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P M's I Day address-Promises to Keep, Mountains of Obstacles in the path - K. Ramasubba Reddy

ABSTRACT :

The Prime Minister made several promises in his Independence Day address to the nation. Many such promises were made in the past also. But there were mountains of obstacles in fulfilling these promises. For example, PMEGP announced by the P M during last I day is languishing and achievement is only half of the target. Agri GDP growth is only 1.6% and investment needs to be stepped up on a massive scale to achieve 4% GDP growth. There should be a system of accountability for outcomes and responsibility for results. Then only progress is possible.

‘Five years back, on coming to power, Prime Minister had made a commitment to giving priority to administrative reform and improved governance. But nothing worthwhile was achieved on the issue. Will there be any better results now? The public sector will never get the autonomy it badly needs because the netas and babus will not give up the powers of control over the units, both for personal benefit and for patronage. And, so long as the bureaucratic stranglehold remains, it will breed complacent, not “learning”, organisational cultures. Apart from fiscal resources going to the public sector and starving more vital social services and welfare schemes, it is high time we recognise that the government’s managerial/administrative capabilities are nowhere near performing the minimum functions a state needs to with a modicum of efficiency.’

Important promises made and the mountainous obstacles on the way of fulfilling the promises are detailed below.

1.‘Our economy grew at a rate of about 9% from the year 2004-05 to the year 2007-08. This growth rate came down to 6.7% in 2008-09 due to the global economic crisis. It is only a result of our policies that the global crisis has affected us to a lesser extent than many other countries.’

REALITY: Govt. Spending alone is spurring GDP :

“With the sharp deceleration in the growth of private final consumption expenditure (PFCE) in 2008-09, however, there was a shift in the contribution to growth from private consumption expenditure to government consumption expenditure. In real terms, the contribution of private consumption expenditure to GDP growth, which was 53.8 per cent in 2007-08, declined by nearly half, to 27.0 per cent in 2008-09, while that of government consumption expenditure was as high as 32.5 per cent in 2008-09, as against 8 per cent in 2007-08.”RBI

Unhealthy growth in Government Consumption :

Over Rs 3.30 lakh crore injected into the system through three stimulus packages helped in increasing GDP. High salaries to government employees and increased expenditure on the National Rural Employment Guarantee scheme increased the share of services sector. Most of the credit for growth goes to government spending, which almost tripled year-on-year to cross 20% in the last quarter. This component alone contributed to more than half the GDP growth. “What you're seeing is essentially the effects of government spending, which is showing up in social and community services and construction,” Crisil. As a result, the fiscal deficit widened to Rs 3,30,000 crore in 2008-09, or 6.6% of GDP.

More importantly GDP of community, social & personal services grew at 13%; the latter a reflection of the Sixth Pay Commission largesse unconnected to productivity and quality of service. In fact the growth in incomes employees in government service is more than 25% thus garnering a disproportionate portion of the GDP growth by a miniscule of work force, disproportionate compared to the share in GDP growth of the rest of the work force. This itself accounts for about 1% of the GDP growth. Surely, this can not be considered as earned GDP growth in the real sense and the cost is met out of tax money which otherwise could have been used for development of much deserving power infrastructure sector which would have added to the real income of the nation. At least 1% of 6.7% is nominal growth masquerading as real.

Comment: Can this phenomenon of swelling govt. consumption without leading to creation of productive assets or products or services be considered as real growth in GDP or inflammatory swelling of GDP with inflationary potential in future?

2. ‘I have always believed that India's prosperity is not possible without the prosperity of our farmers. This is the reason why our Government had waived bank loans of lakhs of farmers. We have increased the support prices for agricultural products by far more than ever before. We will provide all possible assistance to our farmers to deal with the drought. In view of the deficiency in the monsoons, we have postponed the date for repayment of bank loans of our farmers. We are also giving additional support to farmers for payment of interest on short term crop loans.’

REALITY: Debt waiver scheme only benefitted banks to cleanse their balance sheets. Farmers will benefit only if fresh loans are given. But no data is forth coming on fresh loans given to those farmers whose debt is waived.

The Standing Committee on Agriculture made very apt observations: that ‘Agricultural development has been ignored since 1990s. The prices of agricultural produce received by the farmers are lower than the prices of the same prevailing in a free market and are often less than the cost of cultivation. The focus of our development is more towards raising industrial production and recently on the service sector; this lop-sided growth of our economy is increasing the gap between the rich of the cities & poor farmers of the villages, Farmer centric policies which can only solve our food security and unemployment problem are not on the agenda of the successive governments.’

