FACTS againest MYTHS FEBRUARY-MARCH-2004
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- FACTS againest MYTHS FEBRUARY-MARCH-2004
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VIKAS ADHYAYAN KENDRA
FEBRUARY - MARCH 2004
INFORMATIONBUtjjtttn
Is India Shining?
Myths on the "Shining India" Campaign -1
S COMMENT
he 13d1 Lok Sabha was dissolved a few months before its term expired and parliamentary
elections were declared. They will now be held on five different days in April and May 2004.
T
One of the main reasons to prepone the elections was, of course, the success enjoyed by the
ruling National Democratic Alliance in three of the four states that went to polls to elect state
legislatures late last year, viz., Rajasthan, Madhya Pradesh and Chhattisgadh. It suffered defeat
only in Delhi. This was new ground gained by the NDA - essentially the Bharatiya Janata
Party. It had wrested these states from the Indian National Congress. The results, not realistically
expected even by the BJP, obviously created a sense of delight and a new confidence. It was
felt that the popular opinion had now swung in favour of the NDA and BJP. Obviously again,
the NDA and BJP wanted to take advantage of the public mood. It was also felt that such
mood was quite unstable - only in August 2003 opinion polls had suggested that the popularity
of the NDA and BJP was on the wane and that the Congress was gaining at their cost across
the country. It could swing again in a few months time. It was best to take advantage of the
popularity while it lasted.
Some other factors too had prompted the decision. There was drought in some parts of the
country. Some areas not traditionally considered drought prone too faced severe water scarcity.
However, there was no famine as such. There were neither starvation deaths nor large scale
famine related migrations out of villages. One more bad monsoon could, however, change the
situation drastically. Really bad monsoons in India always strengthen the anti-incumbency factor
and shift opinions against the ruling party. This was an unacceptable risk.
Yet another reason was the apparent feeling of wellbeing in mainly the middle class. There was
no recession. Enterprises were posting good returns and the share markets were booming.
True, interest rates had been reduced and were to hit the fixed income groups as well as the
small domestic investors but the overall mood was not of despondency. The retail markets had
shown normal trading activity during the festival seasons of Dussehra, Diwali, Christmas and
New Year.
FACTS against MYTHS — February - March 2004
.ONLY
The new peace initiatives with Pakistan also produced
a sense of possible secure and peaceful existence.
For sometime there were no major terrorist strikes
outside the beleaguered state Jammu and Kashmir.
There were no major communal riots. The VHPfuelled controversy over the construction of a Ram
Temple at the site of the demolished Babri Masjid in
Ayodhya continued to simmer but did not reach
explosive proportions.
The situation in short, was good enough to neutralise
or mitigate any anti-incumbency factors.
The campaign managers and poll strategists of NDABJP decided not only to make the greatest use of the
atmosphere but also to create a campaign to boost
the image of the ruling coalition.
The Government of India launched an advertisement
campaign that acquired two sobriquets - Shining India
and Feel Good Factor. It is reported that the
government spent Rs 400 crores of the tax payers’
money on this campaign. The ostensible purpose of
the advertising campaign was to emphasize the
achievements of the government under the leadership
of Prime Minister Atal Bihari Vajpayee. The actual
campaign however went far beyond statement of
facts. The points that it made were in the nature of
NDA - BJP propaganda rather than a public
information exercise of the Government of India.
In the first instance it said that for 50 years since
independence under Congress rule there was no
development in the country. The development had
really taken off only since 1999 - when this
government came to power. It also said that the
economic growth of India was unprecedented during
this period - such rates of growth had never been
achieved in any sector till this period. It further said
that all sections of the population had gained during
this period and the people never had better lives. It
laid particular stress on the construction of roads
including the Golden Quadrilateral Project as yet on
the drawing boards, the telecom and IT revolutions,
the various small savings schemes, varied irrigation
schemes including the highly controversial river linkage
project, schemes for the poor, etc. This was hailed as
a vision of the government in general and the Prime
Minister in particular to create a golden future for
India.
