There seems to be a consensus that this year, 2011-12, the GDP growth outcome will be about 7-7.5%. Next year the forecasts are clustering around 6.5-7.5%. Even the government is saying the 8-9% growth rate of the early years of the last decade looks like a dream now.
This is defeatist as far as I am concerned. It is not inevitable that India slips into the 6-7% range rather than reaches 8-9% and aims at a double-digit growth. The gap between 6 and 9 may look narrow but, as the advert says, 9 is 50% better than 6!
What would it take to get there? Of course, many are looking at FDI in retail and other ways of encouraging foreign investment. But the really important thing would be to look carefully at the many improvements that can be done across the board to mobilise resources, none of which require a big change.
First is, of course, fiscal discipline. It is not just the overall deficit numbers that have to be tackled. It is urgent that the whole structure of subsidies be re-examined. Petrol subsidy has been dealt with and we are promised action on diesel. The subsidies on fertilisers and water and power in agriculture are not just a regressive waste of resources but, as many experts have pointed out, harmful to agricultural productivity and profitability. If the governments at the Centre and in states reduce their dis-savings by up to 5-6%, growth enhancements would be noticeable.
The low growth rate in agriculture during the 11th Plan is not an accident. The high profitability that the Green Revolution brought to Indian agriculture for the first time in centuries is now exhausted. Many in the Left point to the unequal distribution of land ownership and demand land reform to increase the size of the unit for many at the bottom of the ladder. But it may be too late for going down that path. The economics of rural India may be irretrievably transformed now. With real wages rising in the rural areas, thanks to MGNREGA, there will have to be restructuring in agriculture. The impending Bill on food security will, if anything, further sharpen the disincentive for the small cultivator to stay on in agriculture. Redistributing existing land is the option if you wish to retain a large population in agriculture. But if you want growth enhancing strategies as well as those that will give sustainable livelihoods, there has to be some rethinking.
The key to such restructuring is to toughen up the cost-price regime and give incentives for a new technological regime. The need of the hour is to eliminate inefficient cultivators, whether large or small. At the bottom end, it would take a vigorous industrial policy to absorb the uneconomical small cultivator and the underemployed rural worker.
The large cultivator who subsists on cost subsidies needs to be phased out. A radical rethinking of cultivation without subsidies but with a scope for reaping economies of scale may be the need of the hour. The age-old picture of India being largely rural and largely subsisting on
agriculture has to be rethought. The low productivity in agriculture is the root cause of widespread poverty. The answer to raise incomes in the rural areas is not to hand over bits of land to those at the bottom but to give them full time industrial
employment. The future of India has
to be urban and industrial. The New Manufacturing Policy (NMP) needs quick implementation.
The Green Revolution was a success story of the private sector, of millions of farmers who responded to incentives. The pace of growth has improved since 1991, thanks again to the same formula?give incentives to enterprising producers in the private sector. That turned the old Hindu rate of growth around. NMP continues the same by removing the disincentives that were put in place for the old
socialist dispensation. Yet this logic needs to be extended. What the latest survey on primary education shows is the revealed preference of the Indian parent for private education for her child. It is not a question of dogma for the parent but of results, and even the poorest spend money on education rather than consign their children to the horrors of public education where there is a choice.
So there is a duplication of expenditure and half the results. Why not provide suitable scholarships, vouchers or some form of income transfer to allow parents to choose schools they want for their children? The efficiency gains plus money saving would be welcome. What is needed is the separation of the agency ?purchasing? education and that providing it. The government can purchase, i.e. finance primary education, but does not need to provide it.
Yes we can do better.
The author is a prominent economist and Labour peer