Increasing income gap between farm sector and non-farm sector workforce :

Agriculture share witnessed a sharp decline from 4.9% (FY 08) to 1.6% in FY 09. As agri sector GDP fell year after year since 1950s from 48% to 18% now, per capita income of agri workforce also dwindled sharply. Studies by the planning commission and others show that while the income ratio between agri workers and non-agri workers during 1951 was 1:1.8, it got widened to 1:2.8 by 1984, it further widened to 1:5.2 by 2004.

It is estimated by the Centre for Development Economics that whereas agricultural sectoral GDP stood at nearly Rs.3 lakh crore in 2002-03, it will rise to no more than Rs.4 lakh crore (+33%) a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9 lakh crore to around Rs. 20 lakh crore (+120%), further widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6 lakh crore to Rs.16 lakh crore. The disparity between agri and non-agri sectoral GDP is going to increase from 1:3 in 2003 to 1:5 by 2012.

The Eleventh Plan candidly confesses: “GDP per agricultural worker is currently around Rs.2,000 per month, which is only about 75% higher in real terms than in 1950 compared to a four-fold (400%) increase in overall real per capita GDP.”

3. ‘We have adequate stocks of foodgrains. All efforts will be made to control the rising prices of foodgrains, pulses and other goods of daily use.’

REALITY: ‘Biggest failures of public policy - inability to step up production of Pulses’‘ One of the biggest failures of public policy has been the inability to step up production and availability (including imports) of pulses. It is a tragedy that in a country almost entirely dependent on pulses as a source of protein, the daily per capita consumption has gone down in a 50-year period (1957-2007) from 72 gm to 36 gm. The agricultural revolution has completely by-passed pulses. The worst is yet to come and the nation will pay a heavy price for this neglect.’ S.S.Tarapore

According to a recent paper presented to the ministry of agriculture by the National Centre for Agricultural Economics and Policy Research (NCAP), the minimum support price fixed on the basis of cost of production rather than demand and supply and liberal polices of ‘zero duty on import’ are obstructing production of pulses in the country.

The NCAP paper also identifies that growing pulses is less profitable compared with other crops and it has become a hurdle in increasing production. “With the pulses being grown by 70% of small farmers and 18% of medium farmers, the government must provide support for seed multiplication and change MSP regime is in parity with the retail prices for augmenting yield.” During the last two decades, total pulses availability in the country increased only 1.39 per cent (CAGR), the population has increased by 1.8 per cent. In contrast, pulses imports have grown (CAGR) 10.38 per cent.

Low import tariffs have helped increased imports, including the June 8, 2006 decision of allowing pulses shipments into the country duty-free.

Dal stocks rotting in ports, while retail prices shoot up:
At a time when prices are sky rocketing, 1.36 lakh tonnes of imported pulses and 4.83 lakh tonnes of raw sugar worth Rs 1,600 crore are lying at various major ports for the past two months.

4. ‘We will have to adopt modern means to be successful in agriculture. We will have to make more efficient use of our scarce land and water resources. Our scientists must devise new techniques to increase the productivity of our small and marginal farmers.
More attention will have to be paid to the needs of those farmers who do not have means for irrigation. The country needs another Green Revolution and we will try our best to make it possible. Our goal is 4% annual growth in agriculture and I am confident that we will be able to achieve this target in the next 5 years.’

REALITY: “The objectives of the Scheme (Rainfed Area Development) inter-alia include development of about 22 lakh hectares of rainfed area in five years. Considering that the total rainfed area under cultivated in India is 85 million hectares the target fixed for RADP seem to be minuscule (only 2.6%) of the magnitude of area needs to be developed proves Government’s non-seriousness towards rainfed area agriculture. At this rate more than 100 years will be required to cover the whole of 85 million hectares under RADP.” Standing Committee on Agriculture.

Reducing Investment in Farm Sector :

The Gross Capital Formation (GCF) in agriculture as a proportion to the total GDP has shown a decline from 2.9 per cent in 2001-02 to 2.5% percent in 2007-08. As Gross Fixed Capital Formation is estimated at 35% of total GDP, 18% there of being agri sector’s share in GDP, should be invested in improving agri infra, This works out to more than 6% of the total GDP which means investment in agri infra should be doubled. The farm sector attracted Rs 68,000 crore investments in 2007-08. Out of which, Rs 47,000 crore was invested from private firms and Rs 21,000 crore from public sector, according to data submitted in Parliament. Private investment exceeded the public sector. The government said there is a need to enhance investment in the agriculture sector to achieve 4 per cent growth during 11th Five Year Plan.