This was preceded by what was termed a ‘mini
budget’ that announced many concessions to the
business community and to a section of the middle
class. Since no budget was to be presented the
Economic Survey was also not tabled. No consolidated
statistical and analytical picture of the national
economy was thus available. Suddenly over the
months of February and March varied euphoric figures
of progress and development were released by
different agencies. These showed unprecedented
growth rates for the year 2003-2004 and particularly
for the last quarter for that year that is just getting
over. These figures claimed growth in economy - in
Gross Domestic Product, in national income, in
agriculture, in manufacturing, in IT sector, in
employment. They also highlighted the tremendous
growth in the country’s foreign exchange reserves.
The unofficial estimates put India well on to the path
of becoming a super power - an economic giant in
the foreseeable future.
There is another subtext to the campaign. These
‘shining’ effects creating the ‘good feeling’ were
results of the economic reforms regime - the path of
privatisation, disinvestment, rationalisation,
liberalisation, modernisation and globalisation. India in
its quest to integrate with the world economy has
followed this path assiduously along with a withdrawal
of the state from particularly the functions of
economic control and provision of social security and
social welfare. The ‘economic progress’ thus was
presented as a success also of the prescriptions of
the World Bank - International Monetary Fund World Trade Organisation combine.
The government and the ruling coalition were
themselves creating the ground work for the Feel Good
Factor and the image of a Shining India. The
advertising blitzkrieg was something quite unique.
Press and television advertisements have been a pari
of our political, particularly, electoral process for
sometime. Images of individual leaders along with their
parties have been built up and projected and constantly
hammered in this way during the past few elections.
This campaign - government funded and official was however blatantly shameless and cynical. The
vulgarity was not seen earlier. Moreover it was based
on twisted facts and (possible) lies.
The open advertising campaign was accompanied by
various official and semi-official releases. This year,
since the dissolution of the Lok Sabha and the elections
were in the offing the government did not table a full
budget in the Lok Sabha but only a vote on account.
FACTS against MYTHS — February - March 2004
Some ‘facts’ and ‘data’ so conveniently released as
the election campaign got into gear were suspect. They
were also presented in a piecemeal manner. The
overall picture never emerged.
It is therefore necessary to look at the claims of the
Shining India campaign.
2
Any knowledge of the conditions of the people of India
tells us that the average toiling person in rural or urban
India has no reasons to “feel good”, nor does s/he
find a shine anywhere in her/his life.
Agriculture is in crisis in all areas where ever-newer
cash crops do not dominate the scene. The small
fanner cannot make ends meet. The food grains a
poor peasant family manages to grow on their small
plots of land are not enough to feed the family round
the year. Minimal survival can be assured only through
additional work as agricultural labourers or as workers
on say th& Employment Guarantee Scheme - if any
such schemes are functional and available in the
particular area. No technological innovations have
reached the common - poor and middle peasant except perhaps the disastrous use of chemical
fertilisers and pesticides. No cheap credit is available
to these peasants. They have to take recourse to private
moneylenders who continue to rule the rural scene.
Indebtedness is increasing. The poor and middle
. peasants never manage to realise the prices announced
by the government as support prices since the
marketing mechanisms are not accessible to them.
Failures or destructions of crops push the already poor
farmer into destitution. Farmers’ suicides have been
a characteristic of the ‘Feel Good’ ‘Shining’ era - in
almost all states of the country - particularly those
that have recorded rapid monetisation,
commercialisation, and capitalisation of agrarian
economy. Andhra Pradesh, Maharashtra, Karnataka,
and Punjab are replete with stories of farmers’ distress
and suicides. The concealed or partial reversals of
land reforms in some states along with the introduction
of corporate operations in agriculture completely drive
the poor fanners to the wall.
There is virtually no scope of any change of
occupations. There are simply no opportunities for
teainful employment in the rural areas. Often then the
^>nly choice is to migrate to the cities in search of
livelihoods. More often than not the men in the family
migrate leaving the women in the village to cope with
the agricultural situation and poverty. There is thus a
distinct feminisation of agricultural labour, agriculture
and of rural poverty.
The fact of the matter is that there are no jobs in the
city - at least not well paid and secure jobs. The
organised sector employment is on decline. The most
dramatic decline is in the public sector where
disinvestment has meant a clear reduction of jobs.
The story of the private sector is not very different.
