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A tale of two rates of growth

Sharad Joshi

Reforms pepped up enterprise in the industrial and service sectors but not in agriculture and that explains the high rate of GDP growth and low rate of agricultural growth.

Recently, on a TV channel I saw an unusually in-depth debate on the rates of economic growth. The main issues were: Is there legerdemain (sleight of hand) in the calculation of the rates of growth? Why was India stuck for decades in the Hindu rate of growth of 3 per cent per year? How did economists suddenly start asserting that the actual rates of growth were in 7.5-9 per cent range and promised 9, 10 or even 11 per cent growth?

It is understandable that these issues were raised. There was a time when the National Agricultural Policy declared that a 4 per cent rate of growth in agriculture was a necessary concomitant of an 8 per cent GDP growth. The farm sector's rate of growth last year was just around 2 per cent, yet GDP reached 8-8.5 per cent. So, is there any sanctity about the 4 per cent rate of agricultural growth? And, is there any organic relationship between the rate of agricultural growth and that of GDP?

No change

The curious thing is that the man-on-the-street does not notice any improvement in his lifestyle since the days of the Hindu rate of growth. Also, not only has the rate of GDP growth gone up, the rate of growth of population has come down from about 2.5 per cent to about 1.5 per cent. Thus, the per capita income growth should have been higher than in the days of Hindu rate of growth. But nobody seems to be perceiving it.

There has been yet another major shift. Earlier, agriculture and manufacturing were the two major contributors to GDP.

Now, it is the services sector, which has overtaken agriculture, that is accounting for 23 per cent of GDP.

One phenomenon is quite curious, suspicious even. A Planning Commission document published around 1990 admitted that the ratio between the rural and the urban per capita income had deteriorated from 1.4 to 10.4 between 1951 and 1990. Now, it is claimed to be just around 6.4.

Perhaps, the earlier method of computation was not accurate; or the Planning Commission is using a more sophisticated methodology now; or, it may simply be because of shifting the basis of calculation from current to fixed price base for some and the other way around for others. But the fact remains that a number of things have not been fully explained.

No explanations

There has been very little explanation for the paradigm shift between the Hindu rate of growth and what one may call the Manmohan Singh rate of growth. There is still less explanation as to why the growth in the most predominant sector of agriculture has not shown any corresponding quantitative shift and much less qualitative.

The leading parties of both the national-level political alliances claim to have ushered in the paradigm shift.

The first Economic Survey presented by the United Progressive Alliance Government in 2004 admitted that the UPA had inherited a robust economy. The rate of growth was high, the rate of inflation was reasonably low, and the fiscal and budgetary deficits were at acceptable levels; in the last quarter of the National Democratic Alliance rule, GDP growth had actually crossed 10 per cent. But two years later, the UPA Finance Minister has changed his tone and is taking full credit for the current high rate of growth even while admitting to worries on the inflation and deficit fronts. The BJP leaders, understandably, lose no opportunity to claim that they initiated the upswing and that the Congress is only carrying the process further.

The reform era

The truth, probably, is that the credit belongs neither to the NDA nor to the UPA, but to Dr Manmohan Singh, as the Finance Minister under P. V. Narasimha Rao. The actual economic reforms undertaken by the Narasimha Rao government were perhaps modest and skewed. All the same, somebody had dared to proclaim the superiority of the market-based open economy and the harmful consequences of the licence-permit raj.

And though it shook up the edifice of Nehruvian socialism, the structures erected in the socialist era, including the Planning Commission, remained in place.

A signal to enterprise

However, the Indian entrepreneur had got the signal that his day had come. The reforms in industrial licensing and foreign investments produced quick effects and the country, which at one time was forced to pawn its gold stocks, saw a reversal in the Balance of Trade and foreign exchange flow into India. The Indian entrepreneur took advantage of the Foreign Direct Investment flows and the buoyant stock market to increase production and productivity. He also ventured beyond the borders and created an entity one had never thought possible — the Indian multinational.

Bypassing heavy industries and agriculture, the new Indian entrepreneur ventured into the services sector that quickly became the new engine of growth. But takeover of power by the UPA changed the equation a bit. For, by its very character, the UPA represents also a return to socialism in the form of an aam aadmi — the man-on-the-street, the worker and the farmer— strategy.

Farmer not enthused

Especially the farmer. For, there had been no change in the farm sector's rate of growth, with Phase 1 of the reforms barely touching agriculture. There was nothing in the post-1991 era to enthuse the farmer. In fact, quite the opposite. In the socialist era, there was, at least, an academic recognition that the poorest were associated with agriculture. Now, hardcore poverty has come to be associated with certain castes and communities. Poverty is defined not so much by the nature of economic activity as by the accident of birth.

The farmer is, thus, trapped in a losing cultivation system and its corollary — indebtedness, difficulty in quitting agriculture and ascendancy of non-agricultural communities in the countryside. Desperate, he lives on the edge or kills himself. Quite in contrast to the buoyant entrepreneurship of the non-agricultural sector.

Reforms pepped up enterprise in the industrial and service sectors but not in agriculture. And that explains the high rate of GDP growth and low rate of agricultural growth.

(The author, Founder of the Shetkari Sanghatana, is a Member of the Rajya Sabha. He can be contacted at sharad.mah@nic.in)

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