Diversion of Rs 1 lakh crore rural deposits to Metros :

Banks’ Credit Deposit Ratio as on March 09 in Rural centres is only 57% as against high Metro C/D ratio of 87%. f the same Metro C/D ratio of 87% C/D ratio were maintained in rural branches, the rural advances would have been Rs 3.18 lakh crore instead of Rs 2,09 lakh crore. Thus a huge chunk of rural deposits to the extent of over Rs 1 lakh crore was diverted rural area to give loans in metro areas. This trend has been continuing for decades. This is inequitable and rural advances should be at least in the same C/D ratio of Metros. The farmers could have been saved from the clutches of the moneylenders charging high interest rate of 24% to 36% per annum. The additional Rs 1 lakh crore loans that could have been given for farming and running rural enterprises would have generated twice the income and more employment opportunities than when the same loan amount given to traders, realtors and NBFCs in Metros.

5. ‘It is our ardent desire that not even a single citizen of India should ever go hungry. This is the reason why we have promised a food security law under which every family living below the poverty line will get a fixed amount of foodgrains every month at concessional rates. It is also our national resolve to root out malnutrition from our country. In this effort, special care will be taken of the needs of women and children. We will endeavour to extend the benefit of ICDS to every child below the age of six years in the country by March 2012.’

The Real ‘Nutrition-Needs’ Index :

According to National Family Health Survey (NFHS), conducted in 2005-06. 46 per cent of children below three years are underweight; 33 per cent of women and 28 per cent of men have a body mass index (BMI) below normal; 79 per cent of children aged six to 35 months have anaemia, as do 56 per cent of married women aged 15-49 years and 24 per cent of married men in that age group; 58 per cent of pregnant women have anaemia. Further, these indicators have scarcely changed, or have changed very little, since the previous NFHS in 1998-99. In terms of calorie consumption, the picture is even worse. According to the National Sample Survey Organisation’s (NSSO) large survey of 2004-05, in the period from 1993-94 to 2004-05, the average daily intake of calories of the rural population dropped by 106 kilocalories (4.9 per cent), that is, from 2,153 kcal to 2,047 kcal, and that of the urban population dropped by 51 kcal (2.5 per cent), that is, from 2,071 to 2,020 kcal. The average daily intake of protein by the Indian population decreased from 60.2 to 57 grams in rural India between 1993-94 and 2004-05 and remained stable at around 57 grams The all-India averages do not capture the wide variation across States and even within States. For example, the India State Hunger Index 2008 (brought out by the International Food Policy Research Institute, or IFPRI) shows very large differences across 17 major States, ranging from 13.6 for Punjab to 30.9 for Madhya Pradesh.

Rural Urban Divide in Health Care : In urban India, which is the locus of the corporate hospital boom, there are 179 hospital beds per 100,000 people. For rural India the ratio is: 10 beds per 100,000 people.

6. ‘We need a new culture of energy conservation. We also need to prevent the misuse of water. We will pay more attention to programmes for water collection and storage. "Save Water" should be one of our national slogans.’

Reality: Country faces shortage of 15,000 MW
Government said in the Rajya Sabha that there were difficulties in meeting targets of thermal power generation because of shortage of equipment and manpower and pointed out that the country faces a shortage of 15,000 MW.

Lesser use of Irrigation potential created :

The total irrigation potential in the country has increased from 81million hectares in 1991- 92 to 102 million hectares up to the end of the Tenth Five Year Plan (2006-07). Of the total potential created, however only 87million hectares is actually utilized. Under AIBP, State Governments were provided Rs. 28,000 crore as Central Loan Assistance (CLA)/grant for major and medium projects up to December 31, 2008. So far 91 major and medium irrigation schemes have been completed. In 2008-09, Rs. 2,800 crore has been released for AIBP for major and medium irrigationschemes up to December 2008.

States fail to utilise 14.8 million ha of irrigation potential :

With scanty rainfall hampering sowing of summer crops, studies by four IIMs have revealed that various states failed to utilise nearly 15 million hectares of irrigation potential created by the end of the Xth (2002-07) Five Year Plan. The studies found that out of 102 million hectares of irrigation potential created by the end of the Xth Five Year Plan, 87.2 million hectares were utilised -- leaving a gap of 14.8 million hectares. Studies have observed that the gap between the irrigation potential created and utilised has widened considerably through various plans. The studies had found lack of proper operation and maintenance, incomplete distribution system, changes in initially designed cropping pattern and diversion of irrigable land for other purposes as the main reasons behind widening of the gap. PTI120809
According to study by IIM, 14.5 mn hectares of irrigiation potential is left unutilized.

