Indian Economy in 2006
Indian Economy in 2006
The year 2006 was a mixed bag on the economic front. While it enthused the powers that be, it brought deep anxieties to the people at large. On balance, it created and left behind problems that will require great efforts to tackle.
Undoubtedly, the economy marched forward at an accelerated pace. For the first time, the growth rate crossed 9 per cent and generated optimism that, very soon, it will be in double digits. During the second quarter (July-September) of fiscal 2006-07, the economy grew at the rate of 9.2 per cent. This happened in spite of the rising prices of oil, interest rate hike by the Reserve Bank of India, and the shortcomings of the infrastructure. It needs to be noted that, not only the services sector in general and the IT sector in particular contributed towards boosting the growth rate, but other sectors too made significant contributions. According to the recent data released by the CSO (Central Statistical Organisation) of the Government of India, during the second quarter of 2006-07, manufacturing grew by 11.9 per cent, the supply of electricity, gas and water by 7.7 per cent, construction by 9.8 per cent, trade, hotel business, transport and communication by 13.9 per cent, finance, insurance, real estate and business services by 9.5 per cent, and community, social and personal services by 6.9 per cent.
Gone are the days when India continuously suffered from the shortage of foreign exchange. One may recall that during the very beginning of the 1990s when Chandrashekhar was prime minister, India had to mortgage its gold deposits with the Bank of England to obtain foreign exchange to sustain its imports. By November 2006 Indiaâ€™s foreign exchange reserves had touched $168.4 billion. By the end of 2006 it might have crossed $170 billion. Besides, the rupee was in a stronger position vis-Ã -vis dollar.
If one takes the index of share prices as an indicator of the health of the economy and of the level of business confidence, one is bound to be enthused. Gone are the days when the 30-share-sensitive index of the Bombay Stock Exchange seldom crossed the 3,000-mark. Now it is more than 13,000.It has been continuously maintaining an upward trend. During 2006 alone it went up by 50 per cent and during the last four years four times. Besides, the prices of the bullion and the real estate too have been going up without interruption. Indian capital market, undoubtedly, has become an important destination for the FIIs (Foreign Institutional Investors). There is no indication that their attitude is going to change in the near future.
Foreign direct investment has been on the rise. It is said that with Indo-American nuclear deal in place, India will be able to increase power generation and get latest technologies, which will go a long way to accelerate Indiaâ€™s economic growth. Already 400 out of the Fortune 500 companies are investing in India. In the time to come, at least $150 billion is to come to the infrastructure development.
It is pointed out that all this is the result of the acceptance of the ten points of the Washington consensus on which ongoing globalisation is based. To lure foreign direct investment the Government of India has got Special Economic Zones Act 2005, passed by Parliament. Its implementation has already been in full swing in a number of states. Under this legislation, no labour laws will be applicable to SEZs (Special Economic Zones) and wide-ranging tax concessions and other facilities will be provided by the government. Investors in SEZs will, thus, reduce their costs of production and export the output to bring in foreign exchange resources.
While the upper strata of the society including the newly emerging middle class are happy, there have appeared worries among the petty bourgeoisie and the working classes. The entry of Indian big business houses and the multinational companies in retail trade has created deep worries among 40 million existing shopkeepers. They are not sure that they will survive in the race. Already, news is circulating that Wal-Mart is very soon going to enter Indian retail market as a partner of Sunil Bharati Mittal of Air-Tell. One is not sure that the government is keen to stop it. In spite of all the protestations by the government, International Herald is being printed and published in India. Media giants like CNN, Reuter, Financial Times and so on are here. In book publishing (including in Indian languages) foreign capital is active. The year 2006 proved to be very auspicious for it. In course of time, many indigenous publishers, booksellers and media-owners will be wiped out. One may look around and see that the entry of Coca-Cola and PepsiCo has already ousted small indigenous manufacturers of soft drinks and soda water.
Notwithstanding all the apparent active concern shown and various measures announced by the government, the plight of farmers has not improved and suicides by them continue unabated. For years, food grains production has been stagnating. In the year 2004-05 its growth rate was negative and food grains production declined by 4.2 per cent. Even if it turns out that food grains production increased 2.3 per cent in 2005-06, it will not compensate for the decline in the previous years. The year 2006 did see any success in reversing the stagnation in agriculture. The reasons for this stagnation include the fall in public investment in agriculture, reduction in subsidy on seeds, fertilizers, irrigation and electricity. Farmers do not get sufficient amount of loans from institutional sources and this leads to their continuing dependence on private moneylenders and traders. The government has failed to procure food grains and other commodities from farmers and guarantee minimum support price.
It needs to be noted that in 2006, for the first time, the government allowed a number of MNCs to buy food grains from producers. On the one hand, the dependence of farmers on these MNCs increased and, on the other, with insufficient procurement the capacity of Food Corporation of India to build buffer stock in order to intervene in the market to protect the interests of both the farmers and the consumers got weakened.
The year 2006 saw the take off of the strategy of â€œcontract farmingâ€ that has been strongly advocated by MNCs and FAO. Charles Eaton and Andrew W. Shepherd have provided theoretical arguments in an FAO publication, â€œContract Farmingâ€”Partnerships for Growthâ€. They hold that, in this age of market liberalization, globalization and expanding agribusiness, there is a grave danger to the survival of small farmers. Only through the strategy of contract farming, they can align themselves with big corporate entities in order to survive. PepsiCo has been one of the pioneers of contract farming and Hindustan Lever, Tatasâ€™ Rallis, ICICI, etc. have followed suit. The process of proletarianisation of small and marginal farmers is in progress and what happened in England in the 18th century under enclosure movement will be repeated here. The National Agricultural Policy of the Government of India visualizes that â€œPrivate sector participation will be promoted through contract farming and land leasing arrangements to allow accelerated technology transfer, capital inflow and assured market for crop production, especially of oil seeds, cotton and horticultural crops.â€
Besides the growing army of the unemployed, increasing consumer prices were disturbing. Between October 2005 and October 2006, consumer prices rose by more than 7 per cent and this trend continues. If it is not reversed, it will result in redistribution of income at the secondary stage in favour of the rich and against working people.
New hopes were aroused in 2006 when the government began the implementation of rural employment guarantee scheme in spite of stiff opposition from a powerful section both inside and outside the government. The credit for this goes to Mrs. Sonia Gandhi, Left parties and economists like Amit Bhaduri, Jean Dreaze, etc. It was hoped that the concept of â€œDevelopment with dignityâ€ would become a reality. But as the news goes, this scheme is not progressing well for lack of public intervention to check corruption and irregularities.