Budget 2010: An Analysis

The budget document considers the high growth rates India has achieved as a ‘gain’, which needs to be consolidated so that there can be ‘inclusive’ growth. Economics, during its course has divorced rate of growth of output (of commodities and services) from the question of employment. Hence, we need to use terms like ‘jobless growth’, ‘inclusive growth’ and so on. Unfortunately, a weak form of trickle down theory is assumed in most cases. Therefore, having a high growth rate becomes a necessary pre-requisite.

It is comforting to see that the need for good institutions have been emphasised in the document. As one of the challenges is ‘to address the weaknesses in government systems, structures and institutions at different levels of governance. ‘

Unorganised sector has been highlighted in the document. A National Social Security Fund has been established for workers in this sector. And the National Skill Development Corporation has approved three projects worth about Rs 45 crore to create 10 lakh skilled manpower at the rate of one lakh per annum targeting the unorganised sector. I guess the question is: do we impart skill to the workers or do we provide jobs according to their skill’

On the agricultural front, 5 more mega food parks are going to be set up as an impetus to the food processing sector. Under the Debt Waiver and Debt Relief Scheme for Farmers, the period of repayment has been extended owing to the drought. In order to step up agricultural production, around 60,000 ‘pulse and oil seeds villages’ are going to be set up. And the benefits of ‘green revolution’ are going to be increased by carrying out similar activities in the eastern region of India. The ‘benefits’ indeed!

Owing to the financial crisis, an apex level Financial Stability and Development Council will be set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability. Alongside this, FDI flows will be liberalised more. It is interesting how new challenges/problems are brought about. Regulation is removed in a particular sector and regulation is increased in some sector. Overall, it seems to appear that ‘less regulation’ is considered efficient- right prices, no wastage of output and so on. Thanks to Neoclassical Economics.

Several projects are being set up to meet our energy demands and also to conserve our environment. Strengthening transparency and public accountability seems to be given adequate importance (in paper at least). In this context, an Independent Evaluation Office (IEO) chaired by the Deputy Chairman, Planning Commission to be set up to evaluate the impact of flagship programmes. More and more committees and commissions coming up!

On the whole, I think it is a more government’s budget than people’s or the corporates! However, their highlighting of the unorganised sector and the crucial role of institutions need to be congratulated.

What are the Contents of India's Economic Growth’

The above question was discussed by Bhabatosh Datta in 1977 in his book The Contents of Economic Growth and Other Essays. This blog post briefly revisits Datta’s article to see whether the current growth of India is on the right track. A few details about Datta is in order. For most of his life, he taught at Presidency College, Calcutta. He is an economist who has written on diverse aspects of the Indian economy – industrialisation, planning, regional rural banks, economic growth, monetary reforms, commercial banks, financial system and on Indian economic thought. And for this reason, his work is of utmost relevance to us- who want to understand the Indian economy.

On 29th December 2009, the Deputy Governor of RBI spoke about the ‘Current Macroeconomic Developments in India’. I reproduce some of her observations below:

India had a strong recovery in the second quarter of 2009-10 at 7.9 per cent. “The sequential recovery over the first quarter of 2009-10 was driven by notable turnaround in industrial output (9.0 per cent), and services sector (9.0 per cent), while agriculture sector also came to record a positive growth (0.9 per cent), despite drought like conditions and floods in some parts of the country.”

Which India had a strong recovery, when more than 60% of Indian population work in the agricultural sector’ As Datta writes, for India, economic growth takes place when there is “growth in employment and growth in incomes of large numbers.”

“On the whole, agricultural production during 2009-10 hinges critically on the performance of the North East monsoon and rabi production.”

“The recovery in industrial growth has been broad-based with acceleration in growth of all the three sectors, viz., mining, electricity and manufacturing .”

The consumer durables sector shows an impressive growth with 22.2 per cent in the second quarter of 2009-10.

Consumer durable showing strong growth, a recovery of industrial growth alongside a critical agricultural sector seems to suggest that Indian policy makers and economists seem pre-occupied with non-problems. As Datta lucidly points out: “it is possible that over a particular year there has been only a very small increase in agricultural and essential industrial production, while there has been a substantial rise in the output of luxury goods, high-income varieties of consumer goods and outdated capital goods.”

It is easy to forget that 8% or 9% rate of growth does not have a unique meaning. For, it might express many alternative states of affairs. I often wonder, what our objective should be as an economist in India! As I had argued elsewhere, it is time that we looked at the structure or the contents of economic growth carefully.