We need a Nike govt that Just Does It

That’s not all. The rich, rice growing belt of coastal Andhra Pradesh has had a 33% deficit; Telengana 37%; Tamil Nadu 38%; and southern interior Karnataka is down by 48%. With a 67% shortfall, Rajasthan is looking at a season of severe drought. And the great sub-continental tragedy is that while most of the country is facing a rain shortage, West Bengal and Assam are being inundated by floods.

Without doubt, this year’s kharif crop is going to take a huge beating. Unless we are blessed by rain in the next few days—and I’m talking of steady rain for the next two weeks that is neither short nor in excess—we are probably looking at a massive harvest shortfall. Historically, culturally and sociologically, farmers are among the most careful, parsimonious and risk averse people on earth. They have to be. If the kharif sowing season comes to nought, then we can be sure rural demand will be drastically curtailed. Every rupee will be held on to for dear life, and every item of discretionary spending will be put off for the next good post-harvest season.

And if that were to happen, we would be seeing the end of the nascent growth in manufacturing demand, which had become mildly perceptible in the first quarter of 2002-03. The laissez faire arithmetic can be dismal. Roughly speaking, the primary sector accounts for approximately a quarter of our GDP; the secondary sector, including manufacturing, another quarter; while services take up the remaining half. If the kharif crop gets wiped out, we could be looking at zero agricultural sector growth for 2002-03.

Under such a scenario, even if the secondary sector manages to maintain 3.5% growth, its share in GDP growth will be 0.88%. And if, somehow, services attains 7.5% growth—itself a heroic assumption under the circumstances—our overall GDP growth for 2002-03 could be as low as 4.6%.

Clearly, the laissez faire option is out of the question.

India can’t afford to post another decline in growth rate. So, what can we do to ensure at least 5%, and ideally, 5.5-6% GDP growth despite this challenge thrown by the rain gods? How can we translate this adversity into an opportunity?

First, it is an absolute must for the Government to immediately order the release of some 15 million tons of foodgrain from the FCI warehouses to the public distribution system throughout rural India. I emphasise ‘‘immediately’’ because even relatively well administered states like Tamil Nadu and Karnataka will take at least three weeks to get the grain to the ration shops. Releasing foodgrain will assuage hunger and keep the lid on inflation. But it can’t, per se, trigger higher rural demand and thus higher growth. That requires out-of-the box thinking and temporarily eschewing the advice of fiscal fundamentalists.

Consider the facts. India has had less that 2% inflation for the past ten months, and there is no fear whatsoever of a double-digit, or even a high single-digit price spiral. It has sufficient excess capacity throughout the manufacturing sector. It has an embarrassment of riches in the FCI warehouses. It has $59 billion of foreign currency reserves—enough to cover 13 months’ imports. It has all the liquidity in its banks, but none of the demand. And it has paucity of infrastructure to generate sustained 7% plus growth. If there is a case for Keynesian economics, this has to be it.

Thus, my second point. The Finance Minister must immediately agree to put in an extra Rs 10,000 crore on accelerated construction and maintenance of state highways and rural roads, and a further Rs 5,000 crore to Rs 7,500 crore on small scale rural irrigation projects throughout the countryside. It may just create the demand needed to push us to 6% growth and, in the process, reduce fiscal deficit to boot.

Cynics will argue most of this additional Rs 17,500 crore will be either unspent because of bureaucratic sloth or leak into pockets that do nothing for infrastructure. Correct, if we think of this as a business-as-usual largesse. Wrong if we structure this as a programme for national regeneration.

The crux of the matter is to back up this additional outlay with managerial expertise. There are enough dedicated bureaucrats in the states. And, thankfully, there are still at least half a dozen chief ministers who care for genuine growth. Let those who care get together and quickly develop an execution plan that will ensure that at least 90% of the extra outlay will be utilised properly.

Such a plan can be worked out in two to three weeks. And it can be implemented. The reason for my optimism stems from our highway project. Two years ago, who would have though this project will succeed? Yet, it has done brilliantly. Because people stopped talking and began doing.

Let’s use this time of adversity to accelerate the process of reforms. Pass the Electricity Bill. Increase the pace of privatisation. Open up FDI even more, especially in retail and banking. Strengthen bankruptcy processes. Eliminate small scale reservations once and for all. Start freeing land markets. We faced far greater adversity in 1991 to usher in major reforms. Can’t we leverage this one to move into Phase Two? Can’t we be a Nike government—Just Do It?

The writer is Chief Economist, Confederation of Indian Industry