The forthcoming issue of the magazine has an in depth story on the overall impact of poor monsoons and the lingering farm crisis. Author Sutanu Guru interacted with Barun Mitra, Director of the independent Think Tank Liberty Institute who analyses the fault lines in Indian agriculture. In case of food grain, I don't think there is any major worry on the issue of production. The food grain production today is quite evenly spread over kharif and rabi season, which in itself has reduced the dependency on monsoon. The challenge has always been to ensure that the produce reach the markets in time. The problem has been compounded by the ad hoc approaches to distribution of grain stock, and also the impact of selling grain at a very low cost. In many poorer states, there is perhaps an increasing unwillingness to grow their own grains, if they expect to get it from the government at a much lower price. Then there are issues of APMC, and restrictions of movement of agri produce, lack of processing and cold storage, lack of capacity to manage post harvest stock of grains and other agri produce. I doubt if there is any trend indicating changing pattern of monsoon. Also, the shortfall and surplus are distributed in different parts of the country. Rather than long term forecast, what the farmers need is a short term and medium term weather forecasting capacity, which is credible, reliable, locally relevant, and real time, so that farmers can actually act on the basis of the information. Currently, for most farmers, there is little practical use of weather forecast. I think for Indian farmer, the lack of rural infrastructure, access to market, consolidating land holding, problem of leasing and contract farming, inability to capitalize their main productive asset, which is land, quickly and simply, are real challenges, which is impacting productivity. While India is among the top world producer in many crops, the productivity is typically quite lower than the world's best benchmarks. I tend to look at farmers' suicide in the broader context of agri economy, where over 50% of the population is dependent on 14% of GDP. Also, the fact that suicide is also a distinct phenomenon for a certain social sections, for instance, hardly any suicide among the poorest and marginal farmers. So it seems to be prevalent among middle class farmers, who have higher expectation, and bear higher social pressures. The fundamental challenge facing agriculture is poor land records, the land laws that restrict consolidation, lease, rent, contract, etc, so that land assets can be optimally utilized by those who are best at it, while the land owners can exercise their options too. And the second challenge is the general economic and business environment, which has actually penalized job creation in the formal sectors of the economy, to the extent that most employers prefer to use capital and technology to reduce the labour component. Finally, there is the challenge of very poor education and skill levels among workers, along with poor health services, which have made it quite difficult to find employable people, from the vast workforce. This is best illustrated by the slow pace of transition from rural to urban, and agriculture to non-agriculture sectors, retarding the natural transition which most developed and emerging economies have experienced at some point or the others.
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Reserve Bank Governor Raghuram Rajan on Friday (18 September) warned against the hazards of growing at a break-neck speed and called for drawing right lessons from Brazil, which was a high growth market till recently but is now beset with economic woes, leading S&P to demote it to “junk” status. Once praised for its robust economic growth, the South American country is facing massive public debt, corruption, sinking companies and bad loans. Stating that growth has to be obtained in the right way, Rajan referred to the ongoing troubles in Brazil, which he said “offers a salutary lesson.” “Only a few years ago, the world was applauding its thriving democracy, robust economic growth, and the enormous strides it was making in reducing inequality. “It grew at 7.6 per cent in 2010…yet the country is expected to shrink by 3 per cent this year, and its debt just got downgraded to junk,” he said, adding stretching the public balance sheet too far is not the way for sustainable growth. While the Brazilian authorities are working hard to rectify the situation following the last week’s downgrading of its sovereign rating to junk status by S&P, Rajan said “let’s not ignore the lessons their experience suggests.” “Paradoxical as it may seem, Brazil tried to grow too fast. The 7.6 per cent growth came on the back of substantial stimulus after the global financial crisis. In an attempt to keep growth high, its central bank reportedly was pressed to reduce interest rates, fuelling a credit spree that overburdened customers who are now struggling to repay.” Stating that such break-neck and induced growth is not advisable, the RBI Governor said, “growth has to be obtained in the right way. It is possible to grow too fast with substantial stimulus as we did in 2010 and 2011, but only to pay the price in higher inflation, higher deficits, and lower growth in 2013 and 2014.” But he was quick to add that India was not in the same situation today. “But with the world being an inhospitable place, we’ve to work hard to strengthen our current recovery and put it on a more