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Growth will bring equity

Reform of the agriculture, infrastructure and energy sectors is the most important challenge for India, writes P Chidambaram.

india Updated: Nov 07, 2006 00:51 IST

Of the important challenges that I had identified earlier, the first is agriculture. Agriculture is the biggest private sector economic activity in India. However, farm holdings are small, the extent of land under assured irrigation is limited, and farming is not regarded as a remunerative occupation by most farmers. Public investment in agriculture has been low. As a result, the benefits of the Green Revolution of the Seventies have ebbed, and we seem to have reached a plateau in agriculture production.

The output of wheat has stagnated at about 70 million tonnes and of paddy/rice at 90 million tonnes. The production of pulses, which are a staple in India, has also peaked at 14 million tonnes. Oilseeds output is at 27 million tonnes. There has not been a major technological breakthrough in seeds or the use of fertilisers in the last 20 or more years.

The challenge is to increase public investment in agriculture, especially in irrigation; to enhance the productivity of farming, especially in paddy, wheat, pulses and oilseeds; to adapt genetic sciences to the needs of Indian agriculture; and to promote private investment, including investment by the corporate sector, in pre-farming and post-harvest activities in a manner that will not affect the sacred relationship between the tiller and the land.

The second is the problem of infrastructure. The government attaches the highest priority to the development and expansion of physical infrastructure like roads, highways, ports, power, railways, water supply, sewage treatment and sanitation. An investment of about $ 320 billion would be required in the infrastructure sector during the Eleventh Plan period (2007-11).

These investments would be achieved through a combination of public investment, public-private-partnerships (PPPs) and exclusive private investments. In order to enhance public investment in infrastructure, it is essential to create fiscal space by restricting public expenditure in current consumption.
Furthermore, we have to levy and collect appropriate and reasonable user charges not only to attract private investment but also to ensure proper operation and maintenance of the assets that are created.

Our experience shows that PPPs and competitive bidding for such projects can help in augmenting infrastructure. Our intention is to award PPP projects on the basis of transparent competitive bidding together with a standard concession agreement.

The third challenge is energy. No economy can grow at 8 per cent or more if the energy sector — including oil, coal and electricity — grows at a lower rate. Domestic production of oil has stagnated at around 33 million tonnes a year, while consumption has increased from 55 million tonnes in 1990-91 to 112 million tonnes in 2004-05. Coal production, which is the monopoly of the public sector with limited exceptions, is at 412 million tonnes. The electricity sector has grown at an average rate of 5.2 per cent since 2004-05.

There are serious problems in the pricing and distribution of electricity, and the recovery of costs from large sections of consumers including farmers, households and small businesses. Obviously, the energy sector is acting as a constraint on a more rapid rate of growth, and no time can be lost in addressing these issues.

An Optimistic Outlook

We have miles to go before we rest. What is needed is not less but more reforms. Our neighbours in East Asia have demonstrated that a home-grown model of development that marries sound economic principles to the objective conditions found in a country can bring growth and prosperity in about two decades.

I believe that it is now India’s turn. What is required is a resolve to press ahead with reforms with a fine balancing of growth and equity. The so-called dichotomy between growth and equity is false. I do not know of any country that has achieved equity and empowerment of the people without sustaining growth over the medium term.

To us in India, growth is an imperative. So is equity. I hold the firm belief that we should aim to grow at a rapid rate. I also hold the firm belief that an open and democratic system will ensure that growth is converted into inclusive and equitable growth.

P Chidambaram is the Union Finance Minister. This is the second part of the lecture he delivered at Stanford University, US, on October 24, 2006

(Concluded)