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Friday, Jan 02, 2004

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Opinion - Editorial


India Shining

HURRAH TO THE Indian economy. People across the country walked into 2004 with bugles and drums, crackers and whistles, perhaps intuitively aware of good tidings which morning newspapers brought with the GDP growth touching 8.4 per cent in the second quarter, something which has never happened in a long, long time. The ruling NDA coalition, sniffing another run in New Delhi, will brandish the India Shining brand, and why not? Detractors there are, as always, who query the feel good factor and deny its very existence; they are those who habitually decry every good tiding.

But even these cynics cannot deny that agriculture has grown at 7.4 per cent in the second quarter against a fall of 3.5 per cent in the corresponding previous period, making the critical difference. Industry and services sectors are looking to farmers getting into a buying spree and that, many suggest, has also sent the Sensex on an upward spiral. Strong farm growth has in the past set off GDP growth on a gallop and there is no reason why this should not continue to happen. If one agrees on this simple premise, it follows that the future of the Indian economy will continually depend upon the productivity of its farmlands and farm hands. There is nothing to suggest that the current performance will be sustained; last year GDP growth fell as rains were below expectations. We have a skein of a liberal industrial policy and the first draft of changes for the financial sector, but nothing for agriculture or the services sector. While farms are sacred for every political group in the West and Japan, for political and business managers in India, nothing exists beyond city limits. This bias has to go and 2004 is as good a year to start on this with perhaps bankers leading the way. Recently, the State Bank of India dropped its Prime Lending Rate and deposit rates by 0.25 basis points to effectively maintain spreads; this sleight of hand did not go unnoticed.

There is nothing to set apart one bank from another (at least on efficiency parameters) going by the manner the system has dropped the PLR. No bank has yet thought it fit to credit rate a farmer, even if he has never defaulted on a loan. In the case of corporates, bank loans are based on their balance-sheets including subsidiaries. For farm loans there is no concept of a family (women and children work on the land) for a comprehensive bank loan to cover the household with short- and long-term loans given to specific individuals. Today, a farm loan of Rs 50,000 costs 9 per cent apart from margin requirements while a corporate can pick up a bank loan of a few crore rupees at near to 6 per cent. This oddity has to go, and the RBI must take the lead. In addition, the inflation rate is touching 6 per cent, implying negative returns to depositors. For the hurrahs to continue, the economy has to be tended to and that is unlikely with political parties promising largesse in this election year.

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