People's Democracy

  Mid-term Appraisal: Mismatch Of Analysis And Prescription

Following is the text of the speech made by CPI(M) Polit Bureau member Sitaram Yechury in Rajya Sabha on August 23 while initiating the debate on Mid-term Appraisal of the Tenth Plan.

A PROPER reading of the Mid-Term appraisal will actually paint a picture which is not every comfortable about the state of our economy. There have been candid admissions about many things that did not happen according to the Plan envisaged and, in fact, there is a candid admission that the GDP growth rate is, on an average, only 6.5 per cent as opposed to the target of 8.1 per cent. Since that is concerning the overall economy, that is not the subject matter of this discussion. But concerning agricultural, employment and poverty, the situation that is reported in the Mid-Term Appraisal is, indeed, very grave. My submission would be that what has been stated in the Mid-Term Appraisal and the solutions that have been suggested somehow do not match each other. The solutions suggested, I think, will only aggravate the problem further and it is actually like cutting the branch on which you are sitting. In order to explain this, I would only like to quote certain figures which are available in the Mid-Term Appraisal.

In fact, what has emerged is that the per capita availability of foodgrains for consumption in the country has declined from 177 kilograms annually in 1991 to an absolutely low level of 155 kilograms, when this Appraisal took place.

Now this is the drop that is taking place in terms of availability of foodgrains. If you look at the foodgrains output per head, the output has not dropped substantially. It has only dropped from 178 to 173 kg. But your consumption dropped substantially from 177 to 155. It means that the degree of poverty and the inequalities in the country are growing and this is a fact that the Mid-Term Appraisal has itself admitted. If this is the state of affairs in terms of availability of foodgrains, if you look at cereals, if you look at pulses, again the consumption and availability are also on constant decline.

The Mid Term Appraisal says, “The magnitude of deceleration in agriculture was such that although 2003-04 was a year of excellent monsoon and record production, per capita output in that year was less than in 1996-97 in every crop sector, except horticulture.” That means overall, in the first three years, your agriculture growth in the Tenth Plan has been only about one per cent. This brings us to the point that in order to tackle poverty or in order to generate employment, it is absolutely necessary that the investment in the agriculture sector, that we are planning to do, --- it is part of the finance minister’s assurance when he presented the budget for this year and also part of the National Common Minimum Programme --- we will have to enhance or increase the levels of investment.         

What is required is actually to increase very massively the levels of investment that will have to take place in agriculture. This is where I would like to quote from the Mid-Term Appraisal. It says, “The rural distress that has surfaced in many parts of the country is grounded in reality.” But we are happy that the Mid-Term Appraisal has come out candidly and it says that the problem of this rural distress was not purely a distributional one, it was entirely because of the lack of growth of demand, that is, the lack of purchasing power among the rural people in India and it is this point that we will have to seriously address. I will come to that subsequently. Unfortunately, the solution suggested, I am afraid, will only contract purchasing power further rather than expand the purchasing power in the hands of the people.

INCREASING UNEMPLOYMENT

If this is the level of the state of agriculture and agriculture investment, there is again a situation that you will find in terms of employment. Here again the Mid-Term Appraisal has candidly admitted that the employment situation in our country was abysmal in the sense that on the basis of the current daily status --- this itself is a nebulous concept, if one day in a year you are employed and on that day the survey takes place, then you are counted as employed; but even giving them the benefit of doubt for all that --- it is said that employment would have increased from 8.87 per cent in the base year 2001-02 to 9.11 per cent. Again, if you, as I said, with all the caveats and conditions, interpret these statistics, even then the Mid-Term Appraisal states that this increase in the unorganised sector in response to growth is actually a contraction in employment in the organised sector. A contraction in employment in the organised sector, which is for the first time being admitted in the official documents, of this dimensional scale, that has taken place means that we will not be in a position to tackle poverty. If the purchasing power in the hands of 70 per cent of Indians living on agriculture today is declining, if employment is actually not growing or declining in the organised sector and there is no regulation of this growth of employment or even security in the unorganised sector.

