The growth in the decade of the 1990s was characterised by a peculiar phenomenon of leapfrogging from the agricultural phase to services phase, bypassing the industrial phase. There was a sharp fall in the share of agricultural and the manufacturing sectors in the overall GDP. But India's future growth and prosperity cannot be based on the fortunes of the services sector alone. Such a growth pattern has damaging repercussions in the long run because a large majority of the population earns its livelihood from the primary and secondary sectors. Revival of the agricultural and manufacturing sector, therefore, holds the key to achieving the target of 8 per cent GDP growth rate during 2002-07 set out in the Draft Approach paper to the Tenth Plan.

After near-stagnation, the agriculture sector grew at an estimated 5.7 per cent in 2001-02 (which was essentially a monsoon led growth) from a negative growth rate of 0.2 per cent in 2000-01. The languishing productivity in this sector is a cause for serious concern. The foodgrain yield declined from 2.7 per cent during 1980-90 to 1.3 per cent during 1990-2001 and the cumulative growth in yields of all crops has come down from 2.6 per cent to one per cent during the same period. The reasons are not difficult to discern — excessive dependence on monsoon, fragmentation of land holdings, absence of mechanisation, limited public-private investments and inadequate rural infrastructure have constrained growth in this sector.

Reforms in the agricultural sector are vital because it fulfills three main objectives of economic development — output growth, price stability and poverty alleviation. The reform programme in the primary sector should include:

(a) creating an enabling environment for greater corporate sector participation;

(b) integrating wasteland reclamation with watershed development, rainwater harvesting and expansion of irrigation facilities;

(c) improving production and productivity from land by scientific adoption crop patterns and elimination of subsidies which distort cultivation process; and,

(d) ensuring remunerative returns to the farm and non-farm workforce with the objective of ending the recession in demand from rural areas.

Revival of the manufacturing sector is another important challenge for the reform process as the domestic economy opens up for free trade with the rest of the world. Our approach towards the industrial sector should incorporate following key strategies:

(a) building upon the areas of comparative advantage and diversifying into new growth sectors like information technology, genetics, and so on;

(b) developing capacities to compete in domestic and international market in terms of low cost and high quality outputs with a special focus on numerous small-scale firms and businesses which provide bulk of the formal and informal employment,

(c) establishing adequate and quality infrastructure necessary for attracting industrial investment and sustaining the pace of industrialisation; and

(d) streamlining administrative processes and regulations so that they aid in the proliferation of business in the country.

Acceleration in growth calls for higher levels of investments in critical socio-economic areas. This leads us to another fundamental question: where do we find the resources necessary for financing the reform and the development strategy in the ensuing decade? The resources will have to be found from within — through a conscious process of fiscal recovery and consolidation at the level of the Union and the States. Over the years, both the Centre and the States have seen an unprecedented growth in non-Plan revenue expenditure and revenue receipts have failed to keep pace. They have responded by resorting to larger borrowings to finance their plan investments, which has resulted in a steady build-up of internal debt coupled with rising burden of interest payments. Most State governments now have a negative balance from current revenues (BCR) which implies that they have to borrow to finance their revenue expenditure and then again to finance their plan expenditure. The fiscal misery is not limited to States alone but applies equally to the Centre as well. Budget deficits have a very damaging impact on the overall macro-economic stability as they not only pre-empt credit availability in the economy from development-related investments, but also force governments to progressively impose higher taxes to cover the growing burden of internal debt.

The fiscal imbalance has to be brought under control by reducing governmental non-productive/revenue expenditure in proportion to GDP. Revenue expenditure at the level of the Centre mainly comprises salary and pensions, interest payments, defence expenditure and devolutions to the states. For the State governments, the bulk of the revenue expenditure includes salary and pension commitments, interest payments, subsidies and grants to local bodies. What needs to be done is well known, but this does not make the task any easier, given the committed nature of expenditure liabilities of the Union and State governments.

Then, how do we generate enough resources to finance the process of development? First, the open-ended subsidy regime (explicit and implicit) will have to be replaced with one where the benefits are restricted to intended beneficiaries.

Second, disinvestment and privatisation of loss-making public sector units including those in the non-core areas, would help reduce the debt stock and also provide necessary resources for servicing the debt. Third, the capacity of governments to grow in size has to be decelerated by withdrawing from non-core areas and rationalizing the deployment of staff and restricting filling up of vacancies. Fourth, the tax administration will have to be modernised by introducing simple tax system, transparent administrative procedures.

Fifth, the quality of governance has to be improved so as to reduce avoidable transaction costs in the economy and enhance efficient allocation of resources. It cannot be disputed that the process of economic and fiscal policy reforms in India has been Union Government-centric with many states being reluctant and non-consenting partners in the entire programme.

This also explains the reasons for substantial inter-State variations in economic performance and respective outcomes. India's overall performance can be stepped up substantially once all the State governments discover a common agenda of reforms for development. Reluctance to join the reform process is understandable but any further delay in taking this decision will lead to a loss of growth resulting in the invocation of the "Law of Presumptive Governance'' — wherein the Government presumes that it has delivered and the people presume that they have received the services.

India's response to the crisis that emerged in the summer of 1991 was indeed remarkable when examined in the context of the severity of the problem confronting the nation. What was even more impressive is the fact that this was spearheaded by a minority government in power and supported by the passion and mass-anxiety about the fate of the nation sans reforms. Eleven years later, the mass-anxiety about the BoP crisis has faded but the process still needs to continue. The unfinished agenda is indeed large and in a way daunting. Our success in the reforms will, therefore, require not only assuming, but also demonstrating, that it is positively linked to the overall welfare of the people.\(Concluded)

(The author is Deputy Secretary, Finance Department, Government of Tamil Nadu. The views expressed are personal and do not in any way reflect the policies of the Government.)

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