7. ‘However good our programmes and schemes might be, their benefit will not reach the public till the government machinery is not free of corruption and till it is not effective in their implementation. I would like our public administration to be more efficient so that programmes for public good can be implemented faster. We need to improve our delivery systems to provide basic services to our citizens. We have to make special efforts to strengthen the administrative machinery for our rural programmes. Those who live in villages and semi-urban areas should get services similar to the residents of urban areas.’

REALITY: Recently, a Hong Kong based consulting firm undertook a survey of the efficiency of civil servants in 12 Asian economies. Singapore came first and India last. Too much of our bureaucracy is not only inefficient and corrupt, but it is all-pervasive in its influence; retired bureaucrats man even most of the supposedly independent regulators. Another characteristic of our bureaucracy is its complete lack of accountability for anything it does or does not do.

Reality: For one rupee worth of income transfer to the poor, Government of India spends Rs 3.65, As per the report on ‘Performance evaluation of targeted public distribution system’ by the Planning Commission in 2005. It means that one rupee of budgetary consumer subsidy is worth only 27 paise to the poor. No doubt it is partly due to the inefficiency of the system. Yet one has to realise that the organised sector and the government administrative machinery cannot effectively reach the poverty groups at low cost.

FCI’s inefficient procurement operations have been documented, and leakage and wastage are endemic and the amount is estimated to be Rs 10,000 crore per annum. Imperfect delivery has been documented in issuance of BPL and Antodaya cards. These are particularly acute in poorer states and districts. At a NDC meeting in late 2007, the then Finance Minister remarked that cost to deliver one rupee of PDS benefit to poor is Rs 3.65. In a paper published in EPW in 2008, three Indian economists computed that if the entire food subsidy was converted into direct cash transfers to BPL households, each such household would have enough income to purchase

Significant dilution of the NREG -CAG Report :

NREGA suffers from many ills leakages and delays in wage payments, non-payment of statutory minimum wages, work only for an average of 50 days per annum as against the promised 100 days, fudged muster rolls, few durable assets and even fewer sustainable livelihoods.

The CAG had found significant dilution of the NREG because of poor record maintenance, delayed payment of wages and non-payment of unemployment allowance. The audit had noted that “systems for financial management and tracking were deficient, as monthly squaring and reconciliation of accounts at different levels to maintain financial accountability and transparency was not being done”.

NREGA BENEFITS NOT REACHING PEOPE’: NCAER STUDY :

A study by National Council of Applied Economic Research (NCAER) and NGO Public Interest Foundation (PIF) has found many flaws plaguing the UPA government’s flagship National Rural Employment Guarantee Act/scheme (NREGA), including funds not reaching its intended beneficiaries, significant inflation in official numbers regarding creation of actual jobs and man-days as well as red-tapism blocking proper implementation. “Cases of corruption, fudging in muster rolls, discrepancies in work days and payments have been reported in almost all studies,” the NCAER-PIF report said, adding, “Fraudulent payments and anomalies such as extraction of money have also been reported in (wage) payments through (bank, post-office and other) accounts. The official estimates of wages realized by workers are in fact inflated because the actual wages received by workers were much less than what is shown in the official documents. The study found that in a large number of districts in several states, the number of households that have been issued job cards is more than the total number of households in these districts. This is particularly true regarding SC and ST households, it said.
Referring to fudging of numbers, the report said “the excess coverage obviously raises serious disbelief about the reliability of these data and confirms that the numbers in official records are inflated.” There were delays in providing job cards, the study said, adding that field reports also found that many households demanding employment did not get employment. Workers were not paid any compensation in many cases involving delayed payment beyond the stipulated period of 15 days. Also, the claim of provision of 100 days of employment to 10% households in the official data is doubtful.

The report said works carried out under NREGA and their implementation have also suffered due to anomalies in the selection of works, poor execution, inflated estimates, inadequacies in measurement, cost overruns, and delays in release of funds by states. Very little is known about the quality of assets created under the scheme, it said, adding questions have also been raised about the long-term usefulness of these assets.

