The Hindu Business Line : The growth factor

This volume is the third in the series brought out by Indira Gandhi Institute of Development Research, Mumbai. As in the previous two editions, this volume provides a comprehensive and contemporary treatment of the major issues confronting the Indian economy.

This report examines the emerging macroeconomic scene and future growth prospects and provides an in-depth analysis of macro-economic policy, monitory policy, financial sector developments, power sector reforms, food and nutrition security social infrastructure, poverty, education, health, environment, industrial pollution, climate change, and electoral cycles.

In the introductory chapter, Kirit Parikh provides an overview of 10 years of reforms and takes a look at the future. On the positive side he says, the rate of decline in poverty was faster during the decade of the nineties, there was continuing progress of literacy and a faster employment growth in manufacturing industries. However, though the Indian economy accelerated by more than one percentage point, it is still much below the potential. He further adds that the rosy picture of what reforms have accomplished may seem a little puzzling in the light of the problems confronting the Indian economy at the end of 2001.

Manoj Panda takes a look at macroeconomic developments and growth prospects. On the achievements' front, he cites higher economic growth, moderate inflation, and comfortable levels of stocks of foreign exchange and food grains as major candidates. On the failures side, he mentions the fragile fiscal situation, stagnancy in investment rate and erratic export performance. He makes out a case for increased Central Government investment, expansion of employment guarantee schemes to all parts of the country and generation of additional financial resources by cutting down subsidies, raising user charges and PSU disinvestments.

On the question of food and nutrition security, Prof. R. Radhakrishna addresses the following questions: How have we performed in providing food security in terms of outcome indicators? What policy alternatives are available to provide food and nutrition security to all? Shikha Jha dwells on domestic trade restrictions and food security. She is critical of the highly interventionist public policy towards food grain markets and restrictions on the movement of food grains across the states, and says, the removal of restrictions on private storage and trading activities would go a long way in promoting food security.

P.V. Srinivasan discusses the type of poverty reduction strategies that are likely to work. He explores the option of providing cheap food to families in selected districts with high concentration of such families. Jayan Jose Thomas reviews the state of Indian manufacturing. While the manufacturing growth was high in the decade of the 1990s as a whole, there are definite signs of slowdown in the growth of this sector in recent years. In a separate chapter, Kirit Parikh discusses the state of social infrastructure, which is as important as physical infrastructure. He stresses the need for greater public action for providing education, health care, water and sanitation services and the environment that promotes health and social safety nets.

Jyoti Parikh and Kirit Parikh discuss the reforms in the power sector. Though power is a critical infrastructure for rapid economic development, the pace of reform in this sector has remained painfully slow even as many states have been facing persistent power shortages, scheduled power cuts, unscheduled outages and fluctuating voltages. Attributing the sickness of the power sector directly to the financial sickness of SEBs, the authors suggest a framework to overcome the hurdles to restructuring and privatisation of the sector.

The same authors also discuss in a separate chapter the growing dangers of climate change and India's perceptions, positions, policies and possibilities. Ashima Goel discusses the need for co-coordinating monetary and fiscal policies and explores how best they can complement each other in a developing country like India.

She also examines if there is a role for the fiscal responsibility act. Susan Thomas and Ajay Shah deal with interest rates and their markets. They examine how bonds are priced and what needs to be done to develop efficient and liquid markets for bonds.

Sudhakar Reddy examines the urban challenge in the context of the rapidly deteriorating quality of urban environment while Vanish Kathuria and Haripriya Gundimeda examine the problems and policy options of dealing with the problem of growing industrial pollution.

The Report also has a chapter on Electoral Cycles and Economic Policies of Governments in India by Kausik Chaudhuri and Sugata Dasgupta. They have tried to examine how have elections to Lok Sabha have affected government policies in India. They have come to the conclusion that Central Governments collect less tax revenues in an election year while their current account spending remains unaffected. Both fiscal and budget deficits are higher in election years and Government investments in infrastructure are lower. The study also documents the overlooked costs of periodic elections and makes out a case for avoiding frequent mid-term elections.

One weakness of the otherwise excellent report is that the 15 chapters look like disjointed pieces. Also, they are not arranged in a proper sequence. One would have liked the Report to come out with a theme on the lines of the World Bank's World Development Reports. Despite this weakness, however, students of economics, academics and policy makers, would find the Report immensely useful.

Picture by K.K. Mustafah

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