ECONOMIC GROWTH
THE CONGRESS AGENDA

AN EXPANDING ECONOMY; A JUST SOCIETY;
FREEDOM FROM HUNGER
AND UNEMPLOYMENT

Section – 1 : Introduction : Our Record

The Congress is, and has been the only national party that represents all sections of our people, all classes, all castes, all religions, all linguistic and ethnic groups. India is today one of the largest economies in the world, - with a large industrial base, supported by heavy industries and a large infrastructure, a revolutionised agriculture with food self sufficiency and a huge scientific and technical manpower. The Congress can take credit for this without seeming immodest. 

The Congress is the party, which can provide true good governance, protect the country’s unity and integrity and provide the environment of security matched by stability of policies, and time-tested expertise in policy-designs and policy reforms. Our policies were modified in response to the changing worlds of ‘50s and ‘60s to the ‘70s and then to the ‘80s and more dramatically in the ‘90s.  But we scrupulously maintained the consistency of adjusting them to the objectives of economic growth with social justice. 

Our national economy is at a stage when with the right set of policies and the right government to implement them, we can grow at a high rate leading up to ten (10) per cent a year and abolish unemployment, abolish poverty, hunger, illiteracy and ensure universal coverage of primary health care through out the country, in the next ten years.  At the same time we can make our farmers prosper, and build capacities of our dalits, backward classes, tribals and underprivileged minorities to secure greater opportunities and be enriched, and empower our women.  

Section – 2 : Transforming the Indian Economy and Implementing

Economic Reforms

We transformed the Indian economy between 1980 and 1997 and set it on a rising exponential growth path. In the last three years of the 8th Plan, the growth rate went up to 7.5%.  Had that trend continued, we should have had a growth rate in the 9th Plan period, (1997-2002) closer to 7.5%.  Instead during these years of non-Congress government and BJP rule, the growth rate fell to 5.5%, which was even lower than the 6th Plan period, (1980-1985).

The mismanagement by the non-Congress government cost the country a huge loss of output compared to its potential. In a year after the 9th Plan, (2002-2003) the growth rate fell further, to less than 4.5%.  In that one year alone, the country lost more than Rs. 170000 crores of potential output.

Fortunately a better monsoon this year has produced higher agricultural growth. That has happened several times in the past. (Just take two examples from the recent past.  The agricultural growth in the 1996-1997 was 8.8%, following a negative growth of the previous year and in 1988-1989 agriculture grew at 15.4% compared to a negative growth (-1%) of the previous year). But that cannot be taken for a general indication of satisfactory growth base.  

Change with Continuity

In the years after independence the world was hostile with military alliances, challenging India’s independence. The political and security environment also endangered the newly earned independence of most of the third world countries. The non-aligned movement was born out of the necessity to resist that and the Indian leadership under Jawaharlal Nehru was at its forefront. Self reliance in economic development and collective resistance of worldwide monopolies or hegemony gave us the confidence to make autonomous decisions for the good of our people.

Congress  policies  led  to  a substantial  increase in  the  country’s  growth  rate  in t he  1980s  and  1990s.  These  policies  also  led  to a  substantial  decline  in  the  proportion  of  people  living  below  the  poverty  line.  The  1980s  also  witnessed  a  substantial  reorientation  of our  economic  policies  and  this  process  got  accelerated   during  1991-96.  The success of these  policy reforms depended not just on changes in the world economic environment but also in the way these reforms were planned and executed. The vast public sector base provided the ground for bold initiatives in traditional and emerging areas of enterprise. Three features of our reform perspective have to be noted.

First, the objectives of these reforms were clearly identified from the beginning as economic growth with social justice.  For the Congress party economic growth was always taken as instrument  of social transformation, the removal of the poverty (garibi hatao), the upliftment of the vulnerable and the backward, the spread of education, health and shelter, especially to those who did not have market access to them, the empowerment of the women and for the protection of dalits and minorities, scheduled castes and scheduled tribes through affirmative action and special programmes.

Secondly, economic policies sought to take the full advantage of the expanding interactions of market forces. The licenses and regulation, necessary in the period when the national and international markets were not highly developed and market imperfections tended to increase the inequities of wealth and income, were phased out step by step in the 1980s and at an accelerated pace in the 1990s. But the  pace and sequencing of  reforms  were designed in a way that the market participants could adjust to these changes and the benefits from them were clearly visible to most of them.  The  success  of  the  reform  package  in  accelerating  the  growth  of  the  economy  and  in  reducing  the  proportion  of  people     living  below  the  poverty  line  added  to  the  general  acceptability  of  the  package  and  its  absorption  into  the  system.  The  emphasis  on  proper  mix and  sequencing  of  reforms  was  not  lost  sight  of  when  in response  to the external crisis of 1991, the Congress government brought about comprehensive and accelerated reforms.  That  these  reforms   created  better  macroeconomic  conditions  for  growth  is  now  widely  recognized  all over the world.

