There is an underlying air of confidence in urban India. Two decades of continued growth has become a habit. Exporting industries are booming. Knowledge based sectors are creating waves. Software exports, a service activity, are now around a fifth of India’s merchandise exports and roughly the same percentage of expansion of GDP since the mid-nineties. The Planning Commission should not say that 20 years from now, India will be like any other middle income developing country, since our growth path is different.Large countries have options, others don’t. The air of confidence is buttressed by India avoiding the East Asian meltdown and now the worst of the SARS crisis. There is a construction boom and the service sector is expanding. The Planning Commission in the Tenth Plan has categorised states by degrees of governmental fiscal irresponsibility. Leaving aside the special category states, the best states in terms of the gross fiscal deficit as a ratio of the sustainable fiscal deficit are Haryana, Karnataka, MP, Maharashtra, Orissa and West Bengal. The worst are Andhra Pradesh, Assam and Gujarat. Punjab, Rajasthan, Tamil Nadu and UP lie in between. If the irresponsible ones don’t turn around and improve their governance, the commission expects them to suffer in the growth league and not achieve the targets set for them. In urban India it is extremely likely that performance and not incumbency will matter in the political sweepstakes.The problems lie elsewhere. There are leading sectors, but also there are industries in trouble. They are leading to large employment losses in some areas and towns not being made up by the growing sectors. Dinesh Awasthi, director of the Entrepreneurship Institute of India, has prepared from the Census NIC list a table of 107 towns which account for a large part of small scale industry employment in India. As is well known, employment in the large scale sector is falling. It is the small and unorganised sectors which are growing. Here many traditional industries are not able to stand up to global competition. In a meeting discussing the informal sector in one of India’s leading labour institutes, it was pointed out that the plastic folders distributed were imported from China. Apparently, for any energy intensive industry, China’s energy costs are much lower and they also give their distributors attractive loan finance. So Indian small producers are switching to profitable distribution of imports.The real problems are in agriculture. The cotton crop is now in and the price situation is grim. Production which was above 14 million bales once upon a time is now less than 9 million bales, but even this is not being picked up. Imports of over nine lakh bales have already taken place and more than half a million bales more may be finalised soon. In spite of a substantial area under Bt cotton, the cotton grower is in trouble. Even a casual visit to a village in western and central India shows the resentment against the authorities. Around seven per cent of India’s labour force in agriculture is into cotton and they cannot be left high and dry in a highly imperfect global market. The FM had promised a new deal for agriculture in the budget. Now is the time to deliver.The traditional markets are drying up, but in the last three years no new ones are emerging. The stride towards diversification in Indian agriculture is being rolled back. This has serious consequences. In the first six months of the financial year, agricultural exports had shown a small increase. There was hope that we would again get back on the growth path. But now data for ten months is in and it shows a fall of 14 per cent in 2002-03 over 2001-02 and suggests that the optimism was shortlived. I believe it is a mistake to give negative signals for grain exports, because India’s reputation as a reliable supply source will suffer and this would be unfortunate because we have competitive advantages in the grains economy which can be strengthened with technologies like hybrid paddy.Export markets in the current phase are not for the weak. It is quite obvious that the potential some policy makers had promised in the early nineties from agricultural exports and used it to justify their policies of unilateral “reform” has not been realised. A more strategic approach would have been better then and is absolutely necessary now. The WTO Trade Policy Review for India in October last year has fortunately been reported in the Economic Survey. But we still don’t have an intelligent response to the US query on the relationship between bound rates and safeguard rates. The past cannot be wished away. Neither can New Zealand’s critique that India is wrong in arguing that food security requires self reliance in grain production and it is wrong to protect agro-forestry. On all this we need positions which are WTO compatible and more importantly would give us vehicles to engage important trade partners in creative discussion, rather than unproductive posturing. Meanwhile it is obvious that the domestic market has to be tapped as a growth source for agriculture in this period.
