Sunday, December 25, 2011

Why India's Growth is Faltering

Why India’s Growth is faltering

India must define its priorities. If  we look at present unexpected bump and lower IIP number, one thing has become very clear this year India's growth is going for rough ride. The growth, development and middle class everything is just gone and vanished to give sleepless night.
If India want to grow and long term sustainable growth can only come from where it is needed most. In my opinion Rural and Agriculture is the core. Governments attitude of neglecting this sector for last one decade is sole reason for today debacle.
  1. Government must give enough weight-age to the rural and agriculture development  where 72% population resides.( This is steadily going in down in last one decade)
  2. Water shade management and conservation must be given priority so that the farmers in the areas of rain-fed farming may have better income and opportunities to go for multiple farming.
  3. India's infrastructure is pathetic, this must improve. Power generation should be priority.( Power generation should not be hold hostage to the governments foreign policy, government should sign gas pipeline agreement with Iran and this will reduce inflation and improve the power availability, the ultimate effect will be in good growth.)
  4. Indian Railway is outdated and should improve and upgrade. It must double its capacity to cater to the needs of growing aspirations of fast growth of India.
  5. Roads and Airports must be priority.
  6. Food industry should take priority.
  7. Mandi act needs to be amendment.

India: Priorities for Agriculture and Rural Development
Although agriculture contributes only 21% of India’s GDP, its importance in the country’s economic, social, and political fabric goes well beyond this indicator. The rural areas are still home to some 72 percent of the India’s 1.1 billion people, a large number of whom are poor. Most of the rural poor depend on rain-fed agriculture and fragile forests for their livelihoods.
The sharp rise in food grain production during India’s Green Revolution of the 1970s enabled the country to achieve self-sufficiency in food grains and stave off the threat of famine. Agricultural intensification in the 1970s to 1980s saw an increased demand for rural labor that raised rural wages and, together with declining food prices, reduced rural poverty.
Inequitable allocation of water: Many states lack the incentives, policy, regulatory, and institutional framework for the efficient, sustainable, and equitable allocation of water.
Deteriorating irrigation infrastructure: Public spending in irrigation is spread over many uncompleted projects. In addition, existing infrastructure has rapidly deteriorated as operations and maintenance is given lower priority.
Rural poor have little access to credit: While India has a wide network of rural finance institutions, many of the rural poor remain excluded, due to inefficiencies in the formal finance institutions, the weak regulatory framework, high transaction costs, and risks associated with lending to agriculture.
Weak Natural Resources Management: One quarter of India’s population depends on forests for at least part of their livelihoods.
India's "green revolution" allowed the country to produce enough food to feed its population - but 40 years on, is this revolution unraveling?
The Green Revolution was a deliberate, all-out attempt to become self-sufficient in basic food crops.
For 40 years. Under India's "Green Revolution" in the 1960s and 70s -- seen as one of the world's most successful agricultural turnarounds -- planting of high-yield varieties of wheat and rice resulted in a sharp output rise.
There has been a dearth of resource support to the farmers in the Union budgets which calls for urgent attention of the policy makers to boost budgetary investment in agriculture in general, and dry land and rain fed agriculture in particular. In 2006- 07, the share of agriculture in total budget was meager 1.4 percent. This has further declined to 1.27 percent in the current Union Budget 2010-11 (BE). A quantum jump of expenditure by the Ministry (to around 2.5 times, in absolute numbers, between 2004-05 and 2010-11) has been noticed. However, public spending in agriculture as a proportion of GDP is hardly perceptible. It has increased from 0.17 percent of GDP in 2004-05 to 0.20 percent of GDP in 2010-11 B.E. The government needs to direct its efforts towards improved rural infrastructure, agricultural research support, investments in water management and new technology/institutional innovations to increase agricultural productivity, and consequently growth of the economy. Long-term sustainability of India’s farming sector, particularly dry land agriculture, is only possible through coordinated efforts from different quarters along with increase in share of budgetary investment in the agriculture and allied sector and share of Central plan expenditure in agriculture.
Need for public investment
The record of agricultural growth in India in the second-half of the 2000s was hardly inspiring. Growth rates of agriculture in 2006-07 and 2007-08 were better on the average, riding on good monsoons and hardening global prices. However, the growth rates in 2008-09 and 2009-10 were, respectively, -0.1 per cent and 0.4 per cent. Advance estimates for 2010-11 have raised hopes again, but it is clear that elevating agriculture to a path of sustained growth requires a major increase in public expenditure. In particular, public investment, which would create fixed capital formation in agriculture, has to increase significantly to arrest decisively the trend of long-term decline. Budget 2011-12 plainly refuses to recognise this task as urgent.
How numbers are manipulated
The sharp rise in the supply of indirect finance was facilitated by a series of definitional changes made under the UPA regime on what constitutes priority sector credit in agriculture (for details, see R. Ramakumar and Pallavi Chavan, “Revival of Agricultural Credit in the 2000s: An Explanation”, Economic and Political Weekly, December 29, 2007). These definitional changes broadly involved (a) recognising new forms of financing commercial, export-oriented and capital-intensive agriculture as “agricultural” credit; and (b) raising the credit limit of many existing forms of indirect financing. For instance, from 2007 onwards, two-thirds of loans given to corporates, partnership firms and institutions for agricultural and allied activities in excess of Rs.1 crore per borrower were considered as indirect finance to agriculture; the remaining one-third were treated as direct finance to agriculture.
In 1990, about 83 per cent of agricultural credit was of a size less than Rs.2 lakh. In 2009, however, only about 44 per cent of agricultural credit was of a size less than Rs.2 lakh.
An area of darkness 
Over recent weeks, reports of frequent and increasingly longer power cuts from across the country have added another layer of serious concern to India’s faltering growth story. What is unusual about these power outages is that they have been occurring during the months of October and November, when demand is traditionally low. The immediate causes of the power crunch are well known. There is a growing and acute shortage of coal, which is the mainstay of power generation in the country, accounting for over 50 per cent of overall capacity. Over the past four years, demand for coal, mainly for thermal power generation, has grown by 7.3 per cent, while domestic output rose by only 5.4 per cent. What is most worrying is the significant drop in investment in the power sector in view of uncertainties on fuel availability and uneconomic pricing of power. The target for additional power generation capacity in the current plan of 62,000 MW (already reduced from the original 78,000 MW) is likely to have a shortfall of as much as 12,000 MW, according to the Planning Commission.
Indian railways lag 20-25 years behind world on technology front: E Sreedharan
Thanks to E Sreedharan , MD, Delhi Metro Rail Corporation, India's capital has a world class metro. A project that was on drawing board for decades and which many thought would be almost impossible to execute is up and running. He took charge in 1997 when he was 65 years old, long after he retired from the Railways in 1990. Today at 79, he is finally hanging his boots on December 31 to retire in his native village in Kerala. He spoke to ET on Delhi Metro, its success and his life. Excerpts:
You retired from the Railways, what's your prescription for Railways future? ( Thanks to E Sreedharan , MD)
Indian Railways has the world's fourth-largest network with 9,000 engineers but it lags 20-25 years behind the world on the technology front, it needs to be upgraded dramatically. 

The present model of development is not sustainable and will increase crime in urban areas and increase disparity among India's population.

There is no need of targeting 9% growth, India should target 7% inclusive growth which will reduce poverty and increase quality of life.

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