Economic development

Capital formation is the most important factor that drives the economic development of a nation. It is mainly the transfer of savings from households to the business sector that leads to increased output and economic expansion.

In India, savings have contributed a lot in the economic development since the Indian economy took off in 1960s and 70s. In the past few decades, it has been around 33% of GDP. However, high savings rate is a necessary condition but not a sufficient one for economic development.

Many times high savings in isolation does not lead even to capital formation. One also needs sound banking and financial institutions to mobilize the savings of economy. At the same time, presence of entrepreneurship is also critical to convert savings into productive investment. Some other factors that are essential for growth potential are:

• Infrastructure: Sound infrastructure is needed in terms of good supply of power, electricity, roads, railways and robust means of communication.
• Ease of doing business: There should be hassle free environment to start and wind up the businesses in the economy. Bureaucratic hurdles in acquisition of land and licenses should also be minimized.
• Human Resource: Skilled labour force is essential for the improved productive capacity of economy. Capability of human resource depends upon the skills, creativity, abilities and education of the labour force.
• Technology: It increases the productivity and competitiveness of the economy. Today R&D in every domain is essential to be competitive in the international and domestic market.
• Government policies: Policies decide the pace and direction of economy. India has introduced GST recently to unify its own economy and remove the cascading effect of taxes at multiple points. India’s performance of Ease of Doing Business Index has also improved by 30 points (100th position in 2017) due to many policy initiatives.
• Social and political factors: Social factors involve customs, traditions, values and beliefs which contribute to the growth of economy. Political factors such as participation of people in formulation and execution of policies enhance the economic development.

India which is on the verge of reaping the benefits of demographic dividend, must launch skill development initiatives to utilize the young labour force. It should also improve ease of doing business and create a conducive environment for investment, better export performance to improve productivity of the economy.

A key lacuna in India’s growth has been slow growth of manufacturing in labour-intensive sectors and concentration in capital intensive manufacturing sectors like auto parts, chemicals, software and pharmaceuticals. None of these sectors employ low-skilled workers in large numbers.

The movement of workers out of agriculture into export oriented manufacturing industry has been especially slow due to requirement of a certain level of skill which is absent amongst most labourers – resulting in jobless growth. Lack of ease of doing business in India due to labour market rigidities, tax uncertainties, impediments to entrepreneurial growth have further hindered the expansion of a labour-intensive export manufacturing in India.

Measure to Promote Labour-Intensive Exports

• Ease Labour Law regulations such as wide-ranging and complex laws, mandatory contributions by low-paid workers, and lack of flexibility in part-time work etc. The government’s decision to rationalise around 38 Labour Acts by framing 4 labour codes is a positive step in this regard to encourage exporters to hire more labour.
• Promoting Labour-Intensive Sectors like apparel sector, leather and footwear also have high export potential.
• Uninterrupted and Cheap Power Supply for labour-intensive manufacturers, who operate on low profit margins and for whom high electricity costs can be a make or break issue.
• Promoting the Role of SMEs as labour intensity of SMEs is four times higher than that of large firms by providing adequate state support. MUDRA Bank should be promoted for this.
• Skill development to fill the gap of semi-skilled and skilled workers that manufacturers in India face frequently.

Further, the tax rationalisation under GST as well as the push for Entrepreneurship under Start-Up India and Stand Up India can also provide a suitable and favourable environment for labour-intensive exporters.

Management of few of the airports through joint ventures under PPP model is transforming civil aviation sector in India. Build-Operate-Transfer (BOT) projects were awarded to private players for Greenfield airports at Bangalore and Hyderabad.

India’s decision to invite private players such as GMR and GVK has improved the passenger’s experience. It has led to better efficiency and capacity of airline operators. This has also resulted in massive dividend to the State-owned Airports Authority of India. Modernisation of ports in India has improved the local and national economy and perception of India is changing in the global market.

Private airports are making large profits due to increased traffic, higher aeronautical charges and other non-aero revenue opportunities. However there are concerns of higher charges on airlines and passengers. Cities like Chennai, Kolkata and Goa are not able to attract enough passenger and cargo services due to lack of commercial orientation of AAI.

PPP model in development of airport is creating following challenges for the authorities:

• There is absence of regulatory framework for the entire aviation sector.
• There is lack of clarity over the degree of risk transfer to the private players in areas such as asset condition, construction cost, operation risk, non-insurable risk etc.
• Lack of clarity is also evident in concessional agreement, revenue sharing and tariff structure framework.
• The projects are also delayed due to land acquisition, cost overruns, long gestation periods and lack of funding and investment.

