Report: NDA Government’s Challenges


A dialogue on challenges before the NDA Government was organized on June 27, 2014 by the Council for Social Development, ActionAid India- South Solidarity Initiative, Focus on the Global South and Third World Network.  Read the report below.


Multiple Crises in the Indian Economy: Challenges for the NDA Government. 27 June 2014, New Delhi

Organised by: Council for Social Development (CSD), Focus on the Global South, South Solidarity Initiative –ActionAid and Third World Network

A discussion organized on 27.06.2014 in New Delhi took stock of the challenges facing the newly elected National Democratic Alliance (NDA) government, which has inherited an economy riddled with multiple crises in the form of a long drawn agrarian crisis, impasse in manufacturing, challenges in the field of employment generation and continuous inflation, worsening external balance situation and an impending squeeze on the policy space in crucial programmes such as the National Food Security Act from commitments at the WTO. Given below is a broad summary of the points made by different speakers and take away from the discussion which followed.

The first session was moderated by Prof Muchkund Dubey with Prof Deepak Nayyar and Prof Biswajit Dhar speaking on ‘Macro Economic Crisis & Industrial Stagnation’ and ‘Trade & Investment’ respectively.

1. Neoliberal consensus across the political spectrum

The reasons for the present crisis are to be found in the policy consensus across the political spectrum, which is still holding on to neoliberal policy prescriptions and has not learnt any lessons. This is despite the fact that these beliefs have lost all credibility in the global economic debate after the failure of IMF- World Bank advocated models across the Third World and the global financial crisis of 2008, which has underlined the need for more effective regulation. It is to be expected that the newly elected government might increase the pace of neoliberal policy changes which would further worsen the situation left by the United Progressive Alliance (UPA) Government. The signs of such a policy direction are already visible in emboldened calls for reducing government regulation, dilution of welfare programmes and opening critical areas for FDI or private profiteering.

2. There exists a multi-pronged crisis in the Indian Economy

a) Perverse policies under the garb of neoliberal reforms have created deep rooted problems in the Indian economy across all sectors. It would be erroneous to view problems on a particular front/ in a particular sector in isolation from others, as they have fed each other and some of the recent problems are outcomes of the older ones. A long drawn agrarian crisis, beginnings of de-industrialization which can be seen in the beleaguered manufacturing sector and a highly iniquitous distribution of income in the service sector has generated a situation where employment generation has failed to take-off and mass demand has collapsed. The situation is manifesting itself in the persistence of high levels of poverty and increasing inequality.

b) The overwhelming dominance of finance in the economy has created a situation, where there has been a diversion of economic resources from the real sector to the financial sector, or from the domestic economy to the rest of the world. The dismantling of development finance in the name of financial reforms, declining investment in public infrastructure and persistence of high interest rates to attract foreign portfolio investment has broken the back of manufacturing, particularly Small and Medium Enterprises (SME) in the country. The country has been witnessing more outward than inward bound FDI as economic incentives to invest in the real economy domestically have been diminishing.

3. Policy Instruments have to be used wisely

It is important to realize that the neoliberal dogma of cutting fiscal deficit to maintain investor confidence or maintaining a high rate of interest to curb inflation is not going to help matters. International experience shows that the fiscal deficit limit should be decided on the basis of net returns on the investment which are made out of government borrowings, and tweaking rates of interest alone can neither help investments nor curb inflation. Also, the government should pay more focus on mobilizing resources through taxes to meet its income-expenditure gap instead of creating negative multiplier effects by cutting spending.

There is a need to revive policies and institutions which can rejuvenate output, employment and mass incomes. Unless manufacturing receives a fillip, employment generation would remain an elusive goal. The primary focus should be on tapping domestic resources for investment in manufacturing, through revival of development finance institutions and stepping up investment in rural infrastructure and skill generation.

