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The Indian economy will grow at a steady pace if economic reforms package is taken to its logical conclusion. What is required, as of now is the broadening and extension of the economic reform process to other ministries, public sector enterprises, State Government and the village or panchayat level for the benefits of the reforms to percolate down to the poorest of the poor at the grass-root level.
Basically what is required to transform Indian economy into a successful one like other Asian economies is the tight necessity of intensifying efforts to strengthen public finances, improve infrastructural facilities and instil a sense of confidence and stability in the minds of the people about its merits and benefits ultimately.
This will enable private investment both within and outside to flow into various channels of the economy.
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Mr. Menon further stated that at no cost should the economic reforms be reversed or derailed due to political compulsions. There should be no room for any doubt about its continuation in the interests of the people and nation’s growth and welfare.
The International Monetary Fund (IMF) has expressed concern at the growing inflation rate in India and said nothing much has been done to stem the danger. The growth rate of money in Indian economy should be reduced to avoid the Mexico-like crisis. The Reserve Bank of India should become increasingly independent to help its macro-economic stability.
IMF was impressed at the scale of Indian saving since in most reforming countries there is a tendency to decrease private saving rates. IMF’s Deputy Managing Director, Mr. Stanley Fischer observed that “India should not go in for large scale borrowings if it wants to remain economically healthy…… external account debt should be in order and not mounting.”
Capital inflow problems has hit countries like Mexico, Latin American countries and partially it affected India last year (1994). This leads to sterilising inflows of money and could have adverse problems to export. Lauding the reform process, Mr. Fischer observed, “reforms should become deep seated for national interest and tackle the key problem of poverty alleviation.”
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Although there is an increase in growth process, it has not redressed poverty and that is ‘because of bad policy’. He further said that impact of reforms on poverty should be direct.
IMF in its recently released “World Economic Outlook” observed that India should step up fiscal consolidation efforts to alleviate inflationary pressures, strengthen national savings and reduce the burden on monetary policy.
The Declaration, adopted at the October 1994 annual meeting in Madrid, outlined a strategy of co-operation to strengthen the global expansion emphasizing the need for structural reforms to eliminate impediments to growth, fiscal consolidation as part of a medium-term strategy to reduce fiscal deficits and readiness to adjust monetary consolidations to maintain price stability.
But Dr. Manmohan Singh ruled out the apprehension of the relevance of Mexico-type crisis in India saying India’s balance of payments position had transformed “beyond recognition”.
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While inaugurating a two day Euro Money conference on “India : A Global investment partner” held in New Delhi on March 24, 1995, Dr. Singh observed that “Though it is fashionable to quote Mexico these days, let me assure you that structural adjustments and economic reforms have steered India clear of pitfalls that were witnessed in other parts of the world.”
Dr. Singh is of the opinion that growth rates and per capita income in Mexico had not been impressive prior to the crisis, whereas, India had proven its critics wrong with an estimated 6.2 per cent economic growth in the fifth year of reforms.
Comparing India’s foreign debt situation with that of Mexico, Argentina and Brazil, Dr. Singh quoted a World Bank analysis and stated that despite India’s $ 92 billion foreign borrowings, the real value of the debt was about $ 60 to $ 62 billion, with the country having reserves of more that $ 20 billion. But it was not so with Latin American countries where the real value neared the actual debt position.
The National Council of Applied Economic Research (NCAER) has recently observed that India’s rural market was emerging as one of the fastest growing market and called for reversing the “terms of trade” to make the environment friendly to farmers.
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It is quite right to argue that the benefit of economic reforms should percolate down to the poorest sections of the society at any cost. Reform measures should benefit the people below the poverty line even at the cost of people above the poverty line.
In this connection, Mr. Jagdish Shettigar, a member of Prime Minister’s Economic Advisory Council and Convener, BJP Economic Cell recently observed, “As far as the poorest section is concerned, the present state of development is a reflection on the failure of development efforts to reach them—whether in terms of the literacy rate or drinking water or health care. On the other hand, economic reform aims at alleviation of poverty through generation of employment opportunities”.
Reform in the insurance sector is actually for infrastructural development and consequent employment generation. Extension of reform to the agricultural sector has similar aims. Similarly, phasing out of administered price mechanism for petroleum products or rationalisation of other subsidies aim at conserving the much needed resource for Social sector development—drinking water, literacy, health care etc.
There is every possibility of people below the poverty line benefitting through economic reforms. But the people above the poverty line may be losers compared to their present status…………………… In near future, this hitherto pampered section may have to give up their dependence on government. Public utility service may become cost-effective; cooking gas may become costlier, fees for university education may go up substantially.
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Withdrawal of government support would mean spending a little more from one’s own pocket……………………….. Life would become a bit tough compared to the subsidized regime. But this sacrifice is a must in the overall interests of the less fortunate fellow beings.