All requisite steps are being taken to address the various challenges in this field. AAI is being suggested to improve its organizational capabilities. Alternate funding options are also being explored through combinations of equity, soft loans and grants. All these steps will help India to develop world class facilities in civil aviation by 2020.

India is primarily an agricultural economy and majority of people are still dependent on agriculture for their livelihood. After independence, development of agriculture has been assured by various revolutions supported by government.

Green Revolution – This revolution led to tremendous rise in production of food grains, especially wheat, by use of high-yielding varieties of seeds, fertilizers and pesticide.

White Revolution – Operation Flood (1970), an initiative of National Dairy Development Board has led to revolution in milk production in India. The world’s largest dairy development programme transformed India from a milk deficient nation to world’s largest milk producer.

Blue Revolution – This revolution focussed on management of fisheries sector and has led to phenomenal increase in both fish production and productivity from aquaculture and fisheries resources of the inland and marine fisheries.

Other revolutions which are no less significant includes yellow revolution(oil seed production), golden fibre revolution (jute), golden revolution (horticulture), silver fibre revolution (Cotton) and red revolution (meat production).

Significance of these revolutions

• These innovations in agriculture have lifted millions of people out of poverty by generating rural income opportunities for farmers, farm labourers, and also reduced prices for consumers. India has become self sufficient in food grain production with the help of green revolution.
• The exponential rise in milk production has led to nutritional security among the masses. Per capita availability of milk has reached all time high of 337gms/day.
• These steps have provided avenues for income diversification for farmers.

To further carry on the momentum of these programmes and assure food security in long run in face of ever increasing population, there is an urgent need for an ‘evergreen revolution’ that should focus on all round development of the agriculture sector.       

India being an agricultural country offers ideal conditions for development of  emerging food processing industry. Easy availability of raw materials, changing lifestyles in urban and rural areas and favourable fiscal policies are giving a push to this sunrise sector.

But small processing unit in India are suffering from many challenges such as-

• Infrastructure: Small processing units cannot invest heavily in infrastructural support such as grading, packaging, cold storage, warehousing, logistics, supply chains etc. They rely on the common facilities in these activities.
• Manpower: Skill shortage is hampering the competitiveness of this sector. There are few institutes which provide adequate training to the labour force in this sector.
• Seasonality and perishability: Most of the agricultural products such as fruits, vegetable, fisheries etc are highly perishable and thus increase the vulnerability of the entrepreneurs to wastage of commodities. The supply of raw materials is also seasonal in nature.
• Credit: Although the industry has been included in the priority sector lending, there are inherent risks involved in small enterprises.
• Competition: Increasing investment in the sector has led to intense competition which has adversely impacted the operating profitability of the units.
• Technology: Value addition is the key factor in the food processing but India still lacks the universalisation of robust technology in this sector.

Food processing industry plays an important role in uplifting the socio-economic status of poor farmers through following ways:

• By providing a vital link between the agriculture and manufacturing sectors, it reduces the wastage of agricultural raw materials and increases shelf life of food products. This helps farmers to sell more in the long run.
• It links farmers to the agricultural market and provides them better income especially for horticultural products.
• Farmers can also earn more through more exports as value addition increases the competitiveness of products in the international market.
• It provides employment opportunities in sectors such as packaging, sampling, logistics and other non-farm activities. Thus it helps farmers to shift from farming to non-farming activities and have better lifestyles.

India must leverage all the available resources to emerge as a leader in food processing sector. It has come out with SAMPADA scheme, Mega Food Park Schemes, Value Addition Centres, Irradiation facilities etc. to promote this sector. However more needs to be done to enable small farmers to benefit from these initiatives.

Budget in India is a socio-economic document that reflects the aims and aspirations of the government and people of India.

The initiatives in the Budget 2017-18 can be discussed under following heads –

1. Transforming India

• It concerns with those policies of the government that seek to transform the governance of the country and improve the quality of life of people.
• The budget has focused on upgrading the infrastructure of railways, roads, rivers, airports, telecommunications and energy sector. But railways in India need comprehensive reforms as it is evident from recurrent accidents in different parts of the country. 
• Greater allocation for DeendayalAntyodaya Yojana is relevant in context of skilling India and reaping the benefits of demographic dividend in India.
• Rationalisation of tribunals is a positive step towards securing rule of law and effective delivery of justice.
• Tax administration is to be reformed through the strategy of RAPID (Revenue, Accountability, Probity, Information and Digitalisation). This strategy will help to plug tax avoidance at various levels and increase revenue of the government.