4. External sector engagements need a revisit

There cannot be any quick-fix or immediate solution to problems we are facing on the external account front. Increasing gold imports, an important reason for worsening Current Account Deficit (CAD), are a reflection of dearth of investment avenues in the domestic economy, characterized by non-existent opportunities in the stock market and crisis in the real estate sector. A failure to reap the huge potentialities in manufacturing has led to both a decline in share of manufacturing exports as a whole, and a high share (50 percent) of low technology products, compared to countries like China and Brazil with overwhelming share (three fourth and two third respectively) of high and medium technology manufacturing exports.

The biggest reason for this situation is a complete failure on the government’s part to ensure adequate preparations in the domestic economy to meet the competition from imports, as India opened up to foreign competition, and continue to do so via bilateral and multilateral trade agreements. In many of these Free Trade Agreements (FTA) India’s trade deficit is double or equal to the size of its exports vis-à-vis its partners. Unless the practice of opening up to much more industrialized and cost and technology competent countries without taking steps to correct the domestic problems needs to be stopped. Otherwise, the economy would continue to face increasing imports and a low-technology crisis ridden manufacturing sector instead of reaping the promised benefits of integrating in global/regional value chains. The dismal situation in the domestic economy is creating limitations on the ability of our negotiators to engage in effective bargaining in these agreements.

Given the fact that FTAs are being driven by not just economic but also strategic and geopolitical considerations, sitting outside these fast evolving realities may not be an option today. What is needed is a comprehensive approach to build strong cooperation with developing countries, on the basis of common interests, to counter the pressure from developed countries, to give up on policy sovereignty in important matters.

The government would have to deal with challenges in the WTO that requires India to reporting commitments on the Food Security Act, even though an adverse decision on the G 33 proposal has seemingly been postponed for now via an Interim Arrangement (a Peace Clause) after the Bali Outcome. However, in reality this is not the case as India is obligated to onerous notification requirements even to use this so called “Peace Clause”.

The second session moderated by Prof Imrana Quadeer, saw sector-specific discussions on Agriculture, Health, Education and Environment with Dr T Haque, Dr Amit Sengupta, Prof Muchkund Dubey and Aseem Shrivastava as speakers on respective topics.

1. Agriculture

Deteriorating balance between agriculture’s share in GDP and employment has resulted in a relatively low value added per worker for Indian agriculture, compared to not only developed, but even developing countries. Even in terms of rate of growth of production in various sub-sectors, India’s record in the last decade is poor compared to countries like China and other smaller South East Asian nations, which is a result of low yield growths.

Within the country, there exist large scale disparities between agriculture and non-agricultural incomes across states, with a very high gap in most of the states, except the traditional green revolution areas. Although, the rate of growth of production in most sub-sectors has improved in the last decade compared to 1990s, serious challenges face agriculture in the country on many fronts.

Low size of holdings, low productivity, high input costs and low output prices has created a poverty trap for majority of the farmers in the country. Unless quality education and skill generation is done at a large scale to promote off-farm and non-farm employment, population pressure on land cannot be addressed. Failure to do so would jeopardize the pursuit of food and nutrition security in the country in the days to come.

The new government can meet these challenges if it focuses on the task of bridging yield gaps across sectors; accelerates the pace of horizontal and vertical diversification of agriculture; improves agriculture and rural infrastructure; eases access to cheap institutional credit and incentivizes young people in rural areas to shift to high value activities in agriculture. This cannot be achieved without remunerative support policy and an effort to reduce costs of production so that terms of trade for agriculture are not adversely affected.

Existing market systems and laws should be modified to allow improved market access to farmers and meet the challenges of globalization and trade. A decentralized approach which includes a pro-active role by the state to help poor and landless-homeless farmers while focusing on encouraging environmental sustainability should be the way forward.

The BJP has promised many positive steps in their election manifesto to revive agriculture. It remains to be seen whether these are implemented.

2. Health

Ensuring universal health care for all is not possible at the paltry levels of spending which has been less than 1 percent of GDP, despite a long standing demand to raise it to 3 percent. There is a need to revisit the policy outlook towards the health sector on three important counts: financing, infrastructure and human resources.