sustainable footing.” It can be noted that after a record-breaking growth of nearly a decade at an average of over 8.3 per cent, which culminated in 2010-11 period on the back of fiscal and monetary stimulus following the 2008 global recession, the Indian economy slumped to a low of 4.5 per cent FY14, while inflation reigned supreme at double-digit levels. Offering support to return to higher growth trajectory Rajan said “while monetary policy will accommodate to the extent there is room, we’ll expand sustainable growth potential only by continuing to implement reforms government and regulators have announced.” “These are intended to strengthen the environment for doing business and to expand access to financing, and these will then in turn allow our companies to find and exploit their core competencies,” the RBI chief said. Returning to the Brazilian quagmire, Rajan recalled its then President Lula da Silva likening the huge discovery of oil reserves to “winning a lottery ticket”. Analysing the Brazilian crisis, he said its government -funded development bank hugely increased subsidised loans to corporations. Certain industries were favoured with tax breaks while price controls were imposed on gasoline and electricity, causing huge losses in public sector firms while the Government lost in high budget deficit, Rajan noted. He said monetary policy can aid strengthen the current economic recovery in India, but added, “We will ultimately expand sustainable growth potential only by continuing to implement reforms Government and regulators have announced.” He iterated that for RBI the objective is to support sustainable growth with low inflation, and said “the key tasks are to keep inflation low not just today but well into the future so that we get moderate nominal interest rates that satisfy not just the vocal borrowers but also silent savers.” The retail inflation for August came in at a record low of 3.66 per cent, while WPI contracted for the 10th month at -4.65 per cent, which he attributed to very low base effect. The RBI has a CPI target of 6 per cent by next January and 4 per cent by January 2018. Warning against a repeat of what has happened in Brazil and is happening in China, he said “we also need to clean up the banking system of distressed assets so that it is in a position to fund growth again. “While we understand the difficulties industry faced and will work as hard as we can on improving the environment, we must resist special interest pleas for targeted stimulus, additional tax breaks and protections, directed credit, subventions and subsidies, all of which have historically rendered industry uncompetitive, Government over-extended, and the country incapable of regaining its rightful position amongst nations,” Rajan said. He concluded by saying that “we must focus on keeping inflation low and avoid using monetary policy alone and short- term Government incentives to fuel short-term economic growth. (PTI)
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Says the focus of the Modi government is also on the agriculture sector, reports Haider Ali Khan Talking about India's growth architecture that focuses on beefing up rural infra, irrigation and reforms, Union Finance Minister Arun Jaitley inaugurated the direction of the government's economic transformation programme with the 'India Economic Convention 2015' on Thursday (17 September). Addressing a gathering of industry leaders, the Finance Minister said that the Narendra Modi-led National Democratic Alliance (NDA) government is fully clear on the direction that economic governance of the country needs to get through. Jaitley also said that the government is well prepared with “multiple layers of defence” for a rate increase by the US Federal Reserve. The US Federal Reserve will today decide on its interest rates, which have been kept near zero since 2009. It is widely anticipated that the US would raise interest rates as employment data has improved. "In a situation where there is turmoil almost by the day as far as global markets are concerned, we are trying to make the fundamentals of our own economy strong so that our ability to resist these changes can substantially improve,” he said. Jaitley said the country's electorate gave a huge mandate for governance to a single party in the last general elections and this had made the Prime Minister's Office the final arbiter in decision-making. The focus of the government, the Finance Minister said, is also on the agriculture sector, which is largely rain-fed and provides livelihood to 55 per cent of the population. "Our agriculture sector is dependent on rain. Our rain-fed area is huge and therefore, always continues to be fragile. Its fragility is added by the fact that for 15 per cent of our income, 55 per cent of our population depends on it,” said Jaitley Jayant Sinha, Minister of State for Finance in his address spoke about the growth model adopted by the government and how it has been different from that of the past. He said: “Our government wants to build India's productive capacity to achieve and sustain an 8-10 per cent growth steadily. Our approach is to power growth through supply interventions and investments, rather than a consumption-led, demand orientation." Sunil Bharti Mittal, Chairman, Bharti Enterprises , said that Indian and global investors need to cash in on the opportunities that have opened up through the launch of programmes such as Make in India, Digital India, Skill India and Swachch Bharat Mission.
