India’s aam aadmi is reeling, this time more, due to inflated prices of most essential items. The food prices have skyrocketed, esp. the onion proving to be the jeweled condiment of food now for the people. But this was coming, for a long time, and as usual, the power wielders at the Center had turned a blind eye towards it.
See, economics is a wicked play, in essence, between supply and demand. Harmony between supply and demand is de rigueur for the effective functioning of the economy. Inflation and deflation both are delicate acts of it, and even a slight alteration in them puts the economy in topsy-turvy. An inflation of around 3% is considered good, if not ideal.
So, that brings us to the Indian situation then? Should India continue to be on its path of so-called economic proliferation, while also being negligent towards common man’s needs? While the optimists say, both economic and inclusive growths are possible and it is the government’s apathy that is not letting it happen. I concur with this, but I also feel economic growth has temporal component, and it can’t happen overnight. Like everything else, economy needs sound fundamentals. I would like to touch upon both the aspects: ideal economy’s path and government’s role to lay that.
India is the 2nd most populous country (1.2 billion), and despite government’s best efforts, pun intended, it will be home to around 1.7 billion by 2070 when the population is supposed to get stabilized (As per National Population Policy (NPP), 2000). By the way, this is revised estimate by NPP, as the original plan was to get population stabilized to 1.45 billion by 2045. So, considering the flagrant lack of target-meeting initiative and zeal of NPP, I assume that India’s population will only get stabilized after reaching 2 billion. So, we have to feed 1.2 billion now and sometime later, about 2 billion people. Not only feed, we will have to provide them clothes, houses, infrastructure and as their income grows, recreation, tourism, industries, power etc. So, you can gauge the demand that is in front of us.
How do we confront this demand? We can grow well in one sector, say services, as software is already showing its growth potential. After all, Japan, Singapore etc are manufacturing or services economies only and they have boomed on those sectors only. Here is where we make the basic mistake of not realising that India is much different from them. India is still an agricultural country; 66% people depend on it directly or indirectly. And food is what, as stated above, we need first. We need to augment our agricultural sector. Green Revolution, after 1966, did help in making us self-sufficient in foodgrains, esp. wheat and rice. But the other items, vegetables, fruits, pulses, edible oils etc remained untouched. Our demands are increasing though, so self-sufficiency in even food grains won’t remain for long. The demand is for 4% annual growth in agriculture, but it has sadly been around 1% only in the last 10 years. It is a damning record, and self-immolating effort. I acknowledge that the work is arduous, as we can’t increase our agriculture land (51% of our total land which is already the largest share in the world), but this also shows we have room for improvement. If we sow this land with the maximum productivity, as in US, China etc, we can achieve the target. But it needs big initiatives. I was heartened to see a plan for Second Green Revolution in Eastern India in this year’s budget but hardly any work has been done there; instead there has been the signed deal to buy Lockheed Martin’s C130 and GlobeMaster’s 17J aircrafts. Ah! The worse part is there is a similar story for all the priority sectors of India.
What can the Government do? First, the long-term plan, as blatantly made obvious by the inflation, should be to achieve self-sufficiency in maximum food items, and also be guarded against any natural impediments. We can’t be a food-exporting country, so efforts to raise certain agro sectors to cater to exports are futile and unwise. This is a strong statement, but all these policies, viz. National Horticulture Policy, Agro-Export Zones etc are wrongly dreamt on exporting theme. While the indigenous items like tea, coffee, spices should be exported, I fail to realize why cotton, which is not even of good quality as per world standards, is grown so much and exported, not fulfilling the home demands of textile industries even. We need to prioritize our crop diversification so that we are able to feed our people and supply our industries.
Second, the procurement, issue and distribution management should be given a total overhaul. The whole system is a shambles, even if put mildly. More on it in the next blog.
Third, the monetary policy, controlled by RBI, should be aligned more to control this inflation. This is not going to be a long-term and that effective solution, but it can at least put a break on the cascading effect. I am waiting for the mid-quarterly review to be done by RBI on 25th Jan. RBI should increase the interest rates; let the FIIs and big investors pull out their money, and let the Sensex fall. It is needed.
Finally, this economic growth story of India might sound fanciful to the foreigners and even the natives. But no country can override its own people. Let us not be in so much hurry to attract money and sector in every sector, even our basics our not good. In my earlier blog, I had highlighted the importance of money generation in general and Indian exports in particular. The idea still remains; only thing needed is a little re-jig of our focus and little show of patience.
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