BUDGET 2005

A neo-liberal obsession

VENKATESH ATHREYA

The Economic Survey has its heart with unbridled liberalisation; if it discusses deprivation, it is done out of political compulsions.

THE Economic Survey, the annual publication of the Union Finance Ministry placed in Parliament at the start of the Budget session, is intended to provide an assessment of the developments in the Indian economy during the financial year that is drawing to a close, and indicate the current state of the economy. It is also seen as providing a preview of the government's policies for managing the economy in the coming year as well as in the medium term. In recent years, and especially during the National Democratic Alliance (NDA) dispensation, the Survey has been increasingly divorced from the realities on the ground as experienced by the people in general and the rural and urban poor in particular. It has also served the apologetic function of legitimising the policies followed by the government of the day. While this year's Survey does devote greater attention to issues of rural and urban deprivation than has been the case in the recent past, it shares with its predecessors the feature of being cast squarely in the neo-liberal policy framework and its assumptions.

The Survey begins on a self-congratulatory note by highlighting the advance estimate of gross domestic product (GDP) growth for 2004-05 of 6.9 per cent released by the Central Statistical Organisation (CSO) on February 7, 2005, coming on top of a GDP growth rate of 8.5 per cent in 2003-04. It argues that this growth performance "indicates a possible ratcheting up of the trend rate of growth of the economy, from around 6 per cent to about 7 per cent per year".

The Reserve Bank of India's annual report for 2000-01 had talked of "the presence of a growth cycle in the Indian economy and a discernible downturn in the second half of the 1990s". Indeed, as C.P. Chandrasekhar and Jayati Ghosh (The Market that Failed, Leftword, 2002) have noted, "According to the RBI, this brings the average growth rate of the `growth cycle' over the 1990s to only 4.4 per cent." To read an emerging trend rate of GDP growth of 7 per cent from the data for 2003-04 and 2004-05, coming on top of the disastrous performance in 2002-03, is under the circumstances not just wishful thinking, but highly misleading and fraught with the pitfalls of complacency.

Continuing in the same vein, the Survey points to the 8.4 per cent annual growth rate of the index of industrial production during April-December 2004-05 as against 7 per cent during the corresponding period in 2003-04. Manufacturing too grew at 9 per cent in April-December 2004-05 as against 7.4 per cent in the previous year. The Survey sees the good performance of industry despite several shocks such as the rise in oil prices, the tsunami and a deficient monsoon "as a response to the reforms and manifestation of the sound fundamentals of the economy".

The Survey is especially happy with the performance of the equity market and calls attention to the fact that "India figures prominently in the list of the biggest (stock) exchanges in the world, measured by the number of transactions". It is not clear that this should automatically be a matter for celebration, nor is the link between the state of the stock market and the economic well-being of the vast majority of people obvious. The speculative character of the stock markets and the financial activities of foreign institutional investors (FIIs) are constantly underplayed by the Survey and the distinction between foreign direct investment (FDI) and FIIs is also deliberately underplayed.

In the euphoria over the growth performance of the last two years in terms of GDP, the disastrous performance of agriculture, the advance estimate of whose growth is just 1.1 per cent, has been largely glossed over. The Survey does draw attention to the decline in investment in agriculture since 1990-91. However, it sees the marginal increase in investment in agriculture from 1.27 per cent of GDP in 2002-03 to 1.31 per cent in 2003-04 as an indication of the reversal of the trend of decline.

Although the Survey does not altogether ignore the poor performance of agriculture, its proposed strategies to strengthen the sector are focussed substantially on such neo-liberal favourites as "microfinance" and the development of "efficient commodity futures markets". Even while it talks of the need for investment in infrastructure, especially in power, transport and communications, to facilitate the post-harvest preservation of perishables through the use of cold chain arrangements and improving access to and integration of markets, the thrust of the policy is on the removal of all regulations and the weakening of procurement systems in the name of decentralised procurement.