The third characteristic of this process of reforms was the stability of the policies and of the government  which  implemented  them. It is now an established fact that the largest influence on the behaviour of the market agents to produce or to invest comes from their expectations about policy changes. The stability of the Congress government and its policies was a stabilizer and  market agents reacted appropriately to that stability in the most positive manner.

The effect of that was seen visibly in a phenomenal increase in the rate of the private investment during  1993  to  1996.  Shortly after the accelerated reforms were introduced, private investment in both industry and agriculture accelerated at a rapid rate. During the period 1991-1992 to 1995-1996, rate of increase in private investment was 17.0%.  Inspite of all the hype that has been created in the last few months about the BJP government’s  “feel good” factors, there is still little evidence of the private sector’s responding by raising its  rate of investment.  The  available  data  clearly  show  a significant  decline  in  both  public  and  private  investment  expressed  as  a proportion  of  GDP  after  the  peak  rates  reached  in  1995-96

The Failures of the BJP as Reformers

The BJP government does not qualify for any of the three characteristics of successful reforms mentioned above.  First, they were not clear about their goals and objectives or their commitments to the reforms. Unlike the Congress, the BJP had neither the heritage of modernizing India, nor of championing the all round progress of the economy that benefited all cross-sections of our people. At the time the reforms were introduced BJP leaders, who are now heading the government, were most vociferous in their opposition to the reforms.  They could not appreciate the initiation of reforms in 1980s under Indiraji, who sought the fulfillment of her vision for Garibi Hatao in the country’s overall growth.  Nor could they appreciate Rajivji’s vision for India’s modernization to become a truly global player, while at the same time spreading the benefits to the grassroots through Panchayti Raj.

Secondly, through their actions the BJP government has showed clearly that they had no idea of an appropriate design of reforms.  They clearly do not believe in fiscal discipline that implied controlling nonproductive inessential expenditure and raising revenue through proper tax-administration and thus reducing the fiscal deficit.  This was evident in their behaviour at the time of introduction of these reforms and this is evident even now in the manner the BJP/NDA government has managed the country’s fiscal policy.   Whatever attempts were made by the Congress government in reducing fiscal deficits and in particular revenue deficits  during 1991-96, have been nullified by the BJP government. 

Congress  policies  during  1991  to  1996  in  the  areas  of  trade  and  exchange  rate regime  are  widely  recognized  as  having  greatly  improved  the  external  environment  for  India’s  development.    Reforms  of  trade  policy,  exchange  rate  regime  and  industrial  policies  have  enhanced  the  competitiveness  of  our  exports.  Import  liberalization  and  exchange  rate  policies  have  greatly reduced  the  incentive  for  export  earnings  and  invisible  receipts  being  diverted  to  the  illegal  Hawala  market. Opening  up  of  the  economy  to  increased  flow  of  direct  investment  and  portfolio  flows  from  abroad  has  enabled  the  management  of  balance  of  payments  without  an  unacceptable  increase  in   India’s  external  debt.  However,  the  BJP  Government  has  failed  to  use  this  improvement  in  India’s  external  economic  environment  to  accelerate  the  rate  of  investment in  the  economy.  In   the  last  two  years, the state of the international capital market and the interest rate behaviour in the United States and other major economies, have led to a substantial accumulation of India’s  foreign exchange reserves.  Yet  the  BJP  government  has  been  unable  to evolve  a viable  policy  framework which  would  take  advantage  of  a comfortable  foreign  exchange  position  to  impart  a new  element  of  dynamism  to  the  economy.

Thirdly, the  economic  policies  of  the  BJP  led  government  have  often  been  characterized  by  flip-flop  and  inconsistency.  Trade  and  tariff  policies,  fiscal  policies,  disinvestments  policies  and  regulatory  policies  have  often  been  adjusted  or  modified  in  response  to  momentary  pressures  from  organized  vested  interests.  The  resulting  uncertainty  has  contributed  considerably  to the  sluggishness  of  investments. 

Section – 3 : The NDA Government’s Record

GDP Growth

The NDA government makes much of the second quarter (2003-04) GDP growth figure of 8.4%.  But that depends on what the base was in the second quarter of 2002-03, and this base was low because agriculture declined by 3.5% in this quarter.  For the first six months of 2003-04, GDP growth is not 8.4%, but 7.0%.  And this 7.0% figure is thanks to a low base in 2002-03 and a bountiful monsoon in 2003.  The Tenth Plan (2002-07) talks of annual real GDP growth of 8%.  There are however still no signs of the economy moving towards such a  sustained growth.   Indeed,  during  the  period  that  the  BJP  Government  has  been  in  office,  there  has  been  on average   a  sharp  deceleration  in  growth  rates  from  the  peaks  achieved  in  the  mid 1990s. 

