STABLE POLITY
RAISES INDIA’S STATURE ABROAD
S.Sethuraman*
Heading a multi-party
coalition, Prime Minister Atal Bihari Vajpayee has provided India
with stable governance, successfully completing five years at
a stretch (l998-2003), a record given only to a single party rule
in the earlier decades of India’s Independence. Much more than
leading a Government of different hues, it is the suave personality
of Shri Vajpayee, with his vast political experience and an outstanding
Parliamentary role, that has helped him guide the nation’s
affairs steadily through years of challenges, internal and external,
and place India at the centre of international community.
Strong as his beliefs
and commitments may be as the leader of the Bharatiya Janata Party,
Shri Vajpayee’s remarkable transformation from the opposition
benches to holding the reins of office of the world’s largest
democracy speaks of his liberal mind and broad national approval.
What has impressed
leaders of major nations and international institutions is Shri
Vajpayee’s singular commitment to economic reforms to take India
on a higher growth path to be able to overcome the vestiges of
poverty and make available at least ten million jobs on an average
a year. He inspired the Planning Commission to aim at an eight
to nine per cent GDP growth over the coming decade during the
Tenth Five Year Plan (2002-07) so that along with the dynamic
segments of the economy, such as information technology and other
services, social development begins to catch up faster. Such an
order of economic growth and balanced development would generate
a higher level of resources for the Government to bring down the
current level of fiscal deficits caused by heavy borrowings and
also enlarge public investments in physical and social infrastructure.
As the economy moves
into higher growth trajectory, its trade expands and a larger
volume of external investments can be mobilized to further strengthen
the foundations of the Indian economy in the context of the vision
of both President Abdul Kalam and Prime Minister Vajpayee that
India should become a developed nation by 2020. There is no doubt
that India along with China would emerge as the two major economic
powers of Asia with a larger share of global trade and financial
flows, fully integrated with the world economy, within the next
two to three decades.
Keen to reinforce
the image of India as a technologically developing nation with
several breakthroughs in nuclear, space and other fields, Shri
Vajpayee took the plunge, in one of his first acts in 1998, to
declare the country’s nuclear weapon capability with a series
of underground tests (Pokhran II), a step dictated by the security
environment and threat perceptions, and to assure the world that
India would not be the first to use a nuclear weapon.
Notwithstanding the
adverse reactions from several nations, especially the West, which
imposed economic sanctions on both India and Pakistan, which had
stealthily built up a weapon capability, India stood on its own
to tide over the difficulties of a short-term nature. There was
no interruption in the growth process of the post-liberalisation
era beginning l992-93.
Shri Vajpayee, with
his grasp of international affairs having served as Foreign Minister
in a non-Congress Government in the late l970s, was able to mend
fences with all friendly countries which had misgivings on India’s
nuclear policy and facilitate normalization of relations with
major powers, notably the United States of America.
Indeed, a high water-mark
of his stewardship was the qualitative change in Indo-American
relations bringing them closer as never before following a visit
to India by the then US President, Mr Clinton. This later resulted
not only in the lifting of sanctions and unfreezing of restrictions
on exports of high-technology and sensitive items to India but
also opening the way for intensified trade and technological and
financial cooperation with a recognition of India’s emergence
as a strong regional power.
Shri Vajpayee has
broadly adhered to India’s traditional approach to international
affairs, as a force for peace, and as an active participant in
multilateral fora and negotiations towards the creation of a reformed
international financial architecture and a more equitable trading
system for developing nations. Apart from nurturing the time-tested
friendship with Russia, the Vajpayee Government has furthered
the process of normalization of relations with China, even as
the long pending border dispute is yet to be settled.
The "Look East"
policy was given a new dimension by Shri Vajpayee’s visits to
Singapore, Malaysia and Vietnam and India expects to have free
trade arrangements with the Association of South-East Asian Nations.
Shri Vajpayee sought ways of strengthening good neighbourly relations
with all South Asian nations including Pakistan, which has indulged
in an unabated hostility over Kashmir and its boundary transgressions.