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The state has made huge strides in resolving the politically sensitive issue of land acquisition, reports Suchetana Ray Within a year of the bifurcation of the state, Andhra Pradesh (AP) under the leadership of Chief Minister N Chandrababu Naidu seems to have made an impact on investors by facilitating ease of doing business. The state has bagged the second position just below Gujarat, in the World Bank report on Ease of Doing Business. Highlighting the good practices of the state, the report states: “Single Desk Policy 2015-20 of the Government of Andhra Pradesh has been formulated to create a facilitative ecosystem to provide all clearances/approvals within 21 working days to set up an industry. All relevant competent authorities are mandated to receive applications and process the same only via Single Desk mechanisms. Single Desk Mechanism provides for State clearances required for starting an industry across pre establishment and pre operation phases. A Chief Minister’s dashboard has been designed as a tool for effective monitoring of the applications received.” With an enviable score of 70.12 per cent on a 98 point score card, Andhra Pradesh is keen to implement more changes and move up the ladder of Indian states as the most preferred destination for doing business. “Andhra Pradesh is ranked in the category of ‘Aspiring Leaders’ along with 6 other states. By next year, we will definitely work towards making it to the list of “Leaders” category by targeting 90 per cent plus compliance” says Kartikeya Misra, Director in the Department of Industry and CEO of AP Invest.He further explains the measures that his state is keen to implement in the next one year, “We are continuously working on improving business environment in the state for new as well as existing investors. We will simplify tax procedures through reduced timelines and automation; fast track incentives claim for industries and make the process more efficient, transparent and e-enabled; institutionalise investor facilitation and handholding at District level; and simplify land allotment procedures in rural areas.” The report also lauds AP’s efforts in having comprehensive details of land bank available online. In fact, the state has made huge strides in resolving the politically sensitive issue of land acquisition. AP’s experiment with voluntary land pooling could provide an alternative to forcible land acquisition and could be a model that other states could look at adopting. And Misra says that, “Land pooling for the Capital Region in Andhra Pradesh has been quite successful. About 35,000 acres has been pooled in the fastest land pooling exercise anywhere. Land pooling is now a proven mechanism for executing public projects which lead to significant value accretion.” The race to the top gets tougher next year with the score card becoming more competitive, but AP is resolute that it’s the number one slot that it wants. Misra elucidates the state’s one-eyed focus to this, “Over the next one year, our focus is on nurturing our MSME sector, minimising requirements of inspections for industries and creating an environment of trust and credibility for industries in the State. Some of the steps that we intend to take up are.” With this assessment of ease of doing business proposed to be an annual exercise, all states are expected to try and improve their scores and ranking, which would promote PM Narendra Modi’s vision of competitive federalism and attract private investment since a study of this nature is likely to influence investor perception.
