Blind, on purpose?

Economic Survey 2002 turns a blind eye to the actual problems confronting the Indian economy and advocates a set of discredited neoliberal policies.

THE Economic Survey, the annual publication of the Ministry of Finance, was originally intended to provide an in-depth look at developments in the economy during a certain year and indicate the problems and prospects for the immediate future. Instead, in recent years it has become an increasingly blatant promotional hand-out of the government seeking to trumpet its economic achievements, slur over problems and advocate a set of neoliberal policies, regardless of their actual outcomes as is evident from the statistical material provided in the Economic Survey itself. This has been especially the case under the Bharatiya Janata Party-led National Democratic Alliance (NDA) dispensation. This year's Economic Survey is no exception.

The Economic Survey is divided into ten chapters. Starting with a general review of developments, it goes on to review in succession the areas of public finance, monetary matters, capital markets, prices and food management, the external sector, industry, agriculture, infrastructure and finally, the social sector. While it may be invidious to suggest that the particular ordering of the chapters reflects the priorities of the government, it is nevertheless the case that in the perspective in which the Economic Survey views economic issues, monetary and financial factors are crucial determinants of growth, and the latter in turn is decisive for all other parameters of economic performance. There is a clear contradiction in the Economic Survey between the factual review of economic performance in the current year and in the period since the intensification of neoliberal reforms began in 1991 and its policy prescriptions. The remarkable thing about this is the consistency of the contradiction.

Unlike last year's euphoric review of earlier developments, this year's Economic Survey is constrained to recognise the significant deceleration in the economy for nearly five years now. It notes that the revised estimate by the Central Statistical Organisation (CSO) of gross domestic product (GDP) growth for 2000-01 is 4 per cent (as against the claim of 6 per cent in the previous year's survey, a fact not mentioned anywhere in the present document) and that in 2001-02 industry especially has performed badly. It tries to put a gloss on this performance by pointing to strong growth in agriculture, without highlighting the fact that it comes after negative growth in the same sector in 2000-01. The Economic Survey also acknowledges the fact that while value added in industry grew at an annual rate of 8.5 per cent between 1993 and 1997, it grew at only 4.8 per cent between 1997 and 2001. The corresponding figures for agriculture and allied activities at 4.5 per cent and 1.2 per cent confirm the stagnation in the material producing sectors of the economy since 1997. However, what the Economic Survey does not mention, is that with the current year's poor performance, even the rate of growth of GDP as a whole for the period between 1992 and 2002 will most likely be marginally lower or at any rate no different than that for the period between 1981 and 1991, the period immediately preceding the acceleration of neoliberal reforms. Instead, it asserts that the neoliberal reforms have led to a higher rate of GDP growth in the 1990s than in earlier decades. TheEconomic Survey recognises that industrial stagnation has emerged as a problem, and is in fact broad-based, but does not see it as arising from the policies of pre-Keynesian fiscal orthodoxy and mindless opening up of the economy followed in recent years. Instead, it suggests that these policies must be intensified through so-called second generation reforms which include elimination of all protective labour legislation, complete liberalisation of agriculture, further large doses of privatisation and liberalisation of the capital market and the financial sector, eventually leading to complete capital account convertibility.

IN the agricultural sector, the Economic Survey hails the estimated 5.7 per cent growth rate in the current year, but underplays the fact that the foodgrains output this year will at best match that achieved in 1999-2000, at 209 million tonnes. In fact, on the issue of food management, the Economic Survey takes the view that the large accumulation of food stocks with the Food Corporation of India (FCI) indicates that India's food problem is no longer one of food scarcity or security, but of how to manage surpluses. It illegitimately concludes from National Sample Survey (NSS) data on consumer expenditure that the surplus stocks reflect changing consumer preferences, away from cereals and toward non-food, and within food, towards dairy, fish and meat products. While this may at best be true of certain higher income sections, it is certainly not true of the bulk of the population, especially the rural and urban poor, whose reduced consumption of foodgrains reflects distress and lack of purchasing power rather than changing preferences. Given its view that the problem of food management is no longer one of ensuring food security but of managing surpluses, the Economic Survey recommends: "All controls and restrictions on storage and movements of agricultural products would need to be removed and private trade given a larger role."

On the fiscal front, the Economic Survey ruefully admits that despite sustained efforts at expenditure compression, it has not been possible to bring down the holy cow of the Washington Consensus, the fiscal deficit, below 5 per cent of GDP. The Economic Survey seeks unconvincingly to rebut the point that high revenue deficits and not high fiscal deficits should be the focus of policy concerns with the non sequitur that this is true only if the non-revenue fiscal deficit provides returns commensurate with the cost of borrowing. The cost of government borrowing has been hiked precisely by the policy of financial liberalisation and the so-called "freeing of interest rates", linked in turn to the imperatives of globalisation of finance capital.

The Economic Survey refers to the need to raise tax revenues in order to undertake very necessary expenditure on capital formation and to bring down the deficit. It notes: "Considerable progress has been made over the past 10 years in the reform of the Indian tax system in all its aspects, but the tax revenue receipts have remained below 10 per cent of GDP throughout the period." This is disingenuous, to say the least. The decline in the tax to GDP ratio, elsewhere acknowledged by the Economic Survey, is in fact the outcome of the "progress made in the reform of the Indian tax system" that it refers to with approval. However, finally, after admitting that the salaried classes bear the brunt of personal taxation, it ends up with the statement, "The key tax policy and governance issue... relates to the enforcement of greater compliance in the personal income tax area", leaving the corporates completely off the hook. It is vague about how the tax base can be widened, in the area of direct taxes.

The Economic Survey is at its propagandist best (or worst) when it comes to the discussion of poverty. It admits that the growth rate of employment has come down sharply between 1993-94 and 1999-2000. This is especially true of rural employment. Only a small part of the slow growth of employment can be attributed to increased and longer periods of school enrolment and consequent decline in the rate of growth of the labour force itself. A large part of it reflects the decline in expenditure on rural development and employment schemes by government, and the poor demand conditions in the economy resulting from the crisis in agriculture and industry. Yet, without any asset redistribution to the poor, and with very slow employment growth, the Economic Survey manages to report that the poverty ratio has now declined to an all-time low of 26 per cent, and that 60 million people have crossed the line from poverty into a state of being non-poor. The conclusion is reached on the basis of a dubious interpretation of the data from the 55th round of the NSS which has a number of methodological problems, whereas more careful assessments made with the same survey data on a comparable basis have demonstrated that the poverty ratio in 1999-2000 has either remained the same as in 1993-94 or only marginally declined, thus confirming the consensus view among academic economists that the rate of decline of poverty has slowed down since the acceleration of neoliberal reforms since 1991.

TAKEN as a whole, the Economic Survey comes across as a highly laboured effort at justifying the neoliberal policies currently being followed vigorously, and at drumming up support for the so-called second generation reforms so eagerly insisted upon by foreign and Indian large capital. These include dismantling of all reservations for small-scale industry in the name of making Indian industry export-competitive, amendments to labour and company laws to enable managements to dismiss labour at will and close down companies, and completion of finacial and capital account liberalisation. Not a word is to be found here on the need to use the country's food stocks for a massive and productive employment generation programme which will create productive assets and stimulate demand in the economy, thus assisting industrial revival as well. Instead, we are told that, among the ways of "dealing with surplus foodstocks" (in a country where about 300 million people are below even the government-defined abysmal poverty line) is its sale at prices well below economic cost to both world markets and domestic private trade. How much more callous can we get?