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February - March 2005

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Indian Economy 2005 Report

Hopes and Concerns for the Indian Economy

It has just been six months since the Congress- led UPA government took office at the Centre. Unless any premature election comes about, the Indian economy is likely to shape up in the hands of the UPA government for the next four years or so. In the Common Minimum Programme, the government laid emphasis basically on two issues viz. ‘maintaining an 8% sustainable GDP growth’ and ‘reforms with a human face’.

In the interim budget, the existing government had put the thrust n developing the rural sector which is the life-blood of Indian economy. However, experts feel that the stand of the government will become more clear in its full fledged budget due for the next fiscal year.
It is undeniably true that smooth flow of Foreign Direct Investment is the need of the hour for the betterment of Indian industries as well as for the Indian economy to be in good shape. But hiking FDI is one of the major contentious issues that plague the government and threatens to snowball into a major controversy in the coming days due to divergent opinions emanating from within the governing alliance.

In this regard, Anup Singh, President, Indian Chamber of Commerce says, "Whether it is labour policies, cost of credit, infrastructure development or the state of finance, we need to get a clarification on the issues, jettison political debate and take steps on the ground".
When asked whether FDI should be more welcome in the manufacturing sector rather than the service sector, khokan Mukherjee, Secretary General, Bengal Chamber of Commerce & Industry said, "Instead of generalising FDI, need of FDI for a particular sector should be kept under consideration. As regards the GDP growth of the country, Mukherjee explained, "Unless agriculture accounts for a growth of 3 to 4 % and the manufacturing sector achieves a double digit growth, 8% GDP growth does not look very possible."

Infrastructure is another area where India is lagging behind other developing nations like China. On this issue Sunil Kant Munjal, Honda Chief and President of CII said, "The stress should be on making Indian companies globally competitive by providing world class infrastructure and reducing transaction cost." He also opined in favour of early implementation of the Value Added Tax system.

S N Nandi, President, Bengal Chamber of Commerce & Industry expressed high hopes regarding the future of three industrial sectors viz. Iron & Steel, IT and Textiles. According to him, India, being blessed with large mineral r3resources, should utilise its potential properly for the real boom in the iron & steel sector. He added, "A lot of investments is pouring into India in the Information Technology sector and West Bengal is also catching a large chunk of it which is a good sign. The textiles sector is expected to do better in the following years as the quota of textile export is being withdrawn in 2005." Budhadev Halder

(Courtesy B&E, Kol)



By Amalendu Guha, Professor/Director,
Institute for alternative Development Research,Oslo, Norway.

An economic growth cannot be positive and optimum unless the entire human and material resources are productively used. Again, to generate development in the neglected rural India, small production units have to be created to mobilise the masses in participatory functions, for the purpose of enabling production by the masses, so as to reduce the massive rural mass unemployment. It will create rural economic growth and rural economy may move towards sustenance, instead of being the dependent economic peripheries of the urban economy. The rural development of India was not only neglected by the Vajpayee government, but the other predecessor governments also. Manmohan Singh has diagnosed this lacuna properly and is expected to flow more financial and economic resources to rural India to raise the rural people’s sub-human living standard to the human standard. State governments are to concentrate on feasible rural planning than depending on paper planning and putting the accent on urban planning.

India lacks a modern economic infrastructure like China, that started from the level of economic underdevelopment and other economically advanced countries. India needs huge FDI, like China to modernise not only its economic structure, but to propel the entire national economy with competitive goals, means and measures. In order to have a world standard, globalised standard and WTO standard economy it has to modernize the economy through investment from the internal and external sources. It has to develop export-oriented industries, besides satisfying the internal consumption demand, in order to take its share of the cake from the world trade economy. China created a National Economism. India failed but has to do it. India of today is not the India of the fifties of the last century. It is irrational for the Indian Left –Front, in the 21st century perspectives, to oppose the inflow of FDI. If the Government is strong enough FDI cannot harm the economy and the labour. Dogmatism is the enemy of creating newer opportunities for human resources.

If India can create a new economic environment and reform the old economic thoughts, principles, measures and means, gradually, its economic prospects for 2005 cannot be thought to be bleak. Its economy is, more or less, stable. It can avoid the bubbling effect, as China had been experiencing, but succeeded with soft-landing by cutting down the overburdening parasites and practices. Unless the effects of development spread to rural Indian and the governments (both the central and the state)fail to perform its functions as equaliser, there cannot be seen any economic equality.

We mesmerize the people with economic growth instead of talking to them abut development. Growth is vertical in nature, in both production and distribution, but development is horizontal which meets the needs of the people, both by creating income and distributing the effects of development. Indian economic planning is to move in this direction. India’s rural mal-healthy population growth has not yet been arrested an rural human resources, are mostly kept out of processing. So, how can the quality of labour-input in the national production process be improved?

Both the state and private sectors have to create opportunities for the new entrants in the labour market.

India, for a reasonable economic growth, has to raise the level of national savings and transform the same into investment, in 2005. Otherwise, we do not see a projected economic growth of 7%. Of course, if the rate of inflation and the dwindling exchange rates are adjusted in calculation, the growth rate will be lower. The banking interest rates have to be increased in order to stimulate investment. Low rent cannot stimulate investment.

In the economic sector, Indian Railways need more decentralisation and rationalisation, in order to inject efficiency, quality and service-rendering to it. It is one of the world’s largest economic enterprises. Talk-culture in India’s entire public and private bureaucratic sector has to be replaced by work-culture, in order to create more efficiency and productivity. Indian administration can run more efficiently, by reducing the state bureaucracy by around 33%.

The surplus can be used in other productive sectors. China did it, why can India not do similarly? Of course, China’s centralism type of handling enable it. India’s democratic structure may hinder this process. The Trade Unions in China co-operate with the Government and the Government also adopts policies to improve their education, training and guaranteeing their rights. The trade unions of India have to think of duties also instead of demanding rights. There has to be a horizontal relationship between the duties and the rights. The social democracies of Scandinavia succeeded in doing so and that is why labour strikes are almost absent there and, hence, loss of working days and production. The best solution for India will be that the capital has to be humanised and the unproductive state sector economically effectivised.

India should not boast only of its IT sector, which is really advanced, and though outsourcing of the West brings some foreign exchange and income (though at relatively under-valued terms and conditions), it has to think of other economic avenues too. What percentage of net added population to one billion will be employed if other avenues for revolution in herbal/aromatic, agro and forest product are taken?

Last, but not the least idea which I had been advising to the governments of India since Rajiv Gandhi’s time, that India has to take the initiative of organising an economic co-operation zone, to be known as, INDIAN OCEAN ECONOMIC COOPERATION (IOEC) consisting of the African and Asian countries on the Indian ocean (starting from South Africa and extending to East African countries, West Asian countries of the Arabian Sea countries and ending with Sri Lanka, on the pattern of APEC (Asian Pacific Economic Co-operation). India was kept isolated from all the Economic Co-operation Treaties. Why should India not take this initiative from now on? The year 2005 can be a good year to move towards this goal.

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