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India on 9% growth track but high food inflation, inequities a risk

India on 9% growth track but high food inflation, inequities a risk
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First Published: Fri, Mar 28 2008. 12 22 AM IST

The report comes even as finance minister P. Chidambaram said on Thursday that India would feel the impact of a US slowdown and growth would fall to around 8%
The report comes even as finance minister P. Chidambaram said on Thursday that India would feel the impact of a US slowdown and growth would fall to around 8%
Updated: Fri, Mar 28 2008. 12 22 AM IST
Even as finance minister P. Chidambaram maintained that a slowdown in growth was inevitable, a new United Nations report turned in a more optimistic projection on India and said the economy will expand at an average 9% in 2008 though there was a risk of “high” food inflation.
Chidambaram, in an interview to Bloomberg in Singapore on Thursday, said, “We think there will be some second-order effects from the US slowdown.”
He maintained that the impact would be between 50 basis points and 75 basis points and growth would slow down to around 8%.
The report comes even as finance minister P. Chidambaram said on Thursday that India would feel the impact of a US slowdown and growth would fall to around 8%
One basis point is one-hundredth of a percentage point.
Meanwhile, a report on the 2008 United Nations Economic and Social Commission for Asia and the Pacific (Escap), Sustaining growth and sharing prosperity, predicts that India will be quite insulated from slowing regional growth amid global turbulence, but high food inflation, growing public debt and increasingly unequal progress were strong risks to sustaining that growth.
The report says that even in the most pessimistic scenario of a recession in the US, India’s growth would be lower by 1.2 percentage points, the least in the region, compared with 3.3 points lower in China, 4 in Singapore and 6.6 in the Republic of Korea. Overall, “the region is well prepared to navigate global instability.”
But governments, said UN undersecretary general and Escap executive director Noeleen Heyzer, “must show greater political will to address decades of policy neglect and failure in agriculture.”
Tacitly supporting India’s farm debt waiver, the report said, “Some policies to address inequalities may be politically difficult (for example, land reforms) while targeted measures to address poverty may require significant fiscal resources, best initiated in a growing economy.”
Arguing that overall growth in the region since the 1990s has barely touched the poor, especially in rural areas, the report said the rise in inequality can be directly traced to neglect of farming, leading to low and stagnant productivity, lack of rural infrastructure, incomplete land reform, poor basic services delivery and few alternate sources of income in the rural economy.
The way out, Escap says, is to revitalize agriculture, by encouraging research and development and commercial farming, promoting infrastructure, health and education, and using pro-farm macroeconomic policies, as well as helping people migrate out of farming.
Ashok Gulati, director in Asia, International Food Policy Research Institute, says, “We have done studies that show contracting is beneficial because it helps farmers cut the cost of cultivation, marketing and transaction, and earn higher profits of up to double that of other farmers in the case of dairy and 78% higher in vegetables. Commercialization is the way to go.”
Although India fared slightly better in reducing poverty, said Escap, with pro-poor rural growth but moderately pro-poor urban growth, its land and labour productivity was one of the lowest in the region. Just 1% increase in productivity was enough to reduce dollar-a-day poverty by 2.37 million people, it estimated. And raising it to even the level in Thailand, a country that had managed to achieve most of the UN millennium development goals ahead of the deadline of 2015, would mean 218 million fewer poor people.
It warned India against comprehensive trade liberalization, which could raise poverty by 7.2 million to 12.4 million by depressing the real wages of unskilled labourers.
Bloomberg contributed to this story.
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First Published: Fri, Mar 28 2008. 12 22 AM IST