The Prime Minister’s
desire for subcontinental peace and harmony was exemplified in
his bus ride to Lahore to meet his Pakistani counterpart at that
time which, however, turned out to be a false dawn. For, not long
afterwards, we had to defeat the treacherous intrusions of Pakistani
forces into the Indian territory in Kargil. India’s moderation
was lauded internationally when it desisted from pursuing the
invaders into their territory. Despite the Kargil episode, Shri
Vajpayee invited the Pakistani military ruler, General Pervez
Musharraf, for summit talks in Agra in 2001.
While the talks did
not yield any positive outcome, despite India’s readiness to discuss
all differences including Kashmir, Pakistan created a dangerous
situation toward the end of the year by massing its troops all
along the Indo-Pakistan border to which India had to respond.
This was preceded by a series of terror attacks from across the
border including one on India’s Parliament itself. For months
the two armies faced each other, heightening tensions and Pakistan
made veiled threats to use nuclear weapons against India before
they stepped back slowly under growing diplomatic pressures from
USA and other nations.
Among the notable
initiatives of the Prime Minister were spells of ceasefire by
the security forces in Jammu and Kashmir in order to promote a
dialogue with militants and wean them away from acts of terror
and the holding of free and fair elections in the embattled State
giving an opportunity to all sections of opinion to join the democratic
mainstream. A new Government with a people’s mandate is already
functioning and the Centre continues its efforts to satisfy the
aspirations of the people despite the recurring cross-border terrorism
which Pakistan has failed to control despite assurances to the
international community.
Shri Vajpayee is
credited with applying a healing touch in internal political rivalries,
conflicts and violence from time to time including occasional
attacks on religious minorities. The political stability that
Shri Vajpayee has been able to impart in his just completed five
years in office has been the backdrop of his Government’s economic
policies and reforms and contributed to growing international
investor interest in the vast Indian market.
A macro view of India’s
economy at the end of March 2003 may present a mixed picture with
growth ups and downs but there is no mistaking the strong fundamentals.
The Vajpayee Government has not only maintained macro-economic
stability but also advanced significantly the reform agenda, notwithstanding
a perception that the pace of reform and restructuring has been
slow.
It is not that Shri
Vajapayee himself and the Government through the annual budgets
have not come up with bold proposals of change so badly needed
in several sectors but some of them cannot be pushed through without
a broad political consensus. Major legislative pieces such as
those relating to maintaining fiscal responsibility and deficit
reduction, restructuring of public sector banks for greater efficiency
and labour reform have been pending for long and cannot be enacted
without consensus. Shri Vajpayee has been vainly pleading for
such a consensus to shield economic issues of growth and development
from day to day politics. Even so, his Government’s accomplishments
in the economic and social fields have been considerable.
Policies with longer-term
benefits are slow to impact. This is true whether in agriculture,
industrial restructuring or infrastructure. Economic growth in
India, more specially in recent years, has been below potential.
This is because of several factors including structural constraints,
investment slowdown, poor infrastructure, systemic inefficiencies
in service deliveries and external shocks having direct impact
on trade and financial flows. This is why there has been utmost
emphasis on wide-ranging reforms as an ongoing process so that
the country can reap the advantages of higher levels of performance
in all sectors to enhance the growth prospects.
The industrial and
export slowdown was the depressing side of the economy since l997-98
and these did not respond to the budget reliefs, in the absence
of demand and investment, until signs of strong recovery began
to appear in the latter half of 2002-03. The marked deceleration
in industrial growth had its adverse effect on overall growth
of the economy. From a little over six per cent in the first reform
phase (1992-97), the average annual growth declined to 5.4 per
cent in the six years ended March 2003.
But in the first
two years of the Vajpayee Government, the GDP growth of 6.5 per
cent and 6.1 per cent was recorded.A setback in agriculture now
and then reduces the growth rate and the lowest growth of 4.4
per cent was recorded in 2000-01 and again in 2003-04 (advance
estimate). Domestic savings and investment rates had also stagnated.
Partly this has to do with the lack of savings in the Government
sector which turned negative from l998-99.
