Defence and Debt - Odyssey to Economic Super Power - III

 - Dasu Krishnamoorty

Two biggest growth items in government current expenditure are defence and interest on public debt and both are big hurdles in our journey to ESP. This year's budget outlay for defence is Rs. 54,587 crores as against Rs. 17,584 crores in 1990-91. Defence is a holy cow and any attempt to reduce spending in this area can be frustrated by whipping up a frenzy of patriotism by such exercises as Pokharan test or the Kargill war. However, any reduction made in this area will lead to a corresponding reduction in import payments. "What is the amount of expenditure necessary for adequate defence preparedness?" asks C. Rammanohar Reddy of the Hindu. He says "Surely, the answer cannot be found in some mechanical reference to an arithmetical figure. In any case, a mere increase in expenditure on arms and personnel will not by itself lead to greater preparedness."

The only external threat to the country's integrity will come either from Pakistan or China, assuming that Bangladesh will not launch another misadventure inspired by our soft response to the maiming and killing of our BSF jawans. China is an enigma difficult to read. One expert says that "the key to understanding China is to set out the basic parameters of India's national interests and its defence policy. That is what China understands. Additionally, it is important not to force issues but to calibrate one's position in the light of changing geo-political realties. There has to be the government agenda, with the aim of developing positions at the level of the National Security Council." Moreover, the more we arm ourselves, the greater the feeling of distrust in China and of vulnerability in Pakistan.

Dialogue and a readiness to see the writing on the wall will result in a surge in peace efforts. Nobel laureate Amartya Sen has asked the government to initiate a dialogue with Pakistan and China on all outstanding issues. We should not give in to the pressures of arms-sellers to escalate defence spending or internal pressures, which believe in the motto of "once an enemy, always an enemy." Even while we explore avenues to clear distrust in China and allay apprehensions in Pakistan, we will have to look for powerful friends. There is also a need to bring down the expenditure on internal security. Much of what we regard as terrorism may in fact be genuine people's anger with the government for overlooking their life and death problems.

Now about debt. Though there has been a marginal decline in the rate of growth of external debt, it is close to US$100 billion or Rs. 47,00,000 crores. The per capita outstanding debt of the country is Rs. 11,539 as in March 2000 of which Rs 4,332 is external debt. But look at the cost of our debt. In 1999-2000, we paid Rs. 12,677 crores towards debt servicing, Rs. 8,096 crores going towards principal and Rs. 4,581 crores towards interest. The same year we received aid flows of Rs. 10,312 crores. It means what came in was less than what went out of the country by Rs. 2,365 crores. This difference for 2000-2001 was Rs. 3,647 crores. We are now among the top ten indebted countries of the world. In the year 2000, it stood at 22.3% of our GDP.

The debt service ratio is 19% a year. This means that while more than one-third of the current receipts were needed in 1990-91 to meet the country's debt service obligations, in 1998-99 we needed only one-fifth of this amount for debt servicing. There is an improvement in our external debt situation. We will have to continue that trend and see we are out of the debt trap as fast as possible because the cost of getting out of it is much more than the benefits that the loans bring to us.

Agriculture

One of the ways to increase the economic wealth of the country is to increase the revenues from agriculture by increasing the productivity of farm labour, bringing more land under irrigation, increasing land yield through availing the benefits of research and technology. Today, it contributes to 25% of the GDP and is the mainstay of the Indian economy and a sector involving one-third of the country's population. Indian agriculture is riddled with such paradoxes as phenomenal food production and starvation deaths in the countryside. Growth in such a vital sector has remained stagnant throughout the last decade. Agriculture is receiving less and less attention from our rulers as is evident from capital formation in that area which has declined from 17% in 1980 to 9% of gross fixed capital formation now. Higher agricultural growth triggers rural prosperity, which generates more buying power essential for high industrial growth. Agriculture is from where the journey to ESP should begin.

But the economic reforms call for lowering public expenditure and a gradual withdrawal of the state from its developmental role. If that happens, the void is not likely to be filled by the private sector because its investments are guided by maximum profitability and poverty alleviation and employment generation are not part of its agenda. Percentage of plan outlays in the farm sector has shrunk from five in 1990-91 to 3.3 in 1996-97. The percentage of total outlay in the farm sector (including rural development, special areas programmes and irrigation and flood control) during the same period declined from 21.4 to 10.9.

According to Ch. Hanumantha Rao, former member of the Planning Commission, "there have been some highly disturbing developments. Public investment in agriculture, especially irrigation, by the state governments continued to decline. The growth in fertiliser consumption has slowed down with a rising imbalance between nutrients. Technological change in terms of introduction of new high-yielding varieties and practices has been slow. All this resulted in slowing down of agricultural growth in the post-reform period. In fact, the growth of foodgrains output has barely kept pace with population growth. The rise in rural employment and wages has slowed down. The off-take of foodgrains from the public distribution system has not been encouraging. As a result, the decline in the proportion of rural population below the poverty line has been very slow."

Poverty and Unemployment

There are doubts on whether there has been a decline in the number of people living below the poverty line because different agencies arrived at different figures adopting different evaluative processes. There is a close relation between poverty and unemployment. Growth of employment in the country has never equalled or overtaken the growth in the labour force. As the growth in output has been on the decline, underemployment and open unemployment increased at a rapid pace. This rising graph coincided with the increase in food prices leading to a rise in absolute poverty. Rural poverty has been rising at a faster rate than urban poverty. Budget support for poverty alleviation programmes also is gradually shrinking. Economic growth has no meaning for a majority of the people unless it generates employment and incomes for the poor.

Amit Bhaduri and Deepak Nayyar say that "elaborate econometric studies show that the shifting of resources from subsidies on fertilisers to investments in irrigation would yield great benefits in terms of agricultural employment, output and growth." Economic reform in its present form is bound to hurt employment growth in the industrial sector and urban India. If the proposed labour legislation becomes law, there would be a steep loss of jobs in the organised sector and a consequent slide into poverty. Globalisation has not added any jobs except in the IT and media sector.

There are hundreds of other problems (not figuring here because of the inherent limitations of this format) which need to be tackled for the country to become an economic super power. It must be remembered that our dreams are based on the achievements we have accomplished so far like the country is a member of the nuclear club, member of the space club, has the largest scientists' community in the world, has built the super computer, has erased small-pox and has become an outstanding IT power. It is no sin to aim high but the journey to heights should provide berths to everyone, the poor and the rich, for, the country belongs to all of us, one billion people of India and not to the India Inc. alone. The ESP goal is laudable and the spirit is willing. That is how the odyssey to becoming ESP begins. Here and Now.

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