There is growth in manufacturing and in the corporate
sector but it is a jobless growth. The growth is jobless
because of two reasons - one is the introduction of
FACTS against MYTHS - February - March 2004
heavily capital intensive and labour replacing
technology considered essential for survival and
insertion in the world markets. The second is the new
organisational and management practice that depends
on ‘out sourcing’ the production from larger factories
to the small scale and tiny sector. In this sector the
labour laws almost do not apply. Employment and
wages are not guaranteed or protected. Working
conditions are terrible. The gloss of globalised
production technology is accompanied by mandatory
sweat shops. Employment even in these sweat shops
is a privilege available only to a few. Most are left to
find means of survival through petty self employment,
meanest casual labour, and uncertain occupational
activities. The retrenched or cashiered workers swell
these ranks of unemployed casual toilers.
There is a clear increase in the destitution and poverty
in the cities. Women as is well known bear the brunt
of the harsh conditions.
The situation for the lower levels of the white collared
workers - the so called lower middle class - is no
better. Their salaries have not increased while the
aspirations certainly have. For them every thing now
costs more from food grains, transport, housing, health,
and education. The young men and women from this
section - who generally do not have fancy
technological education - find no employment. Their
traditional jobs—mainly clerical in nature - are largely
eliminated by today’s technological advances and
management philosophy.
The sufferers of this economic development are not
a small section. They constitute at least 70% of the
population.
They have no cause to Feel Good or to find India
Shining.
The media blitz at best distorts the facts and often
blatantly lies.
In this part we look at the myths of economic
advancement of India - miraculous and dramatic
according to the propaganda - in detail. We do so in
simple words and simple terms, with a minimum use
of statistics that often confuse and confound rather
than clarify issues. In the next part we shall examine
the social situation of Shining India and try to discover
whether there is any reason to Feel Good on that front.
MYTH: These are boom times for the Indian
economy with stellar achievements in GDP
growth, foreign exchange reserves, etc.
FACT: These achievements however fail to mirror
the cold, hard facts at the ground level. For instance,
3
at $460-470 per capita income, India ranks (162) way
below most nations, given the population size (around
1050 m.). From a 3 per cent average, the economy
started growing at 5 to 6 per cent in the 1980s and the
momentum was not only sustained but also enhanced
during the 1990s. The 10lh Plan was formulated on
the expectation that the momentum of growth would
be sustained, though over the last 5 years (1997
onwards) there has been a slowdown with a somewhat
disappointing 5.5 per cent average in the previous 9lh
Plan (1997-2002) against the 6.5 per cent target. Apart
from growth deceleration, the past decade did not
generate the assumed level of employment. Labour
absorption was less than 1 per cent in 1994-2000 as
against the over 2 per cent annual population growth
for the period (2002-07) calling for a massive
mobilisation of domestic savings as well as greater
reliance on foreign (direct investment and other flows)
to achieve the desired targets by 2007. The
deceleration was further accentuated by the severe
drought in 2002 which led to a sharp decline in food
grain production to 182 m. tonnes in 2002-03 from the
previous year’s 212 m. tonnes and agriculture growth
fell by over 3 per cent. The human developed record
is uneven with wide disparities among States. India’s
Human Development Index has slipped to 127th
position among 175 countries, according to the UN
Human Development Report 2003.
the government to “devise a scheme where no person
goes hungry when the granaries are full and lots being
wasted due to non-availability of storage space”.
A survey in Madhya Pradesh found 6,785 children in
43 blocs o Shipper district severely malnourished an average of 160 per bloc. The situation is equally
hopeless in several other states. Malnutrition especially
among children and women continues to multiply.
The UN’s Millennium Campaign also notes the
following:
Related to the above, the growth rate of food grains
output, since the mid 90s, has been lower than that of
the population. Estimates made on the basis of data
published in Economic Surveys and the Census,
suggest that net food grains output per capita had fallen
from 181.59 kgs in 1994-95 to 164.59 kgs in 20022003. Per capita net availability of food fell much more
drastically from 177 kgs in the early 1990s to an all
time low level of 151.06 kgs in 2000-01. By 2000-01
an average Indian family was absorbing 93 kg less
food grains, compared to 3 years earlier. An illustrative
irony is the burgeoning food grains stocks that continue
to rot in the open or are devoured by rodents on the
one hand, and starvation deaths on the other. In 2001,
starvation deaths were reported in over 13 States.