FAULTY PRESCRIPTION

In this sort of a situation, I think, the prescription for tackling these problems, was actually faulty. Why I say this, is keeping in mind the suggestions that have been made in order to improve the situation. Firstly, it was suggested that the water tariff must be increased. Now, all of us know that our agriculture is entirely water-dependent. But they have now said that water tariff will have to be increased. And what was suggested, and this is what makes it a little uncomfortable, is that the water regulators could set differential water tariffs of high water consuming crops, link with ground water status, etc. The whole point is that the water consumption, the water used by the Indian farmers, henceforth will not only be regulated but it will also be costly. In a situation where you are saying that agricultural production is declining, you are stagnating it at 1 per cent growth rate in the last three years; the purchasing power of your people is declining; your foodgrain production is declining; your foodgrain availability per head is declining, and then you want to increase your input cost, which will only make matters worse and compound the problem further. Therefore, the solution that the Mid-term Appraisal is talking about is actually going to accentuate the description that the Mid-term appraisal itself has given about the grave situation in our country.

ASSAULT ON PDS

Similarly, it is again talking in terms of rationalising the Public Distribution system or actually brining in public distribution amendment. There is a suggestion, which is very, very uncomfortable, namely, doing away with the BPL and the APL categories and bring down the universal Public Distribution System. And what is most disturbing here is that the document says, “There is a strong case for moving a uniform PDS pricing. In other words, the PDS should not be viewed as a poverty reducing instrument as much as an instrument for protecting the common man,…”—this is where an exclamation mark is required – “including the poor by stabilising the issue prices at a level which may imply only a limited subsidy but which insulates the consumers from sudden increases in prices due to scarcity.” Now, this would have been a prescription in a society which is not the current Indian society. What we have seen in the last four or five years is a vastly accumulated foodgrain stocks in our country, when a large number of our people were actually dying out of starvation and where there have been suicides. This is an issue which has been debated and discussed in this House on many occasions in the past. But why is there this mismatch? Why do you have foodgrains in your stocks and why are people dying out of hunger? This accumulation of foodgrains has happened not because of overproduction, but this accumulation of foodgrains is taking place because people who needed them do not have the purchasing power to buy them. And, it is this decline in the purchasing power that has to be addressed. But, instead of keeping this accumulation in mind, you are talking in terms of eliminating the BPL category altogether, revising upwards the prices of the foodgrains issued under the PDS which is only a step towards actually eliminating the Public Distribution System itself which will bring disastrous consequences in the light of growing poverty and unemployment that we have spoken of.

I think the second prescription that the Mid-term Appraisal talks about is also totally contradictory to its own analysis and appraisal of the situation in the country.

REDUCTION IN SUBSIDIES

The third is the question of fertiliser subsidy. It again talks and I quote: “In terms of rationalising the subsidy across different types of fertiliser use, etc. and combining it with mechanism that would ensure that all resources are ploughed back…” But the point to be noted is, curtailment in the name of targeting the fertiliser subsidies or targeting the subsidies to the required and needy farmers. If the policy prescription is to reduce the fertiliser subsidies in order to make the input cost higher, then again, you are negating the very analysis that you have spoken of where you have said that agriculture production is stagnating.

Now, apart from these three suggestions, the fourth one, I think, is an extremely dangerous one, which is, the question of subsidies.

RIDICULOUS SOLUTION  

There is a very dangerous formulation that the Mid-term Appraisal makes. It says that the question of funding public investment still remains; subsidy reduction is one way to find resources. Now, if you are going to find resources to increase investment in agriculture by cutting subsidies in agriculture, that is, robbing Paul to pay Peter, that is not going, in any way, to solve the problem. It is actually trying to tell the working class today that you accept voluntary retirement, or, you accept retrenchment, or, you accept being unemployed today so that there can be more employment tomorrow. I mean, this sort of a prescription is as ridiculous as that, that you are advocating unemployment for greater employment, and a person who is working is being thrown out of the job; that is a separate issue altogether. But, in terms of subsidies here, there is an implicit, or, an inherent suggestion that unless we reduce subsidies, or, cut subsidies, there won’t be investible funds. Now, this is very dangerous portent for our country’s future, because what we are talking about is that there are two types of subsidies. One is what we subsidies the poor; one is what we subsidies for increasing production; the other is also subsidising the rich by reducing your taxes, which you are collecting from them. A five per cent reduction in direct taxes is actually tantamount to a five per cent subsidy to those sections. But for them, we call it incentive; for the poor, we call it subsidy. And you want to cut this subsidy! And you want to increase that incentive! That is not acceptable in a situation where poverty is rising, where unemployment is rising, where agricultural production is stagnating.

Therefore, in sum, what I feel is that what has been suggested in this Mid-Term Appraisal has essentially been various methods. There is a very interesting chapter which says, ‘The Way Forward’. And in ‘The Way Forward’, much of the suggestions are actually taking us backwards. And one is focussed on reducing subsidies; the second one is that support systems will have to be rejuvenated, etc. which is a good thing; but public investment, and the funding of public investment, will have to be taken up by cutting subsidies. Now, therefore, what I would suggest is that what needs to be done, if I may be allowed to make some suggestions while initiating this discussion, is this.

