Slipping in infrastructure The Pioneer, By Bharat Jhunjhunwala http://www.dailypioneer.com/columnist1.asp? main_variable=Columnist&file_name=jhunjhunwala% 2Fjhunjhunwala94.txt&writer=JHUNJHUNWALA
A glimpse of the anti-people policies being followed by Prime Minister Manmohan Singh is obtained from the Annual Report of the Reserve Bank of India for 2004-05 that was released recently. The RBI has expressed satisfaction on the increasing profits of the corporates and control of inflation, despite a steep increase in international price of oil. Indeed, these are commendable achievements. But credit provided to small and medium enterprises (SMEs) is shrinking. Higher credit to agriculture is not leading to the generation of jobs. The main beneficiaries of higher expenditure on health and education are the Government employees, not the people. Investment in infrastructure is declining, which does not bode well for the future prospects of the economy. The present growth trajectory of the economy is possibly good for the rich, but there is nothing here for the common man. The RBI report tells that the share of SMEs in the Gross Bank credit declined from nine per cent in March 2003 to 7.8 per cent in March 2005. However, in the same period, the credit provide to SMEs increased from Rs 74,000 crore to Rs 1,22,000 crore. These data indicate that SMEs are growing, but at a slower pace than rest of the economy. The SMEs are moving ahead like the bullock cart. One can be happy about this only by ignoring the fact that it is being left behind by the speeding car. The RBI tries to ignore this fact and puts a brave face on this worsening situation of the SMEs. Instead of acknowledging the declining share of SMEs in bank credit, it speaks of empty expectations of an increase in the same. The report says that the Credit Information Companies (Regulation) Act "is expected to encourage setting up of credit information companies and, thereby improve exchange of information on credit histories of the borrowers and, with appropriate risk assessment techniques in place, should lower transaction costs of the banks. In turn, this is likely to lead to an increase in bank lending to SMEs". This is like saying that the knowledge of the nature of the bullock will help the bullock cart to move faster, even though the dirt road is in a bad shape. Unavailability of past record of the SME borrowers is not the reason for the fall in their share of credit. The reason for the fall in their share is that the Government refuses to fully compensate them for their economic contribution. The SMEs are the nursery of future industrialists of the country, and they help reduce the welfare expenditures of the Government by generating a large number of jobs. They should be compensated for this service provided to the country. On this the RBI is silent. Rather, it endorses the anti-people policy of dismantling of reservations without putting in place another system of compensating the SMEs for their contribution to the economy. The situation of agriculture is more complicated. There has been a steep increase in the credit provided to agriculture - the share of agriculture in Gross Bank Credit has increased from 11 per cent in 2003 to 12.6 per cent in 2005. But jobs are not being generated from this growth. The RBI report says, "Agriculture had a limited or no direct role to play in providing additional employment opportunities in the recent decade. Employment in agriculture remained virtually unchanged at about 190 million people during the 1990s." Why jobs are not being generated despite increase in credit to agriculture? The RBI does not provide answer to this puzzle. One possibility is that the credit is being provided for job-eating equipment like harvesters, rather than for job-creating equipment like tube wells. Thus, the common man has nothing to gain from this increase in credit. The Congress has taken the first steps towards increasing Government expenditures in the social sectors. The Budget outlay for these sectors has increased from 1.86 per cent in 2004-05 to 2.03 per cent in 2005-06. Though much lower than the 2.38 per cent of 2002-03, this, nevertheless, shows the priority of the Congress. But this, too, does not reach the common man. Rajiv Gandhi had once said that out of one rupee spent by the Government only 15 paise reach the beneficiary. The butter is appropriated by the Government employees and the people get, at best, a bit more buttermilk. These data indicate that there is nothing for the common man in the policies being followed by Mr Manmohan Singh. Another area of concern is the weakening state of infrastructure. The growth rate in the Composite Index of Six Infrastructure Industries was 5.6 in 2002-03. It increased to 6.2 in 2003-04, but declined to 4.4 in 2004-05. There has been a steep decline after the Congress has come to power. There is decline in the level of development expenditures as well. The development expenditures of the Government, as a share of GDP, declined from 7.5 per cent in 2002-03 to 6.4 per cent in Budget Estimates of 2005-06. These are Budget Estimates which are notorious for overstatement. The capital expenditures of the Government have decline in tandem from three per cent in 2002-03 to two per cent in Budget Estimates for 2005-06. These figures indicate hollowing of the quality of Government expenditures. The RBI has acknowledged the weakening of infrastructure: "There are a host of infrastructural bottlenecks which could impinge upon competitiveness to meet the emerging global and domestic demand." Despite these developments, the RBI is positive about the prospects of the Indian economy. "The revival of the South-West monsoon, robust strengthening of manufacturing activity, high corporate profitability, buoyant equity markets, robust merchandise exports and imports, sustained demand for non-food credit and lead indicators of service sector activity all point to a brightening of the near-term prospects of the Indian economy, " says the RBI report. This 'bright picture', despite infrastructural bottlenecks, indicates that the Congress is reaping the benefits of the investment made by the BJP Government. This is not a sustainable policy - just as reliance on the manure put by the father does not lead to sustainable increase in crop yields of the son for a long time. The bright picture painted by the RBI may not be sustainable. There is nothing in it for the common man, even if it is sustained. The report card of Mr Manmohan Singh, according to the RBI, is as follows: First, small industries are under pressure and the jobs available to the common man in this crucial sector are declining. Second, more credit is being provided to such agricultural activities that are job-eating. Third, the benefits from the small increase in Government expenditures on the social sectors will accrue more to the government employees than to the common man. Last, the country is slipping in infrastructure, but this is not showing in corporate activity because of the investment made in the past is bearing fruit now. ------------------------ Yahoo! Groups Sponsor --------------------~--> Get fast access to your favorite Yahoo! Groups. Make Yahoo! your home page http://us.click.yahoo.com/dpRU5A/wUILAA/yQLSAA/NJYolB/TM --------------------------------------------------------------------~-> «¤»¥«¤»§«¤»¥«¤»§«¤»¥«¤»§«¤»¥«¤»§«¤»¥«¤»§«¤»¥««¤»¥«¤»§«¤» This is ZESTEconomics. 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