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India ranked 81st in the annual Global Innovation Index (GII) survey for 2015, published by Cornell University, INSEAD, World Intellectual Property Organization (WIPO) and Confederation of Indian Industry (CII) as a knowledge partner. The study ranked 141 economies across the world on their innovation capacity and efficiency. "The GII underlines the steady outperformance of India on innovation relative to its level of development. We applaud the new innovation policies put in place by the new Indian government, which are not yet effectively captured by the data used in the GII. Some of these measures have already had a positive impact on the build-up of innovation momentum and entrepreneurial mood in the country, and we expect this trend to grow in the coming months and years," said CII Director General Chandrajit Banerjee. Banerjee further pointed out that relative fall in India's overall ranking this year is due to availability of old data up-to 2103-14 period, and it does not truly reflect the performance of the economy in last one year. With the present growth trend the future ranking for India is going to improve as the data get revised and as the government continues to perform towards a development oriented growth path. India continued its dismal performance on GII for the fifth consecutive year from 62nd rank in 2011, 64th in 2012, 66th in 2013 and 76 in 2014, even though the India chapter notes that the country has demonstrated strengths in factors such as gross capital formation, market capitalisation, and total value of stocks traded. India remains at the top of the regional ranking of Central and Southern Asia this year, followed by Kazakhstan and Sri Lanka, which has significantly improved its position. In terms of innovation quality, a few economies stand out. The US and the UK stay ahead of the pack, largely as a result of their world-class universities, closely followed by Japan, Germany and Switzerland. Top-scoring middle-income economies on innovation quality are China, Brazil and India, with China increasingly outpacing the others. "For the last one year or so India is witnessing a renewed enthusiasm towards developing effective policies to boost its innovation and entrepreneurship ecosystem, which has been weakly captured in this year's ranking," said CII's president designate Naushad Forbes. Singapore remained the only Asian nation in the top 10 of a major ranking of innovation worldwide, with Hong Kong just missing out in eleventh place. According to the study, India is also looking to boost the development of sectors such as infrastructure, transport, smart cities, manufacturing, and IT to supplement growth. Reforms in India’s credit delivery mechanism to its poor have been addressed by credit transfer schemes such as Pradhan Mantri Jan-Dhan Yojana, which aims to increase disposable income for India’s poor. Given the unique challenges that India faces, achieving even 40 to 50 per cent of their targets by some of these initiatives will amount to an economic revolution. The momentum is building positively and the time is favourable for India to change gears and get its innovation journey onto the fast track, says the study.
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The government is aiming for an 8-10 per cent annual economic growth through supply-side measures to increase the capacity of Asia's third-largest economy rather than risk higher inflation by stimulating demand, Jayant Sinha, the Minister of State for Finance, said. Sinha, a former McKinsey consultant, said on Thursday that the government had ramped up public investment by 40 per cent this year, as part of Prime Minister Narendra Modi's push to modernise road and railways. Equity MarketsSinha also said the government is aiming to stabilise domestic equity markets by allowing greater investment by pension funds, which are typically long-term investors. India plans to lift the cap on equity investments made by the Employees Provident Fund Organisation (EPFO), the main state provident fund, to 15 per cent from 5 per cent, the junior finance minister said. Jayant Sinha told a business conference that the government is aiming to stabilise domestic equity markets by allowing greater investment by pension funds, which are typically long-term investors. The EPFO manages $100 billion in savings that are now mainly invested in government bonds paying a fixed rate of interest. Last week, the regulator of another, smaller, state pension fund said the government may raise its cap on equity investments on behalf of government workers to 50 per cent of assets under management. The sums involved are small in relation to the $1.5 trillion market value of the Bombay Stock Exchange, but could grow quickly as Modi seeks to broaden India's tiny pensions net to cover more workers.
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Will India's exports slump for the ninth straight month in August cast a shadow over Prime Minister Narendra Modi's goal of achieving over 8 per cent growth in 2015-16 fiscal year? Modi sees manufacturing and export-led growth as the best way to create jobs for the millions of young people who helped him gain power last year. Jobs are a critical issue for the Narendra Modi-led National Democratic Alliance (NDA) government, struggling to revive growth to a rate that will create employment for the millions who join the workforce every year. The Modi government aims to almost double goods and services exports to $900 billion in the next four years. But merchandise exports contracted to $21.26 billion, a dip of 20.66 per cent in August, widening the trade deficit and raising concerns on job creation. Lower exports and much lower imports, however, narrowed the country's trade deficit to $12.47 billion in August from a month earlier, but wider $10.66 billion a year earlier. The declining exports also indicate the difficulties the Indian economy faces as it attempts a recovery. Trade deficit, is a key parameter that indicates the health of the economy and is the difference between the value of imports and exports. Sluggish demand in key global markets such as the US and Europe has hurt exports. China's devaluation can make its goods more competitive in the global markets, hurting India's exports prospect further. Quite a few economists