(See also Box below)
When export markets could not be found for this
surplus, there was a proposal to dump it in the sea to
make storage space for the next crop! And when this
food stock was exported it is at subsidised prices for
consumption as animal feed. The case was filed by
some NGOs in the Supreme Court asking for
directions to ensure the fundamental right to food of
every citizen. A bench comprising of Justice B.N.
Kripal and Justice K.G. Balakrishnan had directed
C FACTS against MYTHS - February - March 2004
>
1.25 m. children below 1 year of age died in
India in 2003;
> 50 m. children were out of school.
>
11 children die before their 51*1 birthday;
>
8 lakh children die every year from easily
preventable diseases like diarrhoea.
> Children of 150 m. households have no
electricity;
> Children of 100 m. families live without water
at home;
> Less than half of India’s children between
the ages of 6 and 14 years go to school; and
>
a little over l/3rd of the children who enrol
in Grade 1 reach Grade 8.
In this context two major reports on the state of the
economy and development in general were published.
These are the RBI Report on Currency and Finance
2002-2003 and National Human Rights Commission
(NHRC) 2001-2002.
The latter report reveals that child labour, for instance,
continues to illustrate the glaring and persistent
violation of human rights. A survey conducted in
Rajasthan in 1997 resulted in identifying 8090 chilli
labourers - of which 3026 were working in hazardous
occupations. A total of 60,705 child labourers were
detected in UP between 1997 and 2002. A survey in
Orissa in 1997 brought out a total number of 23,761
children, of which 18,089 were working in hazardous
work. Successive surveys were conducted in
Maharashtra in 1997,1999-2000 and 2001-02, and the
number of child labourers detected was 1023, 2983
and 4552 respectively.
Essential to realise, however, is that growth rates on
their own are notoriously inadequate to measure the
status of a nation and its people. To paraphrase Dr.
Amartya Sen, it is a gross error to perceive people
just as means of production and not its ultimate end.
Behind the Neon Lights of ‘Shining India9: Mass Hunger
Various indicators — chronic energy deficiency among adults, low weight and height among children, and
anaemia'among women - indicate that approx, half the population is physically substandard for sheer
lack of food. In such circumstances, the Government’s decision to wind up the PDS has already had
near fatal to fatal impact. Under WB dictat, in 1991, the Government regularly hiked up foodgrain prices.
Consequently, people were forced to reduce their annual consumption of cereals to the point of 61.3 kg
per capita, or 81.5 kg per household of 5 by 1998. Subsequently, in 1997 the United Front Govt.
launched the Targeted PDS, implemented thereafter by the ruling bloc. The TPDS raised the prices for
those arbitrarily deemed “above the poverty line” to market prices prevailing or even higher, as a result of
which these sections stopped buying PDS grains, and in fact reduced their grain consumption. The price
was raised even for those declared “below the poverty line”.
Cereal consumption in 1998 was already as low as 144.9 kg. per capita - against the minimum norm of
157 kg. In fact the real cereal requirement in India would be even higher, since the diet actually
consumed in India is not as varied as that norm assumes. Cereals are a much cheaper form of calories
and protein than other food items. The poorest 40 per cent of the population spend 173rd of their food
budget on cereals, but get 3/4ths of the nutrition from them. So, they are particularly dependent on
cereals for their nutrition.
As the off-take by the PL sections dropped sharply, and the BPL were unable to draw their essential
quotas, foodgrain stocks soared from 18 m. tonnes in December 1997 to 58 m. tonnes in December
2001. That is, the growth in foodgrain stocks was the result of the deprivations of the poor of food. The
so-called food subsidy rose from Rs.6,066 crore in 1996-97 to Rs.24,200 crore in 2002-03; half this sum
was spent for holding stocks in excess of buffer stock levels. In other words, it was not so much a food
subsidy as a subsidy for the WB-dictated policy! Hence, the warped argument that there was less demand
for grain today.1 Official documents generated the myth that peoples* tastes and lifestyles had changed;
are more interested in other expenditures like consuming higher quality food items like meat, vegetables
milk and milk products. Still others presented another warped line of thinking, viz., that progress of farm
mechanisation and public transport, meant that people did less physical activity and therefore needed less
calories to consume. As a result, the “nation” did not need all that grain, and the PM even exhorted
farmers to grow less grain!!
