Indian Economy, 5th edition (8 page)

1.
Economy will be able to achieve food security with the increase in the agricultural production. Besides, the agricultural surplus will generate exports in the globalising world economy benefiting out of the WTO regime.

2.
The challenge of poverty alleviation will be solved to a great extent as the emphasis will make agriculture a higher income-generating occupation and induce growth in the rural economy by generating more gainful employment.

3.
The situation of India as an example of ‘market failure’ will cease.
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Though the world outlook towards agriculture sector had changed by the early 1990s, the Government of India announced the policy shift more than one decade later. There is now a consensus among the experts, policy-makers and the governments alike that for development to take place in India it is necessary to strengthen the sector on which the masses depend for their income and livelihood. More than 65 per cent of the Indian population depends on agriculture and allied activities while only 18.5 per cent of the gross domestic product (GDP) comes from the sector.
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It means that above 65 per cent of Indian population shares just 18.5 per cent of the gross income generated by the economy. The rest of the population that does not depend on agriculture (i.e. below 35 per cent) share 81.5 per cent gross income generated by the economy. The gap of income shows the lower purchasing power of the people involved in agricultural activities—which is more than two-third of the total population. How market can succeed in such a situation and what to ask of the market economy. As the economy was more in favour of market economy, the situation of market failure needed to be arrested The income of the population dependent on the agriculture sector needed strengthening. Though the effects of the policy shift are not clearly visible yet, we may glance at the major policies which are intended towards the strengthening of the agriculture sector:

(i)
New Agriculture Policy, 2000:
The policy mainly intends to convert agriculture into the category of industry so that the population dependent on it could earn income and profit out of agricultural activities with the same pace and mode as the industry has enabled the population dependent on the industrial activities.

(ii)
National Agricultural Insurance Scheme, 1999–00:
The new insurance scheme launched for agriculture intends to provide insurance coverage to all agricultural activities right from seeds, sowing, harvesting to marketing risks—a necessary support to which the industry had access but agriculture had no reach.

(iii)
Exim Policy, 2002–07:
The Export Import Policy, 2002–07 for the first time accepted at the policy level the long-standing opinion of the experts—that a one per cent increase of the agricultural products in India’s exports supplies additional Rs. 8,500 crores to the agricultural sector. Many policy initiatives were taken to increase the share of agriculture in the total export of the economy.

(iv)
Second Green Revolution:
A major programme to boost the agricultural production with the sustainable approach was launched in 2004 with an initial corpus of Rs. 50,000 crore.

(v)
Bharat Nirman:
A major programme to focus on the agricultural and rural infrastructure (totalling six items) was launched by the Government in 2005 with the ultimate intention of strengthening rural economy.

(vi)
Others:
Similarly, many time-bound programmes and schemes have been launched since 2002 which focus on the agriculture sector and the rural areas from different angles—education, electricity, wage, as well as self-employment, healthcare, communication, etc.

Looking at the size of population depending upon the agriculture sector, comparatively longer government apathy to the agricultural realities and the late start of reform process in it make things very tough to effect visible changes in the sector in a short time. It also requires comparatively longer period of time. We will then be able to see the visible results of the policy shift as well as the results of the economic reforms in the agriculture sector provided there remains a continued political commitment to the cause. One positive development of the last decade has been that India has been able to reach a silent political consensus on some of the very important aspects of development (for example—on the process of economic reforms, foreign investment, deregulation, social justice, emphasis on agricuture, priority to the social sector, etc.) which gives us hope that the economy will be able to take care of the agriculture sector in due course and more accelerated growth and development can be achieved.

Planned and Mixed Economy

Independent India was declared to be a planned and a mixed economy. India needed national planning, it was decided by the political leadership almost a decade before independence.
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India was not only facing regional disparities at the level of resources but inter-regional disparities were also prevalent, since centuries. Mass poverty could only be remedied once the government started the process of economic planning. Economic planning was thus considered an established tool of doing away with such disparities.

Basically, it was the abject poverty of the masses which made the government go for planning so that it could play an active role in the allocation of resources and mobilise them for an equitable growth and development. Though India was constitutionally declared a federation of states, in the process of planning, the authority of regulation, directing and undertaking economic activities got more and more centralised in the Union government.
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India’s decision for a planned economy was also moulded by some contemporary experiences in the world.
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f
irstly,
the Great Depression of 1929 and the reconstruction challenges after the
s
econd
w
orld War had made experts to conclude in favour of a state intervention in the economy (opposite to the contemporary idea of ‘non-interference’ as proposed by Adam Smith).
Secondly,
it was the same time that the command economies (i.e. state economies) of the
s
oviet Union and the East European countries started making news about their faster economic growth. In the 1950s and 1960s, the dominant view among the policy makers around the world was in favour of an active role of the state in the economy.
Thirdly,
a dominant role for the state in the economy to neutralise market failures situation (as happened during the period of the Great Depression when demand fell down to the lowest levels) was gaining ground around the world. For many newly independent developing nations, economic planning was therefore an obvious choice. Economic planning was considered to help states to mobilise resources to realise the prioritised objectives in a well-defined time frame.