and media commentators are of the view that growth could ease to 7 per cent to 7.5 per cent in the current 2015-16 fiscal year ending in March, against a target of 8 per cent to 8.5 per cent, if the slump in global demand continues. Analysts say exporters could be forced to lay off workers if sales orders continued to decline over the next 3-4 months. Federation of Indian Exporters chairman S C Ralhan has said that at this rate, job losses were imminent. He also demanded an intervention by Modi in the matter. "With the export orders coming down every month, it is a natural process that the companies will look for cost cutting and the workers will be removed," Ralhan said. According to media reports exporters have been lobbying for lower borrowing costs and fiscal incentives to explore untapped markets such as Africa and Latin America. Modi met business bosses last week and assured them of government support to boost growth. "We need to target growth assuming little support from external demand," N R Bhanumurthy, an economist at National Institute of Public Finance and Policy, told Reuters. Some relief could come from Raghuram Rajan, governor of the Reserve Bank of India, who has cut policy rates by 75 basis points this year, is widely expected to reduce rates at a policy meeting on September 29 thanks to inflation at a record low. Keen to inject more momentum in the economy and encourage investment, the government and business community have urged the central bank to lower interest rates, though Rajan has stressed that he wants to see low inflation on a sustained basis. So far, to counter slack global demand, Modi has vowed to modernise overloaded roads, ports and railways in a bid to make India's exports more competitive. At present, other indicators and on-the-ground evidence suggest the economy is struggling, and there is growing impatience with Modi's government to implement more policies that can galvanise growth and create more jobs on sustained basis.
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Sutanu Guru digs deeper into the latest trade data released by the government. Most of you would have already read about this in this age of instant news and commentary since the information was released a day earlier. Just in case you haven't, August was the ninth consecutive month that witnessed a decline in exports. According to information released by the ministry of commerce, exports declined by more than 20% to $ 21.2 billion in August 2015 compared to August, 2014. Some consolation was provided by the fact that imports too declined by more than 10% to about $34 billion ensuring that the trade deficit remained under control. The last time exports grew were in November, 2014 when there was a marginal uptick. The usual words of comfort have been offered by government sources. And the usual verdicts have been delivered by pundits depending on their ideological leanings. But there are three possible (in fact more than probable) reasons why exports have declined for the ninth consecutive month. Let's look at the reasons one by one. The first is that the persistent decline in exports reflects how the global economy seems to be simply refusing to come out of a prolonged recession. The fact is, exports from even exporting powerhouses like China and South Korea have witnessed a significant decline. But the fact that China and South Korea are doing badly can only be a consolation; it can't take away the more important fact that a substantial and sustained jump in exports from India in the immediate future is not going to happen. If exports do not increase, there is a direct impact on tens of thousands of small companies of India which also provide most of the new jobs. What does that mean? India benefits from the global recession because of lower prices for imports like oil. But it also pays a price because consumers in other countries may not be stomping down the gates to buy Indian goods and services. The second reason is even more dangerous. Look at the latest data closely and some deeply worrisome facts seem to jump out of the fine print. Engineering goods exports declined by more than 30 per cent; that of electronic goods fell by more than 17 per cent while readymade garments exports declined by more than 7 per cent. All three categories are intimately linked with the Make in India mission being promoted aggressively by the NDA regime. Just one look at the story of readymade garments exports shows the daunting challenges that the Indian economy faces. In 2004, the old GATT system that controlled and regulated the exports of textiles and readymade garments from Third World, or emerging economies were abolished as a new trading system under WTO took over. Back then, Bangladesh was an insignificant player in the readymade garments exports market while India displayed a lot of promise because of natural cimetidine advantages. What's the story now? In 2015, readymade garment exports from Bangladesh will cross $ 30 billion while those from India will struggle to reach $ 25 billion. More telling than the laudable success of Bangladesh is the failure of India to capitalize on a more liberal global trading system to trigger a manifold jump in textiles and readymade garments exports. This is one industry that promises tens of millions of new jobs. But if the Indian economy could not capitalize during a global boom, how will hope to do the same during a slowdown? The third reason is debatable, but troublesome nevertheless. And that is a debate about what the dollar value of the Indian Rupee should be in these times. China literally shocked the world recently when it effectively devalued the Yuan by about 2 per cent when it had to confront a decelerating economy coupled with declining exports. India has already imposed a tariff of 20 per cent on steel imports to prevent Indian steel companies from being swamped by cheap steel imports. This could well be the beginning of a new trade war which could get worse if the American Federal Reserve raises interest rates and hundreds of billions of dollars flow out from emerging economies. The big question is: Will India too be forced to devalue? For a regime that ridiculed and mocked its predecessor for the falling value of the Rupee, it would be a difficult insult to swallow. But since when has economics paid attention to political rhetoric?