Growth rates of real GDP at factor cost by industry of origin (1993-1994 prices)

YEARS	AGRICULTURE, FORESTRY, FOGGING, MINING & QUARRYING	MANUFACTURING, CONSTRUCTION, ELECTRICITY GAS & WATER SUPPLY	TRANSPORT, COMMUNICATION & TRADE	FINANCING, INSURANCE, REAL ESTATE & BUSINESS SERVICES	PUBLIC ADMINISTRATIO, DEFENCE & OTHER SERVICES	GDP
1980-85	5.84	5.84	5.3	7.82	5.08	5.66
1985-90	3.5	7.44	6.48	10.78	7.08	5.96
1990-91	4.6	7.4	4.9	7.7	4.1	5.6
1991-92	-1.1	-1.0	2.5	12.0	2.6	1.3
1992-97	4.62	8.04	8.84	8.02	5.1	6.68
1997-02	2.02	4.62	7.92	7.52	9.1	5.48

Agriculture

Growth has critically  suffered in important  major sectors. For example, agriculture and allied sector GDP (at factor cost) grew at an annual average rate of 4.62% during the Eighth Plan.  But during the Ninth Plan, growth dropped to an annual average of 2.02%.  Food-grain productivity (kg/hectare) grew at an annual average rate of 3.22% during the Eighth Plan.  But it grew at 0.43% during the Ninth Plan.  Average net availability of cereals (grams per person per day) has declined from 443.50 during the Eighth Plan to 431.25 during the Ninth.  Investment in agriculture (as a percentage of GDP) declined from 1.6% in the mid-1990s to 1.3% in 2001-02.  The share of public investments in total agricultural investments has declined from 33% in 1993-94 to 23.5% in 2000-01.  Private sector investments could not meet this gap. The facilitating environment for private sector investments has not been created, and public sector investments in agriculture are needed to catalyze private sector investments. Investment in medium and major irrigation projects cannot be substituted by private sector investment. The diversification of agriculture, away from food crops towards non-food crops and away from crops towards other activities, has nearly stopped.  Farmers have been exposed to risks without risk mitigating instruments having been developed.  The NDA government does not realize that hikes in procurement prices of rice and wheat without a mechanism for effective procurement and ensuring that small and marginal farmers with small surplus get the full benefit spells disaster.

Industry

The average industrial growth rate was more than 8% during the Eighth Plan and dropped to 4.6% during the Ninth.   In  2002-03, growth   rate  of  infrastructure  industries  (electricity,  coal,  finished  steel,  cement,  crude  petroleum,  refined  petroleum products)  was  as  low  as  4.8 per cent.  During  April – November  2003,  the  growth  rate  declined  to  4.2  per cent  and  all  industries  with  the  exception  of  refined  petroleum  products  experienced  deceleration.  Power  generation  increased   by  a meager  3.0 per cent  in  2002-03.  During  April – November 2003,  the  growth  rate  was  stagnant  at  3.1  per  cent.  Even  after a  revival  of  demand  in  the  wake  of  an excellent  monsoon,  industrial  growth  rate  during  2003-04  will  not  exceed 6.5 – 7.0  per cent.  Industrial  investment  remain  sluggish  and  manufacturing  sector  is  not  playing  its  historic  role  in being a major source of income and employment generation.

Savings and Investment

The government has not been able to create a facilitating environment for private sector investment.  It is not surprising that while the SLR (statutory liquidity ratio) requires 25% of bank funds to be invested in government securities, the actual figure is close to 40%.  Distressingly, there is no demand for bank lending.

The  gross  domestic  saving  rate  reached  a  peak  of  25.1 per cent of GDP  in  1995-96,    the last  year  of the  Congress  Government.  Since  then  it  has  shown  a  decline. Public  Sector  saving rate  was  2.0 per cent  of  GDP  in  1995-96.    In  2001-02,  the  latest  year  for  which  data  are  available,  it w as  negative  to  the  extent  of  2.5 per cent  of  GDP,  a  deterration  of  4.5 per  cent  of  GDP  since  1995-96.  Gross  capital  formation  in the  economy  reached  a peak  of  26.5 per cent  of  GDP  in  1995-96.  In  2001-02,  it  declined  to  22.4  per  cent.  Capital  formation  in  the  private  corporate  sector  fell  from  the  peak  of  9.6  per cent   of  GDP    in  1995-96  to  4.8 per cent  in  2001-02.  Gross  capital  formation  in  the  public  sector  fell  from  7.7  per cent  of  GDP  in  1995-96  to  6.3 per cent  in  2001 – 02.

The capital market has been characterized by regulatory failure and scams. The Ketan Parekh scam and the UTI crash highlight regulatory failure, as well as political and bureaucratic interference of an unacceptable nature. 

Employment

On current daily status basis, the annual rate of growth of employment was 2.7% between 1983 and 1993-94.  But it declined to 1.07% between 1993-94 and 1999-2000.  Between 1993-94 and 1999-2000, the absolute number of unemployed increased by 4.74% a year.  In  the  8th Plan period,  growth rate of employment in the public sector was 0.38% and in the private sector it was 2.10%.   They both fell during the 9th Plan period to a negative  (-0.29%) in the public sector and a small increase of 0.33% in the private sector.  Employment  data  for t he  organized  sector  for  recent  years  show  a  decline.

