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|February 21, 1998||
Issues '98/Dr S P Gupta
'We need a bold government to take hard decisions'
All of us, while going to the polling booths, should keep one thing in mind: what we need is a strong government; a bold government that can take decisions which have been postponed for long and thus prepare India to fulfill the objectives of economic reforms.
Hard decisions will have to be taken in the coming days to streamline our financial system before we throw open our economy to foreign investment. If we are not prepared, the East Asian crisis will be repeated in India too.
Our real production will be wiped off completely. The whole industry will be taken over by speculators and foreign investors, who care only for profits. And the moment foreign investors have doubts about our economy's strength, they will flee the country, bringing in an economic crisis.
Here, I sympathise with the Bharatiya Janata Party's slogan of a level playing field. Domestic industry now has to compete with multinationals without any infrastructure or credit facilities. It is extremely difficult for them to put up a brave front against foreign companies in this situation.
The lack of infrastructure and high rate of interest have almost killed the small- and medium-scale industry. In such a scenario, when the multinationals come in, they will naturally gobble up the domestic industry. This will leave a large chunk of the workforce unemployed, thereby increasing poverty.
This is where the government must intervene and strengthen the social security measures. The government has totally lacked a vision in ensuring social security. Any restructuring will create unemployment and the government should keep this in mind while opening up the economy. It must ensure that retrenched workers are trained and provided alternate sources of income.
I don't think we need even talk about full capital account convertibility now: we are not prepared for it.
Another important aspect is that in the name of price correction, the nation's food security should not suffer. When the agricultural sector is opened up, the focus will shift to cash crops instead of foodgrains. After all, when foreign exchange earnings become the priority, few will attach importance to food security and this should be avoided.
Therefore, we should not withdrawal subsidies fast, but instead target them to the poor farmers. Now what happens is that the rich farmers, who do not even pay income tax, grab all the fertiliser subsidies while the poor farmer hardly gets anything.
Even if subsidies are removed by offering better prices for the farm produce, only the poor would be remain affected. In fact, the actual subsidies for the poor farmer is very little compared to urban subsidies, whether it is in the form of cheap electricity or subsidised higher education.
Moreover, in the long-term interests of the nation the government should spend more in the research and development sector. If we don't, we will not be able to absorb the technology which the foreign firms will inundate the country with.
The country's skilled manpower base is fast disappearing with low government expenditure on R&D. Developing the country's manpower skills is the means to equip the country to absorb the latest foreign technology.
If we are not equipped to do so, then, in case an economic crisis occurs in the country and foreign capital departs, the local industry will not be able to measure up to the standards set by the foreign industry.
To sum up, I feel that reforms should not be pushed through the market. Even if it is done, the markets should be properly regulated. Even now there is the argument that the Indian economic liberalisation has been confined to the rich.
Unless the markets are properly regulated, food security ensured, financial sector streamlined, and social security made effective, the reforms will remain one-sided. The rich will always dominate the poor.
Dr S P Gupta, chairman of the Indian Council for Research on International Economic Relations, spoke to R R Nair.
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