India needs purchasing power rather than subsidies

Recently Tamil Nadu faced state elections and both the main parties were talking about 1 kilo rice for Rs. 1 and other subsidized food products. I have taken Tamil Nadu's example because of recent elections, otherwise subsidies are abundant everywhere in India.

What I wonder is, governments fix the minimum support price for the food article to support the farmers, buys it from the farmers for the support price and same governments sell them to its citizens in a subsidized prices like of Rs. 1. Its same for the oil and its by-products also. So who is going to take care of the deficit of these transactions and how long is it going to work on just blame-game?

India faced a severe Balance of Payment (BOP) crisis in 1991 due to higher fiscal deficit and some external shocks like oil crisis and wars. At that time India had forex reserve of 1 billion dollars which was sufficient to import for just one week. Since oil and wars were/are not in our control totally, no point to elaborate on those issues. But what Indian central and state governments could have controlled is the deficit problem. Due to socialistic era and combined with populist budgets like above mentioned ones (particularly started in southern and eastern states) caused irreversible deficit to the exchequer. And surprising fact is still we are following the same old route towards a possible BOP crisis even after seeing other countries taking development mantras.

Now, in this LPG (Liberalized, Privatized and Globalized) era, India's much publicized recent problems are PDS (Public Distribution System) and Inflation. Due to subsidies, majority of the PDS quantity is sold in the black market without letting the targeted person to claim it.

To avoid the PDS problem central government has started an ambitious project called Unique Identification Number (also called as Adhar) under the leadership of Mr. Nandan Nilekani. But the fundamental problem of "deficit" remains the same even after UID or Adhar project.

India aspires to overtake the China, over a period of next 25-30 years, but with the kind of policies is it possible? India's debt to GDP is more than 70% where-as China's is about 20%. India's foreign reserve is about 300 billion dollars where-as China's is more than 3 trillion dollars. According to recent IMF data available, China's GDP at PPP (Purchasing Power Parity) per capita is more than 35,000 dollars per year where-as India's is around 3,300, thats almost one tenth of China!

Governments should really think of improving the PPP- instead of subsidies. And PPP can be improved only if everybody gets regular jobs to contribute towards the GDP. Again jobs require education, different skill sets and more, which in turn can generate jobs. Governments should think about taking up projects like converting Narrow Gauge to Meter to Broad and single line to double to four line railway tracks, not just increase the trains. Why I am mentioning railway project is because projects like National Highway (by Vajpayee government) and railway track doubling are through out India and can generate lot of employment and at the same time can improve the infrastructure of the country.

Yes! COMMON MAN is getting benefits from FASTEST GROWING economy

Guys this month beginning we had a discussion about the above mentioned topic. And I kept the topic for open discussion, which never happened after couple of responses from Uday & Richa! never mind. Today I read an article in Sunday Times of India by Swaminathan Aiyar.
I advise all my readers to go through that article. For those who cant, for them I am presenting some of the numbers from the article here.

The below numbers from a survey covered all dalit households in two blocks in UP, one in the relatively prosperous west (Khurja) and one in the backward east (Bilariaganj), between 1990 and 2008.

• Pucca houses rose from 18.1% to 64.4% in the east & from 38.4% to 94.6% in the west.
• TV ownership improved from virtually zero to 22.2% and 45% respectively.
• Cellphone ownership increased from almost nothing to 36.3% and 32.5% respectively.
• Fan ownership, curbed by electricity shortages, rose to 36.7% and 61.4% respectively.
• Bicycle ownership up from 46.6% to 84.1% in the east and from 37.7 to 83.7% in the west.
• Ownership of two-wheelers improved from almost zero to 7.6% and 12.3% respectively.
• In times of distress, dalits historically mortgaged jewelery to upper caste lenders. The proportion that does so has dropped from 75.8% to 29.3% in the east and from 64.6% to 21.2% in the west.
• The proportion eating roti-chutney for lunch, socially viewed as low-class food, has fallen from 82% to just 2% and 9% in the two zones.
• The proportion of kids eating the previous night’s leftovers plummeted from 95.9% to just 16.2% in the east.
  
• The proportion eating broken rice fell from 54% to 2.6% in the east, and from 22.7% to 1.1% in the west.
• Per capita availability of dal in India has been falling. So it’s heartening that dalits consuming dal are up from 31% to 90% in the east, and from 60.1% to 96.9% in the west. This may be one cause for rising dal prices.
• Traditionally, dalits were mainly agricultural labourers. In the reform era, they have diversified into non-traditional work. The dalit proportion benefiting from migrant relatives is up from 14% to 50.5% in the east, and from 6.1% to 28.6% in the west.
• The proportion running their own business is up from 4.2% to 11% in the east and from 6% to 36.7% in the west.
• The proportion in agricultural labour has plummeted from 76% to 45.6% in the east and from 46.1 to just 20.5% in the west.
• Per capita income is growing almost 10 times faster than in the Nehru-Indira era, and dalits are sharing the new prosperity.

Here one common thing you can notice in all above mentioned bullet points and that is private sector participation and competitiveness between them. For example from first bullet point, you can notice TV, Cell phone, Fan, Bicycle, Motor cycle, Mortgage (Banking services), Availability of non agricultural avenues are improving common man's status directly and indirectly.