In February 2004, there were reports that food grain stock have been almost wiped out, and wheat
stocks are below minimum buffer stocking norms! Where has all this grain disappeared?! No doubt in
2002-03 there was a considerable hike in PDS distribution in comparison with the recent past. Moreover,
the Government off-loaded a substantial quantity through various other welfare schemes such as Food
for Work and mid-day meals in schools. However, 3 other heads accounted for a massive amount of
subsidised grain; exports, open market sales to traders, and outright theft and some had been sent been
sent to Afghanistan during the American bombing of the country!1 On the point of theft, although some
of the stocks did rot and was unfit for human consumption and also eaten by rodents, this cannot
account for most of the 14.7 m. tonne gap in the accounts of foodgrain stock.
Further, despite procurement of 64 m. tonnes between April 2002 and November 2003, food grain
stocks dropped by November 2003 to just 22 m. tonnes, and even further by February. 2004. By
January 2004 there were only 7 m. tonnes of wheat remaining in FCI stocks - that is, below minimum
buffer stock norms for that time of the year.
In other words, if the quality of life of the majority of
the people does not improve in any significant manner
(and, in fact, has even declined despite high national
growth rates), growth as such is meaningless. ‘Shining
India* is a great votary of the ‘Trickle Down’ theory
- that is, high growth rates will over time propel the
masses out of poverty and misery.
FA CTS against MYTHS — February - March 2004
MYTH: The current high economic growth has
led to economic progress.
FACT: A reality check contradicts this claim.
According to the major credit ratings agency, Moody’s
Ratings, in its latest yearly update on April 6, 2004
this year’s high growth was the exception rather than
the rule and hopes of this 8 or “even double digit rates
are likely to be dashed”. It warned that such a growth
may not also be sustainable in the future and will be
expected to slow down to 6.5 per cent. It also cautioned
that growth, and its positive effects, will be difficult to
maintain in the absence of increased investment in
human and physical infrastructure and a fiscal
adjustment. Besides, the current economic buoyancy
can be attributed to the dramatic farm sector recovery
following a long drought in certain States and then a
good monsoon, as well as continued healthy output
gains in the service and industrial sectors in the 3rd
quarter. From a lower base, the growth has picked
up. And from this high level, it will be difficult to
sustain the growth. Though it noted that India’s
external liquidity position was 'strong’, as reflected
from current foreign currency ceiling for debt and
stable outlook, it pointed out that current high oil prices
and import growth may lead to current account deficit
in 2004-05, but could be fully financed2. It also added
that other factors may also intervene, including the
recent pickup in inflation, which may cause the RBI
to hike interests rates in response to signs of an
overheating economy. Markets are already indicating
unease with the negative real yields on government
bonds. It observed that there is all likelihood of India
unable to even meets its budget target of 4.4 per cent
of GDP in 2004-05 especially when election-related
spending and recent tax cuts are considered.
This disclaimer is supported by earlier analysis for
instance in the Times of India3 (19-11-03) which made
the following observations on this false claim, viz.,
> despite the over 8 per cent growth that had
been projected in the agriculture sector in
2003, farm production had not exceeded the
peak levels reached in 2001;
>
industrial sector improved in 2003 merely
from 5.8 to 6.5 per cent. This modest recovery
however owes less to official development
policy initiatives than to a decade of corporate
cost-cutting.
> the high double digit growth for the first of
2002 gave way to less than 5 per cent growth.
While some of this fall can be traded to the
rising Rupee, the case of other especially East
Asian countries suggests that this is not the
complete picture!