Fiscal Performance

Public  finances  of  the Centre  and  States  call  for  drastic  restructuring   so  as  to  generate  adequate  resources  for  investments  in  infrastructure  and  social  sectors  like  education  and  health.  The  BJP  led  government  has  made  no  serious  effort  to  bring  about  this    transformation.  Interest  payments,  expenditure  on w ages,  salaries  and  pensions, defence  and  subsidies  absorb  the  bulk  of  revenue  leaving  little  scope  for  financing  vital  public  sector  investments.  Large  and  persistent  fiscal  deficits  financed  by  borrowing  have  created  an  explosive  debt  situation.  The  public  debt  of the  Centre  and  States  now  stands  as  high  as  8.5  per  cent  of GDP.  The  figure  will  be  much  higher  if  contingent  liabilities  such  as  guarantees  are  taken  into  account.  The  BJP  led  government  has  taken  no  credible  steps  to  deal  with  increasing  distortions  in the  pattern  of  public  expenditure  or  to  deal  with  slow  growth  of  revenue.  Thus  limited  finances  do  not  allow  the  State  to  meet  the  rising  demand  for  essential  public  services.

Development expenditure averaged 50.95% of total expenditure during the Eighth Plan.  During the Ninth Plan, the share dropped to 45.29%.  Within development expenditure, the share for welfare of backward classes declined from 0.79% of total development expenditure during the Eighth Plan to 0.65% during the Ninth.  Special Central assistance to SCs declined from 0.58% of total development expenditure during the Eighth Plan to 0.47% during the Ninth.

If expenditure reform has failed, the record in revenue reform is no better.  Disinvestments have become equated with strategic sales. No attempt has been made to restructure PSUs and fetch better value. Instead, non-transparent strategic sales have led to frequent under-valuation  of  assets,  a phenomenon CAG reports have also commented on. Ministers have often publicly squabbled about privatization of the oil and gas sectors. IOC, India’s only Fortune 500 company, is now supposed to be unbundled and sold. The central  tax revenue to GDP ratio was 10.1% in 1990-91.  Today, even if one accepts the tentative figure 9.6%, it is lower than what it was in 1990-91. The Kelkar Task Force’s recommendations on direct taxes were directed towards reducing evasion by personal income tax payers, as well as by corporate income tax payers. But these haven’t been implemented.  Meanwhile, the indirect tax to GDP ratio has declined from 7.9% in 1990-91 to 5.8% in 2002-03. The Kelkar Task Force’s recommendations on indirect taxes haven’t been implemented either.  In  the  meanwhile,  the  continued  fiscal  deficit   of  the  Centre a nd t he States  during  the  six  years  of  the  BJP  rule  has  averaged  10 per  cent  of  GDP, one  of t he  highest  in  t he  world.

Reserves

India’s foreign exchange reserves having crossed 100 billion US dollars is being celebrated.  But in celebrating that, one should not forget the vulnerability of the situation. This  is  due  to the composition of these reserves which have accumulated not through exports or direct investment, but primarily through NRI deposits and FII flows, most of which are capable of flying out literally overnight.  At the same time foreign exchange reserves at 100 billion US dollars do give us an opportunity of accelerating  the  pace  of  investment  in t he  economy.  Allowing for the contingency of a possible pullout by foreign institutional investors, hikes in global oil prices and transaction demand for foreign currency, a year’s imports of reserves should be quite sufficient. A part of the reserves, in excess of prudential need for reserves, could have been used to facilitate investments in infrastructure, physical as well as social, provided the government could manage the use carefully, balancing different contingencies. The government has not been able to do so, just as they have miserably failed to use the food grains reserves to strengthen our development process. Meanwhile, RBI is faced with the possibility that sterilized intervention may no longer be possible. Therefore, the rupee will have to appreciate against the US dollar and this will hurt India’s exports. There appears no preparation for such contingencies. 

Physical Infrastructure

Notwithstanding telecom and the National Highway Development Programme (NHDP), physical infrastructure is in a mess and imposes significant transaction costs.  Physical infrastructure has many dimensions – railways, roads, irrigation, ports, airports, civil aviation, power, telecom, urban municipal services. The recommendations of the Indian Railways Report of 2001 have not been implemented. Nor have recommendations of various Railway Safety Review Committees.  Persistent  neglect  of  maintenance  makes  train  journeys  increasingly  accident  prone  and  hazardous.  The NHDP has had some success, but only in so far as it goes.  Feeder roads don’t exist.  40% of India’s villages still don’t have all-weather roads.  The government keeps citing the Pradhan Mantri Gram Sadak Yojana.  But  no  reliable  data  are  available  to  assess  its  progress  on  the  ground.  The government claims that all towns and 80% of villages are electrified.  But 60% of rural households and 20% of urban households don’t have electricity.  Telecom indicators may have improved, but the policy still  lacks  consistency  and  transparency.   These days, development is sometimes being equated with bijli, sadak and pani – three elements of physical infrastructure.  These are indeed what all Indian citizens want.  But considering  that  in  the  last  three  years  power  generation grew  at  an  annual  rate  of  no  more  than  3.5 per cent  suggests  that  actual  progress  falls far  short of  our  needs.

