People's Democracy

AT the outset, I welcome the convening of this meeting of the National Development Council which has the approach to the tenth five-year plan as the main item of agenda for discussion. I feel that there could not have been a more opportune moment for interacting on the fundamental parameters of the plan on the basis of a consensus among the state governments and the government of India.

The observations of the government of West Bengal on the Draft Approach Paper have already been circulated. In today’s meeting of the National Development Council, in my brief response to the Approach Paper, I would like to highlight some of the selected areas of concern which, I think, should merit serious consideration and suggest a few alternative courses of action.

The Draft Approach Paper outlines two alternative growth paths --- a base line path with 6.5 per cent growth and a maximum path with 8 per cent growth. Since the growth during 1999-2000 and 2000-2001 is now estimated below 6 per cent, even the 6.5 per cent base trajectory is a significant step-up. The target of average GDP growth rate of 8 per cent over the tenth plan period, as it appears, is based upon premises almost akin to the package of economic reforms being imposed on the Indian economy under the IMF and WTO conditionalities. There is, therefore, an inherent difficulty with the approach itself.

While the public expenditure on capital formation and social sectors are being substantially squeezed in the post-liberalisation period, the question arises as to how resources are going to be mobilised to raise the investment rate. The Approach Paper says that this "calls for significant increase in domestic savings to nearly 29.8 per cent and the foreign savings (current account balance of payments) to 2.8 per cent from the present level of 1.5 per cent." The Approach Paper assumes that the problem lies at savings and not at the investment end. The two major suggestions for resource mobilisation made in the Approach Paper include disinvestment in the public sector which is expected to yield about Rs 17,000 crore per year over the first three years of the tenth plan period and downsizing government employment. Both the measures, I am afraid, ignore the question of social safeguard or social security. Moreover, the thrust on improving the efficiency to bring the incremental capital-output ratio (ICOR) down would inevitably call for reckless resort to privatisation and change of labour laws to the detriment of the workers.

The government of West Bengal is of the firm view that rapid agricultural growth and all-round development of the rural sector would largely depend on the implementation of land reforms followed by an effective system of decentralisation of power through the panchayati raj, which the Approach Paper ignores.

It is also strange that the entire problem of a huge backlog of unemployment has been dealt with perfunctorily by the Planning Commission, by restricting the target of employment to only the addition to the labour force over the tenth plan period. We would insist that the target of employment generation be correctly placed at a rate sufficiently higher than the rate of growth of the labour force so that the backlog of unemployment is significantly reduced within a definite time-frame. In the context of a lack of emphasis in the Approach Paper on rural self-employment, it also needs to be emphasised that, given the foundation of land reforms and panchayati raj, a range of measures involving non-land inputs should be considered essential to enhance agricultural productivity and provide for employment opportunities.

The agreement on agriculture signed by the government of India at the end of the Uruguay Round under the GATT will have far-reaching consequences in distorting the cropping pattern of the country, undermining food security as well as the interest of the major foodgrain producing states. The recent decision of the central government to withdraw quantitative restrictions in respect of more than 750 items, including agricultural commodities, has further aggravated the situation. Unless the entire decision is reviewed, the negative multiplier effect on agricultural growth as well as the overall growth of the economy will be enormous, with a drastic rise in the rate of unemployment.

Coming to the issue of disinvestment strategy of the central government, we would like to observe that the twin objectives of improving efficiency of the public sector by bringing in private sector participation and raising resources and reducing the fiscal burden on the exchequer can hardly be achieved. International experience also provides little evidence in support of this strategy. In India, the management of profit-making public enterprises is being handed over to the private sector by selling shares at throw-away prices, thereby losing access to dividends and profits from some of the cash-rich public sector undertakings. It is important to point out that there is a logical fallacy in assuming that the proceeds from privatisation can help the government by reducing its debt burden. In fact, the revenue loss from selling off profitable public sector undertakings is greater than the gain made by the government in terms of interest payments saved by lowering debt. In a demand constrained economy, public investment and expenditure based on fiscal deficit need not be inflationary and, thus, cannot be an excuse for selling off public assets.

Another important issue which merits serious consideration, is the public distribution system of essential commodities. An efficient public distribution system is known to act as a countervailing force against monopolistic forces in the trading sphere and, thus, help in containing inflation. We would like to say that, contrary to the government of India’s assumptions, there is no evidence that private trade is more efficient than the Food Corporation of India and that simplistic assumptions about the efficiency of private trade cannot apply in a country like India where foodgrain markets are not fully integrated. We have also observed with concern that the recent measures taken by the union government to dilute the Essential Commodities Act have left the enforcement authorities extremely weak against unscrupulous traders. We will therefore urge that in a regime of liberalisation and with the entry of large-scale private trade including multinationals, the regulatory law relating to essential commodities needs to be strengthened rather than weakened.

In the context of the above and considering that a fundamental objective of public distribution system is to provide nutritional support to the people of India, particularly to those living below the poverty line, we suggest that the public distribution system supply about 60 kg of grain per capita per annum or roughly half the daily cereal requirements as per the recommendations of Indian Council of Medical Research. The required quantity of grain should be available at a reasonable and uniform price to all those who wish to purchase from the fair price shops.

There is a reference in the Approach Paper on the loan burden of the state governments. What has not been mentioned explicitly is that most of this burden has been created by the central government itself. For instance, 70 per cent of the central plan "assistance" for most of the states is in terms of loans. Similarly, most of the central schemes such as RIDF, AIBP are either totally loan-based or have a significant loan component. These policies of the union government should be reversed so that the loan burden of the states can be reduced significantly with a corresponding fall in the revenue and fiscal deficits of the state governments.

It is unfortunate that without analysing these fiscal problems of the states adequately, there is a proposal in the Approach Paper to even withhold a part of the central plan assistance unless the states follow the pattern of economic reforms similar to what is being dictated by IMF-WTO conditionalities. We strongly hold that this part of the Approach Paper needs to be appropriately changed after discussion with the state governments.

Foreign capital has come largely on the current account because of its non-convertibility and mostly for the stock exchanges. The combination of free market philosophy and dominance of foreign capital in the share markets has led to successive financial scandals. A proper five-year plan should also include a scheme for exercising control over stock exchanges.

Lastly, I would like to re-emphasise that hitting the target of annual rate of growth during the tenth plan period would depend on a right choice of techniques and cost-effective methods in the implementation of plan schemes. What is urgently needed is proper decentralisation of powers --- both financial and administrative. This decentralisation has to be participatory by involving directly the people at the grass-roots level through the elected panchayats and municipalities which are accountable to the people. This process of accountable decentralisation can go a long way in achieving the plan objectives and it should find adequate recognition in the Approach Paper to the tenth five-year plan.