So all this happened last 10-15 years helped by LPG (Liberalization, Privatization & Privatization) which is initiated by then Government in 1992 (Manmohan Singh) & 1997 (P Chidambaram)

The point is, after 1997 we haven't seen any revolutionary reform from the government due to various reasons. So when we are thinking about achieving double digit GDP growth next decade, we cant be complacent thinking history & past reforms, we need to take certain bold steps.

And once government does its part then comes turn of Private sector & common man of contributing to their share.

In today's same STOI, I read an article from Chetan Bhagat. Its also good article, you can have look at it also...

Comments for previous posting & My Response

uday said...

The irony is - Inspite of India being a Agricultural country, inspite of the fact that India is believed to 'Live in the villages' - these idiot rural indian masses are at the mercy of urban India. Why should they need any government to solve their problems. All the intelligent and capable masses from rural india migrate to metro with greed of big salaries - only waste bodies stay back. Most rural population is good for nothing people thinking that it is responsibility of the Indian govt to take care of them.

September 8, 2010 2:19 PM

Richa said...

Very true, Naveen. These are words of common man....U Me n everyone..
BUT blaming govt. is it always correct? What are we doing to improve things?
Questions? May be we cant do anything, but why not one amongst youth gets into politics to do gud for the NATION....Again a question???

My Response:

First I would like to thank Uday & Richa for reading the article and taking trouble to comment on that. Now coming to comments part I don't buy some of the comments of Uday & Richa, of course they may be correct in their own way.

Because there are structural issues which only government can handle. For example we are now enjoying the benefit of LPG (Liberalization, Privatization & Globalization) which is again started by then government in 1992 by Mr. Manmohan Singh. So government should take the initiative to do the things better, allow the private players in some of the specific areas step by step to participate & then we can argue that government cant do everything.

Now take the following examples...

Inflation

When world is at the door step possibility of double recession/slowdown/deflation, we Indians are facing the problem of Inflation. Food Inflation is the main culprit in that. And main problem for this is PDS (Public Distribution System) is so pathetic, corrupted & license raj.

For example government is supplying Rice @ Rs. 2 to BPL through PDS. But more than 50% of it is not reaching the targeted people, because middle men are selling same Rice in open market for market rate approximately to Rs. 20. This is just one angle for Inflation & other angle is preservation of food articles, even Supreme Court has given suggestion government that instead of wasting them & distribute to poor people.

In places like Delhi, more than 40% of water & 35% of power leakage & theft is happening, which is Capital of country & where in now we are conducting Commonwealth Games whose preparations are another disaster.

These are just a simple examples how the systems in place are working.

Today, I read an article where in Infosys Mentor Mr. Narayan Murthy is talking about India's problems.

I request to all my readers to please read that article here...

Some important points, he mentioned are as follows...

--> Even 63 years after Independence, 35 crore (350 million) Indians can't read and write.

--> Twenty-five crore (250 million) people do not have access to safe drinking water.

--> While 75 crore (750 million) have no access to sanitation facilities, Murthy said.

--> The country has the largest mass of malnourished children, and 35 per cent of (total production of) grains are allowed to rot.

--> India has an installed electricity generation capacity of 145 gigawatts but only 84 gigawatts are available, which is "sadly a shame

--> Lot of it is due to poor (public) governance. There is no doubt about it. Unfortunately, our public governance is inadequate. Whatever our public governance has touched has not made as good a progress as private governance has. While all of private governance may not be good, private governance institutions have by and large done better because of competition, entry of multinational companies and the need to compete at the global level.

And I read one more article in rediff about global competitiveness of different countries in different segments. And some important points in that are...

--> It ranks 104th in the health and primary education pillar, with high rates of communicable diseases and high infant mortality. Indeed, life expectancy in India is 10 years shorter than in Brazil and China.

--> Infrastructure (86th) is in need of upgrade, especially with respect to quality of roads, ports, and the electricity supply, with India falling 10 places in this area this year.

--> Labour markets are also in need of greater efficiency and flexibility (92nd).

--> And overall India's rank 51st

Bottm line:
Topic is open for discussion...

Yesterday Truckers' & Today PSU of Oil Sector

Yesterday, I posted about the Trucker's strike and its possibility of increasing costs to common in basic necessary things which may halt the falling inflation. Now today I saw in TV, that in almost all Metros 25-30% of the PETROL PUMPS are dried out due to lack supply since PSU oil companies are on strike. According the reports they can manage for couple of more days. What after that? What the government is doing for these kind of strikes particularly in this type of conditions??? Again here common is going to suffer for day today activity if supply didn't revert back to normalcy. According to reports IOC's seven refineries were producing only 40% of their output with production being impacted at its key refineries of Panipat and Mathura.Its Koyali refinery in Gujarat was producing only 25% of the normal output, while BPCL's Mumbai refinery was operating at 70% of its capacity. IOC Director (Marketing) GC Dagga said the product offtake from refineries was only 10% yesterday and this was causing supply constraints.

Courtesy
TOI