2. Energizing India

• There is focus on uplifting the conditions of various sections of society especially the youth and the vulnerable.
• The conditions of farmers are to be improved through settling the arrears under the FasalBima Yojana, setting up Micro Irrigation Fund and widening the coverage of National Agricultural Market (e-NAM). However perishables are yet to be denotified from APMC acts by the states and model law to regulate contract farming has not come in public domain.
• Mission Antyodaya will be strengthened to bring one crore households out of poverty by 2017. But there are no effective measures to better target the beneficiaries under this scheme.
• Different initiatives for development of youth has been proposed such as SANKALP, next phase of STRIVE, extension of Pradhan Mantri Kaushal Kendras etc. But to energize youth of the country, robust IT infrastructure is a necessity which is hampering the learning outcomes in schools, colleges and skill development schemes.

3. Clean India

• It entails removing the evils of corruption, black-money and non-transparent political funding.
• Digital economy is being strengthened through initiatives like JAM trinity, BHIM app, Financial Inclusion Fund, Amending Negotiable Instruments Act etc. But not much has been done to protect the digital payments and transactions from cyber frauds and thefts and accessibility to computers or mobiles is limited to few.
• To bring transparency in the funding of political parties the limit of donation through cash has been fixed at Rs. 2000/- from one person and electoral bonds will also be issued in future.

The budget envisions to ‘transform, energize and clean India’ but it will not be materialized unless there is effective implementation of policies. Therefore the institutions to execute policies must be rejuvenated and a sound mechanism for the monitoring and evaluation of policies should also be established.

Industrial policy 1991 set out directions for industrialisation in an economy that began its journey in liberalisation. It dealt with liberalising licensing and measures to encourage foreign investments. However, Industrial growth rate could not match the pace with the overall growth of GDP.

Constraints to industrial growth

• Inadequate infrastructure: Physical infrastructure in India suffers from substantial deficit in terms of capacities as well as efficiencies. Lack of quality of industrial infrastructure has resulted in high logistics cost and has in turn affected cost competitiveness of Indian goods in global markets.
• Restrictive labour laws: The tenor of labour laws has been overly protective of labour force in the formal sector.
• Complicated business environment: A complex multi-layered tax system, which with its high compliance costs and its cascading effects adversely affects competitiveness of manufacturing in India.
• Slow technology adoption: Inefficient technologies led to low productivity and higher costs adding to the disadvantage of Indian products in international markets.
• Inadequate expenditure on R&D and Innovation: Public investments have been constrained by the demands from other public service demands and private investment is not forthcoming as these involve long gestation periods and uncertain returns.

Recently Department of Industrial Policy and Promotion (DIPP) has proposed various changes in industrial policy that will focus on increasing the industrial growth rate in following manner -

• The new policy aims to attract $100 billion of FDI in a year, up from $60 billion in 2016-17, it will also aim at retaining investments and accessing technology.
• The policy aims to harness existing strengths in sectors like automobiles and auto-components, electronics, new and renewable energy, banking, software and tourism.
• The policy also aims to create globally scaled-up and commercially viable sectors such as waste management, medical devices, renewable energy, green technologies, financial services to achieve competitiveness.
• The policy will also push for reforms to enhance labour market flexibility with an aim for higher job creation in the formal sector and performance linked tax incentives.

Inclusive growth is economic growth that creates opportunity for all segments of the population and distributes the dividends of increased prosperity, both in monetary and non-monetary terms, fairly across society. The salient features of inclusive growth are:

Participation: People are able to participate fully in economic life and have greater say over their future. People are able to access and participate in markets as workers, consumers and business owners.

Equity: More opportunities are available to enable upward mobility for more people. All segments of society, especially poor or socially disadvantaged groups, are able to take advantage of these opportunities.

Growth: An economy is increasingly producing enough goods and services to enable broad gains in well-being and greater opportunity. Economic growth and transformation is not only captured by aggregate measures of economic output (such as GDP), but must include and be measured by other outcomes that capture overall well-being.

Stability: Individuals, communities, businesses and governments have a sufficient degree of confidence in their future and an increased ability to predict the outcome of their economic decisions.

Sustainability: Economic and social wealth is sustained over time, thus maintaining inter-generational well-being. Economic and social wealth comprises of a set of assets that contribute to human well-being, including human produced (manufactured, financial, human, social) and natural capital.