Social Infrastructure

The track record in providing social infrastructure is no better.  Much is being made of the drop in the all-India poverty ratio from about 44% at the beginning of the 1980’s to 26.1% in 1999-2000. But most of the drop occurred in the earlier Congress period. There is evidence that the pace of reduction in poverty came to a practical halt, after 1995-96. 

Education and Health

Unsatisfactory performance also characterizes two major areas of social infrastructure – education and health.  The literacy rate may have increased, but 35% of the population is still illiterate and there are problems with the definition of literacy used in the Census.  Gender gaps are still high and literacy rates have not increased proportionately among SCs and STs.  While gross enrollment rates may have increased, dropout rates are still high. Millions  of  children  are  still  out  of  school.    Public sector expenditure on health   as a  proportion  of our  GDP is declining.  Malaria has come back.  Polio has not been eradicated. Once again many people suffer from tuberculosis.  Lack of access to safe drinking water and sanitation means that  large segments of the population suffer from water-borne diseases.  A recent UNDP document highlights the growing seriousness of the HIV/AIDS problem.

This record of the NDA government will not do.  India deserves a better deal.

Section – 4 : The Agenda for Congress

Economic Growth For All, particularly for the poor, the vulnerable and the backward

The Congress party will build on the underlying trend of rising economic growth that was established during the Congress rule of the 1980-s and mid-1990s. For the Congress, development means not just a rapid rate of economic growth, but a specific pattern  of economic growth, which benefits all sections of the people, and which ensures social justice, assists  in eradication of poverty, hunger, illiteracy, malnutrition, ill-health and all forms of discrimination against the vulnerable and the backward sections of the society.  We want the middle class to genuinely prosper with greater access to the amenities of life.  We want the corporate sector to grow as fast as it can, but it must bear some responsibility of helping the less privileged to enrich themselves.  That was the tryst with destiny that Nehruji spoke of when India became independent.  That was what Indiraji meant by “Garibi Hatao”.  That was the process of development that Rajivji wanted to usher in through decentralized development.

The Congress therefore declares that it will revive the past capacity to grow at 8%, not just for two quarters of a year but for a long period and work for the realization of a 10% economic growth in the next few years. The  Congress  Party  will  work  to  ensure  that  this  growth  is  regionally  balanced  and  benefits  all  sections  of  society.  The  Congress  Government  will guide the growth  process  and  mobilize the common people so as  to  facilitate  the  achievement  of  some  priority  national objectives, such as:

·        Abolition of   unemployment

·        Abolition of   poverty

·        Abolition of   hunger

·        Abolition of   illiteracy

·        Ensure universal coverage of primary health care through out the country

·        Restore the full growth potential to the farm sector, which has been grossly neglected by the BJP government and where most of our people live.

·        Deliver development with Accountability to the people.

Adequate Resources will be provided for achieving  these  objectives  and they will be delivered through people’s participation in designing, implementing and monitoring of the programmes with full accountability.

Towards a 10% Rate of Economic Growth

There are three basic requirements for ensuring a high rate of growth. 

Raising the Rate of Investment

The  Congress  Party  will  seek  to  create  a congenial  atmosphere  for  the  growth  of private  investment,  both  domestic  and  foreign.  At  the  same  time,  it  will  make  every  effort  to  increase  public  investment  in  social  and  economic  infrastructure,  including  education  and   health.  Investment  requirements  of  agriculture  and  rural  development will  be  given  the  highest  priority.  For increasing the rate of private investment the Congress will utilize the lessons learned in the post reforms period of the 8th Plan. Towards that end the following measures will be adopted:

(i)                 Elimination of all bureaucratic and administrative hurdles to investment, by removing the requirements for any investor to seek any form of permission for making investment.  There will of course be some need for limited regulation and control involving.

a)                 A short list of defense sensitive industries,

b)                 Specific rules to prevent abuse of environment including the use of water and exhaustible natural resources and

c)                  Regulatory actions if investment increases concentration and monopoly power.

The role of the government would be to take action only when they have been found to have violated the laid down conditions, and all such government actions will be subjected to judicial scrutiny.  In a sense this would be the complete end of the remaining  elements  of  license permit raj in our country.

(ii)               The Congress government shall encourage investors especially the new and small entrepreneurs, the self employed, the educated young persons, particularly in areas of rural industries, housing and slum clearance, with appropriate credit and capital subsidies. The rationale for this policy would be to help the young educated unemployed to start business and to encourage investment in sectors, which have large social benefits, and employment potential, but who do not have easy access to market sources of finance.  Special  attention  will  be  paid  to  provide  technical,  credit  and  marketing  support to enterprises  in  the  informal  sector  which  account  for  nearly  90 per  cent  of our  labour  force.  A  National    Commission  will be  established  to  make  concrete  recommendations  for this  purpose.

