The Telegraph
Since 1st March, 1999
Email This Page
- In spite of liberalization, the Indian economy has to rely on the rains

A new year in the 21st century, but it could as well be another new year in the 20th. One hundred years ago, India was a picture of stagnancy; imperial power was reigning supreme, and the economic circumstances of the Indian people, having reached a nadir, remained unaltered between the decades. Agriculture, the principal economic activity, was responsible for as much as 80 per cent of national output; 90 per cent of the working population depended on it. In the event of good rainfall, farm output would rise and the overall economic situation would look up marginally. But bad years of monsoon alternated fairly regularly with good ones, rendering millions of countrymen into helpless victims of soothsayers, unsure of their future.

All this led to the coinage of the expression: the Indian economy is a gamble on the monsoon. It could hardly be otherwise, for British non-enterprise and detachment ensured that few irrigation works were available to augment the supply of water for purposes of cultivation in most parts of the country beyond what the rain gods would offer. Agriculture was the nationís lifeline; if the monsoon failed, the lifeline collapsed.

History is in retreat and it seems we are today back in the morass India was in the early part of the 20th century. Newspapers are full of panicky stories about how agricultural production, including the production of foodgrains, is expected to fall precipitately in the current year. This would be so, it is explained, for a number of reasons, each related to the climatic factor. The drought, which enveloped roughly two-thirds of the countryís agricultural tracts earlier in the year, stretched for long weeks. The rains then arrived; their distribution was however uneven over the different regions.

What is worse, the rains have once more played hookey in the post-monsoon season. The average rainfall in the final quarter of the calendar year 2002 has reportedly been at least one-third lower than the normal level. The consequences are likely to be disastrous. As for agricultural output, we now face the prospect of the worst ever year in almost a quarter of a century. As a result, government economists have begun to whisper the grim tiding, the annual rate of growth of gross domestic product is likely to shrink to as little as 1 per cent this year.

Once more, the Indian economy is turning out to be a gamble on the monsoon, and this despite the enormous resources put in to raise production and productivity during the first forty years following independence and despite the furious progress the economy has been claimed to be making following liberalization a dozen years ago.

Is all talk of economic growth sheer bunkum then' Without question, it is a major puzzle, and more so for an additional reason. We have been told on and off that, in view of the spectacular structural changes the economy has experienced in the recent period, agriculture now accounts for less than 30 per cent of aggregate national output; roughly 20 per cent is coming from industry, while more than one-half is actually being produced in the services sector, including trade, transport, banking and insurance, entertainment, tourism, and so on. Even if agriculture fares badly in a particular year because of monsoon failure, why should not the lag in output and income here be adequately made up by higher production in the sphere of industry and services'

You buttonhole the official economists and the truth will begin to emerge in halting driblets. Even though agriculture and allied activities produce less than one-third of the national output these days, close to two-thirds of the population are, we will be told, still dependent on the farm sector. Should farm output decline, the income of two-thirds of the Indian population is also bound to fall. Once that happens, the demand for goods produced by the industrial and services sectors cannot but shrink, thereby lowering the income of those dependent for their livelihood on the latter sectors. The stated structural transformation of the economy would thus seem to be little more than an illusion; agriculture continues to carry the load of two out of every three Indian citizens; were their condition to decline, the crisis would affect industry and services as well.

Something else is happening too. With galloping liberalization, employment in industry and services is not increasing, but diminishing. In fact, labour displacement, at least in the first phase of liberalization, is an overt strategy of its proponents. Such being the lie of the land, the possibility of transferring some of the load on agriculture to the rest of the sectors is pretty dim. Those government ministers who gloat morning, afternoon and evening over accelerated disinvestment and factory closures are a busy tribe; they do not have the time to mull over issues such as what happens to those who are forced out of the labour market by official policies, or what the total impact of these policies is on national income growth.

But to come back to agriculture. Why should it still be so utterly dependent on the rain gods' The answer is not far to seek. The capacity to water the nationís arable land, built through a series of irrigation works in the post-independence decades, is now fully used up.

With the initiation of economic reforms in 1991, public investment toward building new irrigation and water management systems, has come to almost a total stop. The government is under specific instruction from international financial institutions to put public investment on hold. The vacuum created in irrigation capacity has widened over the years. No private investor would ordinarily risk investing the huge sums that are required to build irrigation systems, since, the anticipated returns will be low. This is the reality for infrastructural investments of all kinds. We have to gamble on the monsoon because we have gambled on liberalization and globalization, which are yet to answer our prayers.

Public investment is taboo, private investors are chary. It is not just domestic entrepreneurs who are biding time. Much touted direct investment by foreigners is also of a shrivelling magnitude. Foreign investment in the major sectors of the economy in the year just ended, 2002, has been 70 per cent less than what it was in the preceding year. Gujaratís aftershock must not be underestimated.

Where do we go from here' No, we do not go anywhere, we remain stranded in stagnancy. Agriculture does not grow, growth in industry and services too therefore peters out. Moreover, it is government policy to bring about a planned reduction of employment in industry and services; such reduction is supposed to be the first step toward increasing all-round efficiency.

The economic outlook may be gloomy on most counts. Official quarters will nonetheless continue to be in an unflappable mood: have no fear, the government, the populace will be informed, has the security blanket of 70 billion dollars worth of foreign exchange assets. Such assets create their own liabilities though. The bulk of the foreign exchange holdings has been parked with us on a short-term basis, mostly in the pursuit of relatively high interest earnings and speculative gains. If the chronicle of one hundred years ago ó the Indian economy is the end-product of monsoon vagaries ó gets known to be equally relevant even today, the fly-by-night foreign funds that have moved in fleetfootedly would move out equally fleetfootedly. Developments of this kind are quite common all around the world.

The script laid out in the above paragraphs is, however, surely to be regarded as plain folly by the ruling politicians. Apart from bowing down to the advice from external agencies, the politicians listen only to the house economists, and the house economists repeat, parrot-like, what visiting dignitaries preach to them. The ruling politicians should, for a change, listen to what the heretics in the neighbourhood are saying. For it could be too late otherwise.

Between the Shiv Sena and the Vishwa Hindu Parishad goons, the urban working class has been impotent for the present. And the caste lobbies have been responsible for splintering the peasantry. Social unrest, resulting from economic uncertainties, is therefore not yet taking dangerous directions. But there is a limit to the immiserization that is acceptable to the poor sections even as there is a point beyond which confidence of foreigners in Indian economic performance will begin to dwindle, and fast. That frightening tomorrow could suddenly ambush us in the manner of the woods of Birnam.

Email This Page