But over­all in­fla­tion has also come down; so it is not clear whether farm­ers have done worse in real terms. They had two ter­ri­ble years of drought, but agri­cul­tural growth has been good in the past cou­ple of years. So, farm in­come does not seem to be the prob­lem.

There are two lead­ing pos­si­bil­i­ties. One is that the bil­lions of bank credit went to richer farm­ers who could mort­gage as­sets and did not reach poor farm­ers who con­tin­ued to bor­row from money­len­ders. The high-cost, high-risk loans have pushed small farm­ers and agri­cul­tural work­ers into dire straits. The other is that the gov­ern­ment can no longer push up prices be­cause an agri­cul­tural sur­plus has emerged. Too much rice is be­ing pro­duced; there is no short­age of wheat, and wheat farm­ers are do­ing too well if Pun­jab’s drug prob­lem is any in­di­ca­tion. The over­all agri­cul­tural sur­plus re­quires a whole­sale junk­ing of tra­di­tional poli­cies and prepa­ra­tion of agri­cul­ture should be­come in­ter­na­tion­ally com­pet­i­tive.

The other ma­jor prob­lem is go­ing to be the bal­ance of pay­ments. It has been cov­ered up by the enor­mous for­eign ex­change re­serves. They have been slid­ing down, but too slowly to cause con­cern. How­ever, ex­ports of in­for­ma­tion tech­nol­ogy are no longer grow­ing, and the re­lated mi­gra­tion of techies to the US has stopped. Trump is un­pre­dictable, but he has al­ready tight­ened up on visas for techies, and any­thing he does next will be worse. Although non­res­i­dent In­di­ans are great sup­port­ers of Modi in gen­eral, their remit­tances to In­dia are stag­nat­ing. They are not up­beat about In­dia’s prospects, and their eco­nomic cal­cu­la­tions over­ride their po­lit­i­cal pref­er­ences.

On the do­mes­tic front, the two sec­tors that made In­dia shine are ed­u­ca­tion and health. Both have ex­panded con­sid­er­ably, and that is where they face prob­lems. The out­put of school­leavers and grad­u­ates has gone up enor­mously, but the qual­ity of their ed­u­ca­tion is poor, and they can­not get jobs. The out­put of fresh doc­tors too has gone up, but not enough, and the qual­ity re­mains poor. And the phar­ma­ceu­ti­cal sec­tor, which did ex­tremely well for four decades on ac­count of its low costs, has reached the end of the road. It can no longer copy Amer­i­can and Eu­ro­pean pa­tented drugs as In­dia was forced to tighten up its patent law.

All the bright spots have faded, and there is no sight of new ones. That does not mean there will be none. But some­one will have to seek them out; some­one will have to in­vest in them; some­one will have to take the risky road. The road waits for dare­devil rid­ers.

The writer is a se­nior econ­o­mist and was chief con­sul­tant in the fi­nance min­istry from 1991 to 1993

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