(iii)             In  order  to  facilitate  rapid  growth  of  efficiency  and  productivity, the Congress will build up a strong public-private partnership in promoting development and investment activity.

For instance, if a corporate unit expands its business through ancillarization, helping smaller units, employing more labour per unit of capital or if they set up their business in backward regions, extending the rural infrastructure such as roads and water-supply, or if they set up educational facilities, or if they help to expand public health facilities, the government should be willing to help their investment activities with special capital and interest subsidies, or introducing a new form of development rebate in corporate taxes.

This principle can be extended to other areas, beyond the social sectors.  For example, the private companies which  are engaged in the construction activities, such as the national highways and urban housing may be encouraged to extend the road networks to the hinterland of the urban and rural areas or to engage in urban slum clearance and rural housing programmes, shall be supported by special subsidies, reduced interest and many other public facilities.

The government will devise  suitable  fiscal policy measures  for building up an effective private public partnership.            The most important requirement is not so much to reduce the tax rates as to ensure the stability of the policies, stop the flip-flop and remove the harassments and the arbitrariness in tax administration.

(iv)              In addition to these measures to stimulate private investment, the government will ensure a steady increase in public investment.

(v)                In order to ensure that the investors have confidence in economic fundamentals of the country, the government shall do everything possible to protect macro-economic stability of the country, the essential requirement for which is control over fiscal deficit.  A  coordinated  Centre-States  effort  will be  made  to eliminate  revenue  deficits by  2007-08.

Raising the Productivity of Investment

(i)                 The government will support and encourage the companies and investors to restructure the production systems through tax concessions, increased access to credits and support for enhanced R & D activities.   Every  effort  will  be  made  to  raise  the  national  expenditure  on  Research  and  Development  to  2 per cent  of  GDP  over  a  period  of  five  years.

(ii)               The government will liberalize technology imports as far as possible, across the board.  The investors will not need any special permission from the government for importing technology. 

(iii)             For the economy as a whole, productivity of capital will increase with increasing investment in labour intensive and high productivity units such as construction, housing, rural industries, slum clearance, light manufactures and mostly in agriculture through irrigation and water management, as well as, in skill intensive industries like information technology.  Special  Missions  will  be  established  to  make  concrete  recommendations  for  maximizing  the  development  potential  of  important  labour  intensive  industries.

Raising Resources to Finance Investments

(i)                 The government shall restore the fiscal discipline mainly by minimizing the revenue deficit and by strictly disciplining capital expenditure. For this, revenue realization must increase and government would aim at raising the tax GDP ratio at the centre to at least 12% consistent with its records of early 1980s.

(ii)               The productivity of capital expenditure can be improved by encouraging private-public partnership as mentioned above, and also by establishing strict monitoring mechanism which will identify responsibilities of the officials who should be accountable for them to grassroots institutions such as Panchayts, Gram Sabhas and local associations.

(iii)             For raising the rate of growth to 10% of a year, the rate of investment has to be raised to about 35%, a figure similar to that in China and not at all improbable in India, with rejuvenation in the capital markets.   The  financial  sector,  consisting  of  banking,  insurance,  debt  and  equity  markets  will  need  to be  greatly  strengthened  to  create  an  environment  conducive t o  the  growth  of  savings  in  the  form  of  financial  assets.

It  will  also  be necessary for us to make every attempt to encourage the expansion of foreign savings inflows, especially of foreign direct investment, which is a much better and safer method of receiving foreign funds than other forms of inflow of foreign funds.

There will of course have to be a well-designed regulatory mechanism, to control the growth of monopoly through mergers and acquisitions, to regulate the prices of the non-competitive markets and to ensure competition in specific markets, including banking, insurance and telecommunication.

·        Abolition of Unemployment

(i)                 The best guarantee for moving towards full employment is increased rate of growth. The growth elasticity of employment reached at 0.41% during 1983 to 1993.           It came down to 0.15% in the later year. If that elasticity can be even partially restored, unemployment problem can be solved  to  a  considerable  extent.  For that growth has to be concentrated more on agriculture through increased small irrigation, the non-farm sectors in the rural economy, construction of roads and rural infrastructure, as well as housing and urban slum clearance and labour intensive manufactures. 

(ii)               Adequate facilities will be created to provide vocational training and skill formation that will improve the marginal productivity and therefore incentive to hire labour. While the private  sector  can  be  involved  in  meeting a part of  the  cost of training at the level of management, engineering and higher technology,  the cost of training for different vocations for low level skills and semi-skilled occupation, will have to be borne substantially by the public sector.

(iii)             Side by side with these measures for general employment expansion the government would institute large-scale employment guarantee operations.           There are studies to show that the universalization of employment guarantee scheme would not cost more than 1% of state GDPs and the central government should come in support of the states that cannot afford to incur them.  The  Congress  Party  commits  itself  to  the  implementation  of  a comprehensive  rural  employment  guarantee  scheme  in a phased  manner.