India’s economy continues to grow at an impressive rate, with projected annual GDP growth of 7.5% in 2017-18. As GDP per capita has more than doubled in last ten years, extreme poverty has declined substantially.

• Access to education has steadily improved, and life expectancy has risen.
• Financial inclusion has got a major boost with the expansion of rural banks and schemes like Jan-DhanYojna, incorporation of Information and Communications Technology (ICT) (JAM Trinity).
• Job, education and food entitlement schemes like MGNREGA, RTE and Right to Food are also helping in deepening the growth further.

However India still is home to largest number of poor and malnourished children. Recent reports are suggesting huge income concentration in the hands of few. With looming agrarian distress and jobless growth, inclusive growth is still a distant dream for India.

According to WEF report, India has been ranked 60th among 79 developing economies, below neighbouring China and Pakistan, in the inclusive development index.

Measures for inclusive growth

• Equity of access to quality basic education including basic financial literacy. Ex: RTE
• Ensuring quality health and sanitation facilities by making health a fundamental right.
• Gender parity measures through political representation, women reservation.
• Measures focused on social security benefits and gender parity, for ex., through gender budgeting.
• Creating employment opportunities through Make in India, Skill India etc.

Through these measures inclusive growth can be ensured and the Gandhian dream of reaching to the last man standing in the row can be achieved.

Rice-wheat cropping system is labour, water, capital and energy-intensive, and becomes less profitable as availability of these resources diminishes. The problem is further exacerbated by dynamics of climate change. The relevant factors for decline in yield are discussed below - 

• Decline in Soil fertility: Due to continuous irrigation and use of excessive flood irrigation, soil in rice-wheat cropping system has become saline. It has resulted into decrease in crop yield.
• Climate change: According to studies, climate change has a negative effect on major crops such as wheat, rice and maize. Increase in annual temperature range has also affected the crop yield of rice and wheat.
• Increased input cost: High rate of infestation with weeds and pests along with contamination of ground water have resulted into high cost of input for cultivation of rice and wheat.
• Change in water availability: Due to excessive use of ground water and consequent depletion of ground water resources, water availability has declined. This has resulted in decline in crop yield.

Therefore, it is imperative to focus on alternate crops. Crop diversification refers to a shift from the regional dominance of one crop to production of a number of crops. Crop diversification helps in:

• Maintaining soil fertility: Only those crops are grown in a particular region which are suitable to particular agro climate zone and it helps in maintaining soil fertility because excessive use of nutrients, irrigation is not required.
• To arrest depletion of ground water: It will help in diversifying cropping patterns from water guzzling crops such as paddy to pulses, oilseeds, maize with the aim of tackling the problem of depleting water table.
• Diversification can also provide habitat for beneficial insects and at the same time reduce colonization by pest.

The government of India has launched crop diversification scheme in the original green revolution areas of Punjab, Haryana and Western Uttar Pradesh. Under Crop Diversification Programme assistance is provided to states for conducting cluster demonstrations on alternate crops, promotion of water saving technologies, distribution of farm machinery, and awareness through training.

Government subsidizes agricultural inputs in an attempt to keep farm costs low and production high.

There are various subsidies available to farmers in terms of cheap input credit, seeds and fertilizers, subsidized electricity and irrigation etc. Agriculture subsidies always have some impact on various activities of agriculture.

Cropping pattern: Crop selection gets distorted in favour of those crops which have high share of subsidies or attract large volume of subsidies. For example cheap electricity and irrigation subsidies motivated Punjab farmers to go for water guzzling crops like rice.

Crop diversity: Crop diversity gives way to the standard staple crops where there is assured market and cost of production is low due to subsidies. For example wheat and rice are the standard crops in present times for Rabi and Kharif season respectively.

Economy of farmers: Various subsidies ensure income support to farmers and safe stock of food grains. But at the same time it leads to distorted production patterns, resulting in food inflation.

Significance of various factors on small and marginal farmers

Crop insurance: It provides income security in case of crop failure due to natural and other reasons.  It also gives them cushion against their investment in agricultural activities.

Minimum Support Price: Minimum prices ensure a minimum guaranteed income for the crops thereby hedging them from market fluctuations. Guarantee of a buyer while cultivation of crops gives a sense of financial security to the farmer.

Though high MSP for certain produces such as wheat and rice drives farmers to take the "safe side" and thus shifts to cereal production rather than fruits, vegetables etc.

Food processing: Through value addition it ensures not only better income but long shelf life for the agro products. For the country like India where the wastage is high and over 80% of farmers are small and marginal with limited capacity, their income base can be enhanced through food processing.