I Satya Sunduram


Tc he Indian economy is not free from troubles. Even if the rate of growth is satisfactory, the direction of growth is causing worry. The situation relating to poverty and unemployment is still alarming.

The economy grew at 7.0 percent in 1994-95, 7.3 percent in 1995-96 and 7.5 percent in 1996-97. But, there was fall in subsequent years. In 1999-2000, it was only 5.9 percent.

The saving ratio is an important indicator of growth. It along with productivity of capital determines the rate of growth. Gross domestic saving declined sharply in 1998-99 to 22.3 percent of GDP.

Agriculture is having the potential to grow at 5 percent; industry at 8 percent and the services sector at 8.5 percent. Given the sectoral contributions to GDP, one gets a GDP growth rate of 7.4 percent. Click Here


There is excess growth of tertiary (services) sector. The Industry's performance has not been up to the market. Hence, the difficulties in raising productivity levels.


Poverty and Unemployment


Whatever may be the merits and demerits of poverty estimates, there is no doubt that not less then one-third of the population is facing the problem of poverty.


Growth in the Number of People below the Poverty Line


The calorie intake based on the head-count concept and measurement of poverty neglects the question of land and asset ownership, growing inequalities, composition of output loaded wage goods besides the question of political and social power.

The greatest worry is from the worsening unemployment situation. While the number of people entering the job market has continued to increase by 2.3 percent a year during the nineties, the rate of growth of new jobs has declined to 1.6 percent. Hence, the gap between jobs and job seekers is therefore three times what it was in eighties.


The conditions of workers in the unorganised sectors are worsening. But, even in the organised sector, the situation is not happy. The growth rate of employment in this sector fell from 1.44 percent in 1991 to 0.46 percent in 1998.


The employment elasticity (percentage growth in employment to one percent growth in output) is also important. We are fast moving to jobless growth. For the economy as a whole the employment elasticity was 0.95 in the period 1972-73 to 1977-78, but it is likely to be 0.38 during the period 1997 to 2002. This means that even if growth rates are satisfactory, unemployment situation will not improve.


Agricultural Sector


The performance of the agricultural sector has not been very steady in the last decade despite favourable monsoon. Indian agriculture has a



potential to grow at more than 4 percent annually. The new agricultural policy has emphasised on improvement of productivity and the development of rainfed areas and this may improve the performance of this sector. Foodgrain production has shown improvement. It was 180.4 million tonnes in 1995-96, 199.4 million tonnes in 1996-97, 192.3 million tonnes in 1997-98 and 203 million tonnes in 1998-99. It is placed at 206 million tonnes in 1999-2000. But, there is no significant improvement in the production of coarse cereals and pulses.


Also, gross capital formation in agriculture is not showing improvement. In fact, it fell (at 1993-94 prices) from Rs 16,610 crore in 1996-97 to Rs 16,344 crore in 1997-98. Decline in public investment in agriculture is mainly due to the diversion of resources into current expenditure in the form of subsidies for food, fertilisers, electricity, irrigation, credit and other inputs rather than on creation of assets.


Lack of capital is one of the major constraints in the agricultural sector. Rate of capital formation (ROCF) has declined to 9.2 percent now compared to 21 percent in the seventies and eighties. Surprisingly, major part of the fall in ROCF is in the public sector investment which came down to 4.5 percent from 18 percent.

There are huge diffrences in the productivity of irrigated and rainfed areas. Average productivity in the green revolution belt is more than 3.5 tonnes per hectare as against about one tonne a hectare in the rainfed regions.


The government is likely to launch a huge programme of minor irrigation development mainly for the rainfed areas. If properly implemented, this scheme alone will be able to give us 30 to 40 million tonnes extra agricultural produce within the next three to five years.

In the low rain areas, arid and semi-arid, emphasis has to be on water and soil conservation. The crop pattern should also undergo a change.


Industrial Sector


The industrial sector is facing major problems like sickness. The growth rate which was 12.8 percent in 1995-96 declined to 4.0 percent in 1998-99. It may be around six percent in 1999-2000.


The economic reforms are likely to adversely affect the smallscale sector. Around 17 million people are employed in this sector. Yet, the sickness in the smallscale sector is alarming. As on 31st March 1998, there were 2,24,012 sick/weak units consisting of 2,21,436 units in ths SSI sector and 2,476 units in the non-SSI sector.4 Bank credit to the tune of Rs 16,000 crore has been blocked in the sick units.


On industrial production, the RBI stated, "The delay in having a sustained upswing is a matter of concern. At the persent juncture, the key industrial revival lies in augmenting investment in economic infrastructure such as power, roads, ports and telecommunications. The investment requirement in these areas are high and according to some estimates made in 1996, they could be anywhere in the order of Rs 4,0004500 billions over a five year period ending 2001." Of course, this huge fund requirement cannot be met by the public sector.