(iv)             In  metropolitan  and  urban  areas,  the  Congress  party  will  launch  a major  national  programme  of  urban  renewal  and  infrastructure  development  to  create  large  scale  employment  opportunities.  Low  cost  housing  and  alum  clearance  will  figure  prominently  in  this  programme.  

·        Abolition of Poverty

Like unemployment, the abolition of poverty would be greatly facilitated by an increased rate of growth. Had our economy grew at 7.5% during the Ninth Plan, according to its potential, the all-India poverty ratio would have come down to 15%, instead of 26.1% actually achieved by       1999-2000. Given  the  high  incidence  of  poverty  in  rural  Areas,  efforts   to  increase  productivity  and  incomes  of  farmers,  particularly  of  small  and  marginal  farmers  are  of  critical  importance.  However, growth does not dispense with the need for the state to run anti-poverty programmes and poverty has to be abolished even if our growth performance falters. An extended All India Employment Guarantee Scheme will be an effective anti-poverty programme, and it will be targeted to the poorest people,  particularly  those  who  are  landless  workers.

Similarly, children must be a focal point for anti-poverty programmes. The mid-day meal scheme and the Integrated Child Development Scheme (ICDS) can be used to deliver enhanced nutrition services effectively. 

The Congress believes that Mid-day meals should continue during the summer months, even if schools are closed.     

The anganwadi (a child care centre) is an essential means of protecting small children from under-nutrition and ill-health, and of alleviating the burden of child care for working mothers. It ought to be considered as one of the basic facilities to be provided in every village.

There are  several other groups, who are indeed the most vulnerable to hunger. These include elderly persons without care, disabled people and households headed by single woman.   Special  measures  will  need  to  be  designed  to  assist  these  groups.  These  measures  include  old  age pensions  and  pensions  for  widows  as  well  as  provision  of  foodgrains  through  the  public  distribution  system  at  highly  concessional  prices.

The Congress will pursue a well-thought out anti-poverty programme aimed at the 69 poorest districts in the country  which  contain the  hard core  of  poverty.  It should be possible to raise the physical and social infrastructure of these districts to lift the people living there above the poverty line, at a reasonable total expenditure, and that itself would make a significant dent on the country’s poverty. 

·        Abolition of Hunger

Abolition  of  hunger  requires  a  multifaceted  strategy  seeking  to  raise  the  income  generating  ability  of  the  vulnerable  groups  as  well  as  measures  designed  to raise  food  production.  The schemes that would work towards the abolition of unemployment and the abolition of poverty would also work towards the abolition of hunger. However, the problem of hunger is related not only to the access to food by the poor people but also the availability of food in a sustained manner related to food security of the country.  The anti-poverty programmes and employment extension programmes increase the access to food for the poor by increasing their income or command over resources. These  programmes  will  need  to be  supplemented  by  social  assistance  transfers (old  age   and  widows’ pensions)  to  assist  destitute  families with  no  income  earning  capacity.

The  accumulation  of  large  stocks  of  foodgrains  with  the  public  sector  agencies  coinciding  with  widespread  malnutrition  in  the  country  is  indicative  of  the  policy  challenge  that  food  security  policies  have  to  face.  The  Congress  Party  commits  itself  to  adopt  a comprehensive  national  strategy  to  get  rid  of  the  scourge  of  hunger  in  the  next  five  years.

·        Abolition of illiteracy

The programmes for abolition of unemployment, of poverty and of hunger are mutually reinforcing.  The abolition of illiteracy and spreading basic education as well as the programmes for universal coverage of primary health care, would go a long way to expand the capability of the poor and the vulnerable, to sustain their progress, getting out of the poverty trap.   The  Congress  Party  reaffirms  its  commitment  to  provide  universal  access  to  quality  basic  education  for  all  our  children,  regardless  of  income  and  class  status  of  their  parents.  In  due  course  if  time,  Government  must  accept  the  responsibility  of  providing  ten  years  of  mandatory  schooling.  To  that  end,  Public  expenditure  on  education  must  be  raised   to  6  per  cent  of  GDP  and  at least  50 per cent   of  expenditure  ought  to  be  earmarked  for  elementary  education.  The Congress  Party would  favour  a  cess  on  all  central  taxes  to  finance  the  programme  of  universalizing  access  to  elementary  education.

Beyond this 10-years of mandatory schooling, the vocational training system needs rehabilitation as a credible exit point.  University and higher education has been starved of public resources. There is  no  doubt  scope  for  creative  public – private  partnership  in  meeting t he  needs  of  higher  education .  However,  in  view  of  large  externalities  associated  with  higher  education,  this  is  not  a  field  which  can  be  left  exclusively  to the  market  forces.

·        Ensuring Universal Coverage of Primary Health Care

The Congress  Party  commits  itself  to  raising  public  expenditure  on  health  to  at  least  two  per  cent  of  GDP  in  the  next  five  years  with  the  highest  priority  being  given  to  the  strengthening  of  primary  health care.