Once the political leadership had decided in favour of a planned economy for India and a major role for the state in the economy, they needed to clarify about the organisational nature of the economy—whether it was to be a state economy or a mixed economy—because planning was not possible in a free market economy (i.e. capitalistic economy). The idea of planning in India was inspired from the
s
oviet planning which was a command economy and did not suit the requirements of democratic India which was till now a privately owned economy.
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The dominant force behind planning in India, at least after independence, was Nehru himself who had strong socialist leanings. He thought it very urgent to define the role of state in the economy which was going to be at times similar to the
s
tate in the
s
oviet Union and at times completely dissimilar to it. Though there was an example of a capitalistic-democratic system going for planning in France by that time (1947), it had little experience to offer the Indian policy-makers (France had gone for mixed economy by 1944–45). With the basic urge to accelerate the process of economic growth, the planners went to define the respective roles of the state and the market, in the very first Plan itself. The following lines look refreshingly ahead of the times and crystal-clear about the scope of the government’s role in the economy vis-a-vis the private sector.

“This brings us to the problem of the techniques of planning. A possible approach to the problem is, as mentioned earlier, through a more or less complete nationalisation of the means of production and extensive system of government controls on the allocation of resources and on the distribution of the national product. Judged purely as a technique of planning, this may appear a promising line of action. But, viewed against the background of the objectives outlined above, and in the light of practical considerations, such an expansion of the public sector is, at the present stage, neither necessary nor desirable. Planning in a democratic set-up implies the minimum use of compulsion or coercion for bringing about a realignment of productive forces. The resources available to the public sector have, at this stage, to be utilised for investment along new lines rather than in acquisition of existing productive capacity. Public ownership of the means of production may be necessary in certain cases; public regulation and control in certain others. The private sector has, however, to continue to play an important part in production as well as in distribution. Planning under recent conditions thus means, in practice, an economy guided and directed by the state and operated partly through direct state action and partly through private initiative and effort.
”
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t
he above-quoted lines are imaginatively ahead of the times. It will be suitable to note here that as 1950s and 1960s made the world experts favour state intervention in the economy, the
East Asian Miracle (WB)
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of the coming three decades was going to define the very limits of such an intervention. The East Asian economies were able to sustain a high growth rate over three decades and had revived again the discussions regarding the respective roles of the state and the market as well as the nature of the state’s role in the economy. The kind of conclusions drawn were very similar to the view presented in India’s First Plan itself which was presented by the World Bank in 1993
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.

The real nature of the Indian brand of mixed economy, though beautifully outlined in 1951 itself, went through a process of detailed evolution in the decade of 1950s
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. By the end of the 1950s, the concept of the mixed economy was almost buried and rose from hibernation only by mid-1980s and finally early in 1990s, in the wake of the process of economic reforms.

The state–market (i.e the public sector and private sector) mix defined for India though, clearly delineated the nature of mixed economy, the vision was obviously blurred in the coming decades as part of economic mismanagement. The imagined mixed economy of India will become more clear in the next sub-topic following ahead.

Emphasis on the Public Sector

The state was to be given an active and dominant role in the economy, it was very much decided by the time India became independent. There were no doubts about it in the minds of the people who formed the dominant political force at the time. Naturally, there was going to be a giant structure of the government-controlled enterprises to be known as the public sector undertakings (PSUs). Criticism aside, there were at that time , a strong logic behind the glorification of the PSUs. Some of the reasons for heavy investments in the PSUs were purely natural while others were consequential in nature. There were certain highly commendable objectives set for them, some other goals would go on to serve the very soul of the mixed economy. We must go for an impartial and rational analysis of the matter, in the midst of all the criticism of the PSUs and the contemporary moves of privatising them, to understand their roles in the Indian economy. We may understand the reasons behind the ambitious expansion of the PSUs in the face of the following major requirements.

1. Infrastructural Needs

Every Economy whether it is agrarian, industrial or post-industrial, needs suitable levels of infrastructure such as—power, transportation and communication. Without their healthy presence and expansion, no economy can grow, and develop.

At the eve of independence, India was having almost no presence of these three basic requirements. There was just a beginning in the area of railways and post and telegraph. Power was restricted to selective homes of government and the princely states. [It means, even if India had opted for agriculture as its prime moving force (PMF), it had to develop the infrastructure sector.]

These sectors require too much capital investment as well as heavy enginering and technological support for their development. Expansion of the infrastructure sector was considered not possible by the private sector of the time as they could possibly not manage the following components:

(i)
heavy investment (in domestic as well as foreign currencies),

(ii)
technology,

(iii)
skilled manpower, and

(iv)
entrepreneurship.

Even if these inputs were available to the private sector it was not feasible for them as there was no market for such infrastructure. These infrastructures were essential for the economy but they needed either subsidised or almost free supply as the masses lacked the market-determined purchasing capacity. Under these typical condition, it was only the government which could have shouldered the responsibility. The government could have managed not only the inputs required for the development of the sector but could also supply and distribute them to the needy areas and the consumers for the proper growth of the economy. There were no alternatives and that is why infrastructure sector in India has such a dominant state presence that many areas have obvious government monopolies—as in power, railways, aviation, telecommnication, etc.