India Intelligence Report

 

 

   Macro Indicators Strong, Agri Worrisome

  Although economic growth is at 7.5%-8%, inflation in check at 5%-5.5%, investments in Telecom & IT estimated at USD 16 billion, and more reforms on financial and retail sector in the offing, the Indian economy continues to roar but Agriculture continues to be a major worry.
 

 

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Although economic growth is at 7.5%-8%, inflation in check at 5%-5.5%, investments in Telecom & IT estimated at USD 16 billion, and more reforms on financial and retail sector in the offing, the Indian economy continues to roar but Agriculture continues to be a major worry.

The Reserve Bank of India (RBI) reiterated its Gross Domestic Product (GDP) and inflation projections but said that inflationary projections remained a worry although liquidity is not a problem and that the economy will be able to absorb such pressures. For this reiteration, it looks like another interest rate hike is not in the offing at least for now.

Foreign Direct Investment (FDI) in Telecom and Information Technology (IT) is estimated to be about Rs. 80,000 crore (USD 16.67 billion) over the next 20 months and a significant portion will go to multi-national companies' units in Bangalore. Several MNC giants such as Ericsson, Nokia, Alcatel, Samsung, LG, Siemens, Cisco Systems, Microsoft Corporation, DELL, HP, and Lenovo are some of the big names that have pledged USD 1 billion or more. In a sign that many companies are moving closer to research and development of advanced or futuristic technologies Intel revealed plans to design the next mobile chip out of India while Cisco Systems has moved ownership of several products and components to Indian offices.

A representation of the Associated Chambers of Commerce and Industry of India (ASSOCHAM) to the Government wants a 49% FDI limit to be allowed in fast growing retail sector. Citing China as an example, the industry association said that this cap should exist for at least 2-3 years so domestic players would have enough capability to compete. Some Indian retailers want a self-serving requirement to require foreign retailers to export 20 times their FDI because some of the global players have turnovers that are about 30% the size of the Indian economy and run large chains. Besides, domestic laws require up to 13 licenses to open up one store in property over priced because of land ceiling regulations.

Prime Minister Manmohan Singh surmised that "Financial sector reform and increase investment in infrastructure" are India's "two biggest priorities" and without these India "cannot achieve" its "social and economic objectives." Specifically, he wanted "reform of the insurance and banking system" because they are "short-term oriented" especially on Infrastructure which "requires long-term investment." He also reminded his political colleagues that sustaining a growth rate of 8-10 per cent would require "massive investments" for long-term in infrastructure more effectively that just through the current short-term debt instruments.

However, the biggest worry spot for India has been and continues to be Agriculture. Cavalier management of produce, arbitrary procurement price setting, politicized grants, vote-bank handouts, unorganized funding of farmers, bad food storage mechanisms, and non-existent water and crop management has made India deficient is staples such as wheat, rice, and pulses. Second International Rice Congress, Singh called for a "second green revolution" encouraging agriculture scientist to develop new rice varieties that are tolerant to submergence, drought, salinity and had a wider adaptation to climatic change but also cautioned adoption of biotechnology altered foods. He wanted researchers to address social, economic, and ethical questions associated with biotechnology before further untested varieties. While his comments and call to action will undoubtedly be met by the scientists, he needs to galvanize political will to reform the shoddy manner in which Agriculture is being run. Despite social sector rhetoric, thousands of farmers continue to commit suicide because of over-borrowing and the Government's plan is to handout money which will no doubt reach party cadre. Despite flooding in many parts of the country because of lack of de-silting programs, political goons continue to grab tank land and rain harvest zones denying thousands of farmers depending on these tanks of a second crop. Despite repeated research showing the loss of fertility of the soil in prime agricultural belts of Punjab and Tanjavur Delta, little is done to rectify the excessive use of fertilizer or the over-cultivation of sugarcane in rain starved areas.

Unless these basic issues of agriculture are addressed, no amount of investments, growth, or reforms will sustain the growth that Singh wants to maintain.