 

Health outcomes depend on access to food, safe water supply, sanitation and sewage treatment.  They are also a function of preventive and curative health services. And in these health services, there are great disparities in access across rural and urban India, across backward and more advanced districts and depending on whether provisioning is public, private or voluntary. Data show that increasing health-care costs are a major reason for indebtedness among the poor.  There  is  really  no  alternative  to  a  public  sector  funding  of  a massive  expansion  of  primary  health  care.  Wherever  possible,  reliance  will  be  placed  on  health  insurance  to  meet  at least  a  part  of  health  care  costs.
 

For private sector health provisioning, regulatory structures are largely  absent today and need to be developed. For the public sector, constraints are inadequate financing, lack of adequate manpower, infrastructure, drugs and equipment. Many of these constraints can be eased by delegating power to Panchayate Raj  Institutions  and increasing local accountability of public health care providers.

 

·        Agriculture -  Restore the Full Growth Potential of the Farm Sector

The most critical failure of the present government has been in agriculture and the rural sector, where two-thirds of Indians live.  The  Congress  pledges  to give  the  highest  priority  to  meeting  the  investment  requirements  of  sustained  agricultural  growth  at  the  annual  rate  of 4.5  per  cent.

Private sector investments in agriculture are no substitute for public sector investments in rural infrastructure (roads, electricity, irrigation, agro-industries, animal health services).  Plan allocations to agriculture must be raised substantially.

Public expenditure through input subsidies in fertilizers, irrigation, power and seeds needs to become participatory, with decentralization through Water Users’ Associations, Watershed Development Committees and PRIs (Panchayati Raj Institutions).  Subsidies have to be targeted, but hikes in user charges for others must be linked to improvements in delivery.

Net credit to agriculture must increase by creating demand-side institutions through revival of cooperatives and self-help groups.  Community/group collateral can be accepted.  Removal of restrictions on tenancy and leasing, or accepting trees on a farmer’s land as collateral, are other ways to solve the problems of credit risk.  The  rural  credit  system  will  need  to be  revamped  so  as  to  effectively  meet  the  demands  of   a  diversified  agricultural  economy  with  increased  emphasis  on  agro  business  and  high  value  added  products.

There are too many State-level restrictions that hinder inter-State and intra-State movements. These should be either removed or should be rationalized.  Restrictions on the movement of grains and other agricultural products must be abolished, and a national common market developed in agricultural produces.  The  system  of  agricultural  marketing  merits  a fresh  look  so  as  to meet  the  challenge  of  a  diversified  agricultural  economy.

The national agricultural research system needs reviewing, with a switch in research priorities to dry land farming, un-irrigated areas, under-researched crops, increased use of drought-resistant and pest-resistant varieties and post-harvest technology.   Extension  services  also  need  to be  modernized  on  a priority   basis.

Not enough attention is paid to disaster management when disasters occur. A comprehensive crop insurance scheme covering all crops and operative country-wide needs to be in place. While general agricultural insurance may not be viable, there shall be an Agricultural Stabilization Fund that will provide payments or income support in time of natural disasters like floods or drought.  

A stable long-term import-export policy for agricultural producers and process foods must be established, to meet the exigencies of opening international trade.  

It was Rajiv Gandhi’s mission approach to dry land agriculture and rain fed farming in the ‘80s which yielded dramatic increases in productivity and output for crops like oilseeds and pulses.  The mission approach has since withered.  It shall be revived and rejuvenated.   

Land reforms, particularly in states where progress has been slow, must receive high priority, along with the consolidation of fragmented and subdivided holdings. Tenurial reforms are quite as important as the enforcement of land ceilings.  The computerization of land records is of first importance.  Pattas must be ensured to all land-holders, especially marginal farmers who are often denied this right.  The  Congress  Party  reaffirms its  commitment  to  revitalization  of  the  cooperative  movement   as a  major  engine  of  rural  transformation  and  freeing  cooperative   institutions  from  undue  bureaucratic   influence and  control.

:  Delivering Development with Accountability

The programmes for realizing the minimum goals set out above have to be complemented with the social, rural and urban development programmes that would bring the fruits of economic growth to the doorsteps of all our people, especially those who tend to be neglected and bypassed by the market forces.

            Shri Rajiv Gandhi’s vision of the Panchayati Raj, or bringing development to the grass roots had shown the way to meet this challenge, and the Congress party intends to establish a radical system of delivery and accountability of these programmes through a participatory and decentralized system by the local level institutions and administration. These programmes should be designed and prioritized by the local level organizations, Gram Sabhas and Panchayats through a participatory process. Central expenditures, together with the States’ contributions should also be handled with complete transparency and accountability.

This process of accountability, of fixing the responsibilities and setting up mechanisms of monitoring and enforcement should be extended to all levels of public expenditure.  That is the way to change the method of our governance and ensure the efficiency and effectiveness of spending public money on development programmes and implementing all public policies.   

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