  •  Government spending needs to be increased and central government should take the responsibility instead of passing the burden to states, which are already starved of funds. The global paradigm itself has shifted to debating the nature of public investment in health rather than a public versus private debate.
  •  Instead of creating a few high quality facilities – like establishing AIIMS like institutions in all states – focus should be given on building a strong and good quality primary health care network with linkages to secondary and tertiary care facilities, which is crucial for a good public health care system.
  •  The shortage and non-willingness of doctors to serve in rural areas is a manifestation of the broader trend among the social elite to not work in rural areas. The state should focus on increasing the ratio of good quality trained health workers to solve this problem.

Empirical evidence from all countries which have well-functioning health care systems in the world suggests that it is a tax funded common public health care system for all, which has reached the target. Instead of learning any lessons from this, both the UPA and NDA governments have been promoting a health sector where a poor quality public health care

system for the economically weaker sections and a high quality private health set up for the rich co-exist, which ensures in turn the low quality of the former. The latter is actively supported by the government, which has been freeing resources for it by a regressive tax system, and transferring resources to it by schemes like health insurance.

The new government’s talk about implementing the world’s largest health insurance scheme is a pointer in this direction instead of taking the required steps to overhaul the public health apparatus in the country.

3. Education

The problems plaguing provision of public services like health and education are rooted in the same ideological framework. Indications suggest that the new government would increase the pace of privatization in the sphere of primary education and dilute schemes like the Right to Education (RTE) succumbing to a motivated campaign of factually and politically incorrect arguments. Advocates of privatization of basic education have been arguing that instead of spending focus and resources on the RTE, focus should shift on quality related issues in education – implying that the state does not provide competition to private players in the field of school education.

There still exists a large scale shortfall in infrastructure to implement the provisions of RTE – in terms of number of schools, recruitment and training of teachers, and creating facilities like functional laboratories in schools. Though enrolment has increased, universal education has still not been achieved and attendance and drop out rates continue to be high.

The philosophical moorings of privatization of school education – which creates poor quality public schools and high quality private schools for the rich – are antithetical to the goals of cultivating values of common citizenship and team work apart from being a recipe for undermining universal education as well as affordability for all.

There is a need to resist attempts for privatization of basic education directly or indirectly (in the name of Public-Private Partnerships) while a struggle must be waged for enacting a new legislation to replace the shortfalls in the RTE act to meet the challenges of mandated financing, imparting education in mother tongue, ensuring a smooth flow from one level to another level of education and bringing children below 6 years of age and above 18 years of age under the act’s coverage.

4. Environment

Environment cannot be an after-thought in policy parlance given the alarming pace at which ecological destruction has been going on in the name of development. A World Bank study last year has pointed out that India is losing up to 5.7 percent of its GDP every year due to environmental damage.

There is a need to revisit the policy outlook of developing countries which sees seeking parity with developed country pollution/emission levels as a just world order as it is only going to create irreversible environmental damage.

The government should work on restoring the rural urban balance instead of encouraging rampant urbanization through policies such as the proposed 100 smart cities initiative of the new government. This can be done by encouraging small farm agriculture and promoting rural crafts and arts instead of promoting a mechanized agriculture dependent on fast depleting fossil fuels.

To make a beginning in this direction it is essential to get rid of the attitude which sees environmental concerns as an impediment to economic growth, and instead empower regulatory bodies dealing with environmental implications of economic activities, which are currently facing an acute shortage of material and human resources.

Takeaway and Future Tasks

There was a broad agreement among the speakers that unless there is a shift from a corporate-led development strategy it would be difficult to stimulate mass incomes and employment as well as meet the crying deficiencies in provision of social services like health and education or meet the alarming sustainability concerns in the area of environment and agriculture.

The organizers mentioned that this is a beginning in the line of similar activities in the future to build a synergy between academics, researchers and activists towards forming an informed public discourse in the right policy direction to overcome the challenges the country is facing.

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