Considering the present impasse, the following three additional reform measures can be suggested to strengthen the beneficial effects of economic reform towards alleviation of poverty and betterment of the lot of the downtrodden section of the society.
Firstly, since the key to solve the problem of endemic poverty in rural areas lies mostly in accelerating growth in agriculture sector, it is, therefore, imperative that the process of economic liberalisation be extended to this sector, since reform programme kept it untouched.
If the amount of resources or a part now being used in running PDS would now be invested for the growth of agriculture sector, this would be able to bring greater prosperity to the frame. Necessarily, this would become a more potent instrument of poverty alleviation than that of PDS.
Secondly, the future reform programme should give greater attention to the development of the rural infrastructure which includes roads, irrigation project, drinking water supply, primary health services and’ schooling facility for children for the next 5 to 10 years than it has in the past. In this connection, planners should give special attention on the backward states.
Thirdly, in order to implement the programmes of agricultural and rural infrastructural development in a effective way, the best agency is the village panchayat. The “Kerala Plan or Experiment” has shown the path.
It is found that if the local village bodies are given full responsibility to draw up their own development programmes so as to suit their local needs and are being provided sufficient funds for implementing those rural development programmes, it can bring a revolutionary change in the village scene within the shortest possible time.
However, the success of such development programmes in desired direction would depend on developing a sound system which will be able to check all sorts of leakages while implementing those programmes. Thus if the economic reform programme supplemented by aforesaid special measures are implemented properly, this would go a long way in consolidating our attack on poverty.
In a country of India’s size, diversity and complexity, no imported model of reforms could succeed. What we need is a typical Indian approach for massive social economic transformation in the framework of a democratic society.
However, the relevance of Mexico-type crisis in India is still a controversial issue. But there is no room for complacency. The situation in India is still not very clear and steady. Growing external current account deficit and soaring price level may lead the country towards a Mexican-type of crisis.
Thus, the government should take proper care and remain vigilant so that such worst type of economic crisis can be avoided and the economy can proceed on the growth path smoothly.
One good sign that is noticed is that the growing trend of external current account deficit is reversed and the same deficit which was over 3 per cent of GDP in 1991- 92, was less than 1.1 per cent in 1999-2000. This is no doubt a welcome trend.
Current Account Deficit and POL Imports:
The growing trend in external currency account deficit should be reversed further, which will go a long way to improve the economic health of the country. In this direction, one definite way to reduce the external current account deficit is to contain the growing demand and import of Petroleum, oil and lubricants (POL) experienced in recent years.
In India total consumption of petroleum products has increased from 58.0 million tonnes in 1989-90 to 119.6 million tonne in 2006-2007. Moreover, the total quantity of import of POL in India has also increased considerably from 26.05 million tonnes in 1989-90 to 85.6 million tonnes in 2006-2007, showing a growth of 228 per cent during these last 17 years.
Moreover, the import of POL alone constitutes 31.6 per cent of the total import bill of the country in 2011-12. At present, only 24.4 per cent of total consumption of POL is met by domestic production. It is also estimated that by 2016, the petroleum needs of the country is likely to touch 225 million tonnes considering its present growing demand.
Such a huge increase in the consumption of POL is an indication towards a policy of living beyond one’s means. Thus immediate steps must be taken seriously to contain this growing demand for POL. In this respect, both the new Government and the people in general have their big responsibility to realise and attain the desired goal of containing the consumption of POL.
In this direction, the Government’s policy of energy conservation should be supported by a policy of curtailment of non-essential and affluent POL consumption strictly to the lowest level. This requires public awareness both among the educated and illiterate masses of the country.
Moreover, in order to reduce the external current account deficit, the issue of curtailment of nonessential imports should also be taken seriously. Under the present WTO regime of globalisation, the curtailment of import through the imposition of higher import duty is not possible.
Thus the only way open to us is to follow the path of self-restraint individually by all people to restrict their demand for non essential imported articles. In this regard, the responsibility of the elite and middle class is definitely higher.
Prices:
However, in respect of another serious problem of souring price level, the country has experienced a respite in the current period as annual rate of inflation has declined from 11.0 per cent in 1994-95 to about 9.4 per cent in 2010-2011. This is no doubt a welcome trend. Thus the New Government should try to reduce this annual rate to 3.0 per cent in the years to come.
Moreover, the Indian rupee has experienced a sudden devaluation which hit a low of Rs 41.23 per dollar in May 8, 1998, the inflow of foreign direct investment remains low and portfolio investments have made the Indian financial markets unstable.
The financial health of the State Government is deteriorating and regional disparities are growing. Corruption is getting institutionalised and even the state is in retreat. Thus under this present context, what is required is to build a consensus on the kind of globalisation suited to India’s interests taking lessons from Mexico, China and India’s own past.
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