The Survey more or less assumes that the country is self-sufficient in foodgrains and the need is to move away from foodgrains and diversify, especially into horticulture and floriculture. This approach ignores the fact that during the decade of the 1990s, as has been repeatedly emphasised by scholars like Professor Utsa Patnaik, the rate of growth of foodgrains actually fell below the rate of growth of the population for the first time since Independence.

The Survey does not endorse strongly the strengthening of the weak public distribution system (PDS) for foodgrains and some other essential commodities, but prefers to speak of decentralised procurement and targeting of the PDS more sharply by resorting to the issue of food stamps to those identified as "needy". Needless to add, it makes no reference to such issues as the extremely unequal distribution of agricultural assets, including land. The Survey recognises that developing countries like India cannot match the level of support provided by developed countries to their agricultural production and exports, but its response to this problem is to argue weakly that "the only option available is to seek inclusion of those provisions in the [WTO] agreement, which would provide sufficient protection to Indian agriculture".

The bottom line of agricultural policy as enunciated in the Survey is: "Appropriate measures are needed to move away from the subsidy-based regime and to build a productive and internationally competitive agriculture structure." This prattle about "internationally competitive structure" flies in the face of the Survey's own recognition of the enormous support given to their agriculture by developed-country governments.

The Survey argues for a vigorous implementation of the (amended) Fiscal Responsibility and Budget Management (FRBM) Act, which commits the government to predetermined reductions in fiscal and revenue deficits, leading to the elimination of revenue deficit and the reduction of fiscal deficit to under 3 per cent by 2008-09. That this piece of legislation, which binds the government hand and foot and erodes seriously its capacity to respond to contingencies that may require urgent large-scale spending (such as natural calamities), is irrational and undemocratic is not recognised by the Survey. People voted in a new government in 2004 to respond to the crisis in rural livelihoods and other dimensions of deprivation in both rural and urban areas. Should the government use the excuse of the FRBM Act to limit its response to minimal support?

MORE generally, the Survey repeatedly privileges the market and its presumed efficiency over the demands of democracy. For instance, arguing that public provision of infrastructure has several problems, it states that such provision runs the risk of "being misaligned with user priorities and linked more to political interventions". So it proposes "public private participation" in the provision of infrastructure, but does not raise the question of cost implications or adequacy of and access to such provision for those sections of the population that are unable to pay for it. Its faith in the efficacy of markets (including financial markets, which are recognised even by pro-market economists as problematic) is almost unconditional. It thus recommends much greater freedom of operation for FIIs. It also argues for more steps to attract both FDI and FII. Lumping FDI and FII together, it states:

"Such investment triggers technology spillovers, assists human capital formation, contributes to international trade integration and particularly exports, helps create a more competitive business environment, enhances enterprise development, increases total factor productivity and, more generally, improves the efficiency of resource use."

All these claims have been questioned in the literature in different contexts even in relation to FDI, and many of these claims in relation to FII would not be made seriously even by pro-market economists!

Though the Survey does refer to many positive elements of the NCMP, such as the need to expand the scale of rural employment programmes, increase allocations to the social sector and for rural development, including agriculture, and the need to strengthen the public sector, these receive far less emphasis. Labour comes into the picture only in the context of a strong plea in the Survey for flexibility and exit policies, being in effect euphemisms for a hire-and-fire policy in a country that lacks any kind of social security or unemployment compensation.

In sum, the Survey rides two horses. Its heart is with unbridled liberalisation. But the annoying political compulsions of a functioning democracy force it to reckon with issues of deprivation and the need to address them in some way. The Survey leans on the liberalisation horse, believes that growth will thereby be delivered, which in turn, with some push from the government, will mitigate the worst forms of deprivation. Neither the belief in sustained growth as an automatic consequence of further liberalisation nor the expectation that such growth, if it occurs, can be channelled to help eliminate deprivation seems well-founded in theory or fact.

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