But before I come to those suggestions, there is another disturbing aspect which the government must please take cognisance of. It is that in these first three years of the Tenth Plan, the actual utilisation of resources in the ministry of agriculture has only been 43.7 per cent, while it ought to have been 66 per cent, at least. This utilisation of the allocated resources is also not taking place when we ourselves admit that there has been a growth in poverty, growth in unemployment and growth in misery; and, we would compliment the government, for the first time, and very correctly, for actually, candidly, coming out with an assessment that there is rural distress in our country, and for admitting that this rural distress is not a distributional creation; it is not because of distributional problems; but it is because of declining purchasing power.

INCREASING PURCHASING POWER

So, if this is the analysis, with which I would entirely agree, then the prescriptions will have to be sought elsewhere, and not by reducing the subsidies for the poor, not by increasing the input costs, not by making the inputs available to them more dearly, and not by dismantling the public distribution system. In fact, on the contrary, given this reality, the utilisation of the public distribution system is the direction in which we should move, not in the direction of dismantling it. Now, given this, what needs to be done, something which we have been discussing with the Finance Minister, and I am glad that we can actually, formally, discuss it in the House, is that the only solution which I feel is both humane and based on sound economic theory --- I believe, it is also sound economics – is to restore the lost internal purchasing power through a universal Employment Guarantee Scheme. We would compliment the government for having introduced that in the Lok Sabha, even though, in a partial way; we would want a universal scheme in the urban areas also. But, as we all agree, to begin with, we think this is a very significant step and, I think, it is a very momentous time in India that for the first time in independent India the government is taking the legal responsibility --- and I underline the word ‘legal responsibility’ --- for providing employment. That is to be complimented.

But, this restoration of the purchasing power to our country’s nearly 700 million people --- these are the figures we are talking of --- has to be done, at least, by spending what I would reckon about Rs 65,000 crores to Rs 75,000 crores annually on rural development. This sounds very large, but if you look at it, it is only about 2.3 per cent of our GDP annually and slowly increase it in the next two years of the Plan to about four per cent, from this 2.3 per cent, then, I think, this problem that we have, and the dimension of the problem that we have, we can seriously start tackling it. Now, the moment we say this, naturally, the finance minister would definitely say, I am anticipating, “Where do we find our resources?” Yes, that is an issue on which all of us will have to put our heads together. But, we would only want to remind once again what has been part of the public domain of national discourse that the finance minister himself has said that there is so much of unpaid taxes, and he has promised to go after them to collect it.

We are really talking of huge amounts of unpaid taxes. You have these NPAs with our nationalised banks, the figures of which are now going up to over a lakh of crores of rupees. Now, over talks of crores of rupees of this sort of money is legitimately due to the government and to the public sector banks, I think, speedier steps must be taken to actually bring back this money so that part of that could be used. Even if all the NPAs will return and the government were to borrow from the nationalised banks, what we are talking of the rural development escalation in the budget will be fully net.

The analysis and the description given in your Mid-Term Appraisal concerning agriculture, concerning levels of poverty, concerning the unemployment situation can not be tackled except by increasing dramatically or even significantly your public investment in the country. That is the only way that we will have to move and I am sure that the UPA government will realise the situation that is happening in the world as well. In the last couple of years, there have been seven countries in the Latin America where the governments have changed precisely because of these issues. Now, we don’t want such a situation to befall this government in the country. Therefore, we would want them to seriously address these issues that I have raised.

I think, the other aspect which I, finally, want to place before all of you is, there is a need for increasing significantly public before all of you is, there is a need for increasing significantly public investment and reversing the trends in unemployment and poverty, increase in poverty also has to do a lot with the demographic composition of India today. 54 per cent of India’s population is below the age of 25 years. We are one of the youngest countries in the world. Now, this youth, which is the future of this country, if you are not able to give a proper diet and keep them healthy, if you are not able to give them proper education and train them --- this trained and healthy youth is the asset for India’s future – and if you want to develop this asset there is no other way except that the government to enhance its public investment. So, for India’s future, I beseech this government to take the analysis of the Mid-term Appraisal seriously and not to take its conclusions, or, in fact, to reject many of its conclusions which talk in terms of reductions of subsidies, etc., and work towards increasing public investment, and, I hope the government will heed our advice.

(August 23, 2005)