Apart from this, the RBI’s “Report on Currency and
Finance” (002-2003) noted that
> There was not enough proof of a clear rise in
investment demand;
>
resource mobilisation by corporates in the
primary market has actually been lower
during the year;
>
the tax-GDP (ratio) in the economy continues
to be low;
>
as the revenue deficit is high, the burden of
fiscal correction naturally falls on public
investment;
>
the public sector disinvestment, which began
in 1998-99, has been rising over the years;
Moreover, Gujarat and Karnataka experienced laigescale distress and migration. In Rajasthan, fact-finding
teams found the starving eating grass. In Orissa, a
steady stream of starvation deaths was reported from
many districts. In Maharashtra too in recent years
there have been starvation deaths in the districts of
Amravati, Thane, Dhule and Nandurbar.
Government authorities however always argue that
nothing is amiss and, by inference, that India is still shining in all round development! The Maharashtra •
government ascribed the deaths of Adivasi children
to so-called primitive practices. When starving
Adivasis of Orissa were forced to consume mango
kernels, and died of poisoning as a result, the State
Government doggedly refused to classify these to
starvation deaths, and claimed that mango kernels
were a local delicacy eaten by choice! The P.M. had
dismissed the news of starvation deaths in various
part of the country as mere media propaganda.
Lest we forget: The most important factor behind the
7 per cent growth rate is the good monsoons, on the
background of a series of droughts, that led to the
projected rise of 9 per cent in agriculture GDP, which
in turn brightened the general economic outlook. What
this translates into is that agriculture crucially
dependent on the monsoon could go right back to thf
4.4 per cent growth rate of 2002, if the monsoon fails ■*
this year.
At any rate, it is naive to consider the 7 percent (even
8 per cent) growth rate as a long term turn around.
To sustain such growth rate in the long term it is
essential to have an mvestment rate of over 30 per
cent of the GDP every year! (Dammed Statistics)
However, in the past five years, the investment rate
has been stagnating at about 24-25 per cent of GDP.
Moreover, fixed investment as a proportion of GDP
has fallen appreciably from almost 27 percent in 199596 to just over 23 per cent at present.
FACTS against MYTHS — February - March 2004
. •
4
Citing a study on corporate investment intentions by
RBI in December 2003 Regi George shows that after
6
a steep fall of 23.6 percent in capital expenditure in
2001-02, there was a further fall of 9.1 per cent in
corporate investment in 2002-03. And in the current
fiscal, as against capital expenditure of Rs.37,154 crore
in 2002-03 on already sanctioned and new projects,
the investment intentions with respect to new projects
in 2003-04 amount to a mere Rs. 19,518 crore. It is
impossible that the remaining part of 2003-04 would
be able to gamer an additional investment exceeding
Rs. 17, 636 crores that is needed to register positive
growth.
The investment rate in any economy is directly
dependent, apart from the degree of public investment,
on the domestic savings in the economy. While private
sector savings have increased from 18 per dent of
GDP in the late 1980s to about 26.5 percent in 200203, public sector savings have fallen from about 2.4
per cent of GDP in the late 1980s to (-) 2.5 per cent
in 200-03. The poor public savings is eroding the
investment capacity of the country for generating
^higher economic growth. This is not surprising. In its
urge to make available capital at a cheaper rate for
the corporate sector, the government has been steadily
reducing the interest rates in the economy. This has
severely affected the quantum of savings that an
average family makes. Consider the following: the
wholesale price index currently is growing at 6.9 per
cent. The CPI, naturally, would be much higher. As
compared to this, the bank interest on savings is
currently 5.5 per cent. By saving a part of their
earnings, people are actually losing because inflation
is higher than the interest rates. There cannot be
greater dis-incentive for savings.
Therefore, any sustainable high levels of growth rates
for India have to be based on dramatically increasing
the levels of capital expenditures and public investment.
The policies pursued by the government, on the
Mntrary, are compressing public investment to levels
that will dangerously deflate the Indian economy.
As far as the corporate world is concerned, it appears
that they are not behind the general Indian experience
where the “feel good” factor is confined only to the
top 10 per cent of the Indian population. Citing a
survey in the Peoples’ Democracy George shows
that except for the top 100 corporations, the rest of
the 900 have shown not only a fall but as one goes
down lower, a negative growth both in terms of sales
and net profits. The top 100 companies by sales have
collectively improved their share of the net profits of
the top 1000 companies, from 62.48 per cent in 1993494 to 87.03 to 87.03 per cent in the first 9 month of
2003-04.