The fiscal and revenue
deficits of the Government have been rising as a proportion of
GDP in the latter half of l990s. The fiscal deficit had risen
from 5 per cent in l998-99 to 6 per cent in 2002-03 entailing
higher borrowings every year There is little scope to reduce committed
non-plan expenditure like interest payments (which take away 45-50
per cent of revenue receipts), defence, and the rising levels
of subsidy on food and fertilizers where attempts by the Finance
Minister to scale down, even marginally, have been met with resistance
across the entire political spectrum. All this has affected increased
capital spending by the Government at the Centre and in the States
which are also running sizeable deficits.
In contrast, the
external payments position has registered dramatic improvements
over the last three to four years. While the level of foreign
exchange reserves was rising since l992, there was a quantum jump
in 2001-02 and even more in 2002-03 to 74 billion US dollars,
mainly due to larger receipts of workers’ remittances, increased
earnings from software exports and equity and portfolio investment
flows. For the first time in over two decades, the country recorded
a small current account surplus in 2001-02 and is also expected
to end 2002-03 with improved surplus.
The large accretion
to reserves has helped the Reserve Bank of India to liberalise
foreign exchange utilization for various investment and other
purposes and also for pre-payment of external commercial borrowings
by corporates and high-cost multilateral debt by the Government
The foreign exchange inflows include a large element of NRI deposits
and expatriate remittances and reflect their confidence in India’s
economic management and growth prospects.
Exports registered
impressive increases in 2000-01 and 2002-03 and there is now growing
confidence that the country would be able to maintain a sustained
12 per cent annual growth in exports to secure at least one per
cent share of world trade by 2007. The surge in international
prices in the wake of geopolitical tensions and Iraq war has substantially
increased the oil import bill but the reserves can absorb the
burden.
India’s exchange
rate has been held fairly steady despite bouts of volatility in
global financial markets and the monetary policy has facilitated
a large flow of credit to productive sectors. The lowering of
inflation in the second half of l990s also helped to bring down
the interest rates and lending rates have been softened significantly
in recent times. A price upsurge, notwithstanding the hikes in
prices of petroleum products on account of international price
movements, has thus far been avoided with the buffer provided
by the large stocks of foodgrains.
The Prime Minister
gave a fillip to the food for work programme in drought-affected
areas to generate rural employment. His Government removed several
constraints in the agriculture sector, ridding it of export restrictions
and facilitating freer movement of foodgrains within the country.
A scheme of crop diversification is being taken up to bring about
a shift from excessive concentration on cereals in line with the
changing food habits of the people.
Meanwhile, India
is actively participating in the World Trade Organisation negotiations
for agricultural trade liberalization in order to improve its
share of agricultural exports to world markets. Food security
and rural development will be safeguarded in the global agricultural
negotiations though at present they have run into serious difficulties
because of the reluctance of richer countries to lower subsidies
to their farmers.
India needs to increase
the tax-GDP ratio which is around 10 per cent if it has to have
savings for public investment. At the same time, tax rates lowered
for evoking better compliance have been held broadly stable in
order not to create distortions. The emphasis is more on widening
the base of taxation and to bring more services within the tax
net.
A notable reform
in the last five years has been the simplification of indirect
taxes, excise and customs, reducing the number to three to four
rates and structuring them in ways that would not push up prices.
Consistent with its WTO obligations and bringing tariffs on par
with other developing countries, the Government has done away
with all quantitative restrictions on imports of consumer items
and lowered the import tariff peak average to 25 per cent from
150 per cent in l992
The Tenth Plan, approved
by the National Development Council under the chairmanship of
Prime Minister Vajpayee, envisages reduction of the poverty ratio
to 20
per cent and universal
access to primary education by 2007 and has set other social targets
to improve the quality of life of the rural people by 2012. The
Plan would depend on the fullest mobilization of financial and
human resources by the Centre and the State governments.
A major step
taken recently is to unify the country as a single market through
the introduction of Value Added Tax from June 1, 2003. As the
Iraq war has ended and its post-war reconstruction problems are
tackled, hopefully with UN involvement, India can make a useful
contribution to meeting import needs like foodgrains as well as
participate in rebuilding projects in Iraq. The Prime Minister
has already announced India’s readiness to join any international
effort in the reconstruction and rehabilitation of Iraq and its
people, given the long friendship between the two countries.India’s
record as a fast growing nation is now widely noted and its role
as a rising major power is recognised. (PIB Features)
*Senior
Freelance Journalist, Chennai