PDS-Bogus cards half of total cards :

As per government records there are 6.5 crore BPL cardholders in the country. At the same time, states have distributed about 12 crore BPL cards. Annual subsidy burden on the government would come around to Rs 50,000 crore. For BPL families with low purchasing power, wheat and rice are distributed at highly subsidised prices of Rs 4.15 a kg and Rs 5.65 a kg, respectively. For the 2.43 crore poorest families among the BPL, categorised under the Antyodaya Anna Yojana, wheat is distributed at Rs 2 and rice at Rs 3 per kg.

Public Funds Squandering Undertakings-Losses Rs 1 lakh crore :

CAG reports accumulated losses of Public Sector Undertakings were Rs 94,428 crore against equity investment of Rs 15,762 crore as on March 31, 2008, making their combined net worth negative at Rs 78,665 crore. Air India losses are mounting to Rs5,000 crore and the government is footing the bill.

Managerial laxity :

The CAG found several PSUs operating with “managerial inefficiencies” anomalies like undue payment to employees, wasteful expenditure, non-compliance to law, idle investment and blocking of funds irregularities which added up to a whopping Rs 1,847 crore in just their 2007-08 accounts.

NOTE: Year after year CAG submits reports of mal- functioning of Public Sector Undertakings. The report is submitted to the parliament. The parliamentarians pay scan attention to the same. And Government’s inaction emboldens the Public Undertakings to squander more public funds. Why is this happening? Because politicians and bureaucrats use these PSUs as to aggrandize themselves and with out them and they cannot dispense favours to their minions. The only way out is to follow the sane advice given in the Economic Survey.

P.Sainath: “Revenues foregone under the central tax system.” “The estimate of revenues foregone from corporate revenues in 2008-09 is Rs. 68,914 crore. By contrast, the NREGS covering tens of millions of impoverished human beings gets Rs. 39,100 crore in the 2009-10 budget.

Remember the great loan waiver of 2008, that historic write-off of the loans of indebted farmers? Recall the editorials whining about ‘fiscal imprudence?’ That was a one-time, one-off waiver covering countless millions of farmers and was claimed to touch Rs. 70,000 crore. But over Rs. 130,000 crore (in direct taxes) has been doled out in concessions in just two budgets to a tiny gaggle of merchants hogging at the public trough. Without a whimper of protest in the media. Imagine what budget giveaways to corporates since 1991 would total. We’d be talking trillions of rupees.”

India’s long experience in providing public services is extremely unsatisfactory. We have too many government schools where teachers don’t show up (or don’t bother to teach), too many primary health clinics with absent nurses and paramedics and too many police posts which citizens fear to approach. As Rajiv Gandhi pointed out long ago, corruption and leakages plague most public programmes and services, including those aimed at alleviating poverty. What’s more, most of the available evidence suggests that matters have worsened since his observations, as public services have become increasingly politicised and standards of probity have fallen steadily.

Top 100 tax defaulters owed to the exchequer a whopping Rs 1.41 lakh crore.

They account for around a fifth of the total tax collections in a year. What is distressing is that, of the Rs 103,808 crore of tax arrears as on March 31, 2008, nearly 40 per cent is categorised as ‘amounts not under dispute’. Surely, this suggests sluggish tax collection machinery; the large amounts under dispute (Rs 64,000 crore, or over 1 per cent of GDP) also suggest that there is plenty of scope for speedy dispute settlement and revenue realization.

Field study by CUTS International in 2008 found that in many rural areas the systemic deficiencies such as selective information flow and corruption often result in entire funds and deliveries under development schemes being siphoned off. The evolution of impregnable networks in rural areas comprising local elites, officials and elected representatives that manage information on different programmes creates a vicious circle to ensure that development schemes do not deliver to the targeted beneficiaries.

150 national and 32 state highway projects behind schedule :

One hundred and fifty projects under the National Highway Development Projects and 32 with the State Public Works Department, each costing more than Rs 5 crore, are running behind the schedule, the Rajya Sabha was informed.

CONCLUSION : The above narrative brings to light many of the mountainous obstacles faced in the path of progress. Herculean efforts are needed to lift the Indian economy from the morass of corruption, inefficiency and wasteful expenditure. It requires a lion hearted leader to inspire the people and move forward the government juggernaut. We trust that our P M Dr. Manmohan Singh is equal to the task. Every citizen should take part in this difficult task of moving the economy to higher gear of development and ensuring equitable distribution of the fruits of economic development proportionate to the real contribution made by each sector and sub-segment of the economy.