FACTS against MYTHS - February - March 2004
In sharp contrast, the share of the next 100 companies
(ranked 101 to 200 in the top 1000 sample) fell from
13.2 per cent in 1993-94 to 5.61 per cent in the first 9
month of 2003-2004. Further, while the bottom 200
companies, ranked 801 to 1000 accounted for 3.06
per cent of the net profits of the top 1000 companies
in 1993-94, they cumulatively made losses in the first
9 months in 2003-04.
Clearly, even in the corporate world, India is not shining
for all!
Even on the trade front, the situation is not ‘shining’
as the Government claims. The growth of exports
dropped from 42 per cent in December 2003 to a mere
8.7 per cent in January 2004. As result, the trade
deficit almost doubled from $7.6 b. to $14,5 b.
between April-January 2002-03 to April- January
2003-04.
MYTH: The current Forex reserves of over
$100 b. are assets that overcomes India’s debt
and as investment in goods, etc. that will lead to
economic recovery and prosperity for the
people.
FACT: According to the ENS economic bureau5
though the country has achieved $100 b. in foreign
exchange reserves its external debt rose to $112.54
b. at the end-September 2003 from $104.70 b. in
March. The forex reserves are not enough to cover
this debt. NRI (Non-resident Indian) deposits rose to
$27.19 b. from $23.16 b., while external commercial
borrowings rose to $23.65 b., from $22.37 b.
Further, the Central Government’s fiscal deficit crept
up to Rs.93,656 crore till November 2003, which is 61
per cent of the budged estimate of Rs. 1,53,637 crore
for 2003-04. This indicates the government is slipping
on the deficit front. The deficit till November which
works out to 3.4 per cent of GDP, was marginally
higher than Rs.85,978 crore till October 2003.
According to figures by the Comptroller General of
Accounts, expenditure surged to Rs.2,80,051 crore
while receipts were at Rs.1,86,395 crore.
Additionally, it will be noted that there had been a
$155.56 b. in the net capital account but India lost
$31.46 through trade deficits. Simply put, India
accumulated this huge forex reserves mainly through
borrowed cash under different heads. These, in reality,
are a liabilities. Foreign investments brought in $55.4
b; NRI deposits accounted for 21.8 b., external aid
11.8 b., external commercial borrowings amounted to
15.3 b and other items in the capital account totalled
$11.2b.
7
30,2003 the total foreign currency assets were $87.2
b. Of this, $31.7 were invested in securities, $39.64 b
were deposited in other Central Banks and BIS, and
$15.83 b. with foreign commercial banks. The country
earned only 2 per cent returns from this reserve . On
the other hand, some of the forex flowed back to India
as external commercial borrowings by Indian
corporates on which the Indian public pay much bigger
return.
This high reserves had a very low level of return
'(about only 2 per cent) 2003 because of a global low
interest regime.
Likewise, our total foreign assets as on March 2003,
were about $94.68 b. Of this, direct investment abroad
added up to a mere $5 b., portfolio investment was
0.72 b., while other investments amounted to $ 12.8 b.
As against this, foreign liabilities totalled $154.75 b.
This liability included FDI in India ($30.8 b.), portfolio
investment ($32 b.), and other investments ($91.7 b.).
So, in reality, the liabilities are $60 b more than the
reserves!
Keeping all these figures in view against the backdrop
of the declining value of the US $ in the global market,
the actual earnings must be much below 2 per cent.
Compared to the GDP, the country forex reserve is
about 20 percent. There is, thus, much at stake.
On examining the purpose these huge reserves can
be put to another reality unfolds. As on September
caso
cast)
cam
Please feel free to reproduce material from this publication but with due credit.
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Facts Against Myths is a bi-monthly bulletin offactual
information on a number ofdevelopment myths and
fallacies, etc, including information against alien
development models, paradigms and false concepts
on caste, creed and gender.
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Produced and Published by:
[
‘X'Xi—iz'y*
Vikas Adhyayan Kendra
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Fax:28898941
Email: vak@bom3.vsnl.net.in
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