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India's merchandise exports shrank far more than expected in August, falling for the ninth month and adding to Prime Minister Narendra Modi's concerns that Asia's third-largest economy may not be creating enough jobs for unemployed youth. Jobs are a critical issue for the government, struggling to revive growth to a rate that will create employment for the millions who join the workforce every year. Goods exports, equivalent to about 15 per cent of gross domestic product, contracted 20.7 per cent year-on-year because of continuing weak global demand. The trade deficit marginally narrowed to $12.5 billion last month from $12.8 billion in July, helped by cheaper oil imports, data released by the Ministry of Commerce and Industry on Tuesday (15 September) showed. Economists said growth could ease to 7 per cent to 7.5 per cent in the current 2015/16 fiscal year ending in March, against a target of 8 per cent to 8.5 per cent, if the slump in global demand continues. "We need to target growth assuming little support from external demand," said N.R. Bhanumurthy, an economist at National Institute of Public Finance and Policy, a government-backed think-tank in Delhi. Imports fell 9.95 per cent from a year earlier to $33.74 billion in August, while exports stood at $21.27 billion, reflecting both lower global commodity prices and sluggish domestic demand. Global financial markets have been rattled in recent weeks by China's slowing economy and worries ahead of a meeting of US Federal Reserve this week at which a rise in interest rates is possible. From April to July, India's goods exports to its top five markets — the United States, United Arab Emirates, Hong Kong, China and Britain — that contribute 39 per cent of total exports, fell 14.9 per cent to $90 billion compared with $105.7 billion a year ago. Exporters have been lobbying for lower borrowing costs and fiscal incentives to explore untapped markets such as Africa and Latin America. Modi met business bosses last week and assured them of government support to boost growth. Raghuram Rajan, governor of the Reserve Bank of India, who has cut policy rates by 75 basis points this year, is widely expected to reduce rates at a policy meeting on September 29 thanks to inflation at a record low. Ajay Sahai, director general at Federation of Indian Export Organisations, said even if the global demand picks up, it would be difficult to achieve the level of last fiscal year's $310 billion exports this year. "If the trend continues, we may rather see job losses in many export sectors," he said.(Reuters)
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The only state that seems to have made any real headway is Jharkhand, which “scored positively on all four parameters” under the minimum wage inspection category, writes Simar SinghAccording to the World Bank’s subnational report, titled ‘The Assessment of State Implementation of Business Reforms’, states seem to have been quick to jump on the path to reforming Tax, VAT, construction permits, land allotments and labour in general. However, particularly with regard to labour, the report indicates that an average of 26 states still need to introduce reforms across a range of inspections mandated by Acts including minimum wages, payment of wages and payment of gratuity. The study makes this comparison with an ideal system of inspections which should have the details and a checklist of the inspection process, specific provision to ensure that reports are submitted within 72 hours, an online system to allocate inspectors and inspections based on computerised risk assessments. A majority of the states perform very poorly under these parameters when it comes to their labour inspections. This seems to reflect the flipside of “competitive federalism” a phenomenon that was repeatedly hailed at the report’s release in the Capital on Monday. This has resulted in the resolve among states to singularly make their business environments friendlier without much thought about being the vanguard of labour interests as well. The only state that seems to have made any real headway is Jharkhand, which “scored positively on all four parameters” under the minimum wage inspection category. In June this year the government, at the 104th International Labour Conference in Geneva, had announced that their emphasis was on “quality and effectiveness of the labour inspection system rather than mere numbers”. The report further states that in terms of specific reforms that remain to be implemented, 32 states needed to focus on improving their surprise inspections.
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