Miracles of Sinhanomics

Miracles of Sinhanomics
Mani Shankar Aiyar

The Economic Survey 2000-01 tells us that in the second half of the decade of reforms, rural poverty has been slashed by an astounding 10-13 per cent in the last six years, from 37 per cent in 1993-94 to 27 per cent, or possibly even as low as 24 per cent, in the year 2000. This is the fastest rate of reduction of poverty since Independence. It should prove that (a) reforms have fuelled faster growth and (b) that faster growth leads to accelerated poverty reduction. Unfortunately, the rest of the Survey belies the evident logic of the conclusion. Therefore, is there something wrong with the logic or something suspect about the conclusion?

First, the facts. The roots of poverty lie in rural India. How has agriculture fared in this period of miraculous poverty eradication? The Survey shows:

* In the pre-reforms period, 1980-81 to 1990-91, foodgrains output grew by 36 per cent; if the same rate of growth had been maintained in the reforms decade, 1990-91 to 2000-01, foodgrains production should have been 239 million tones (mt); it is actually much lower at under 200 mt.

* In the pre-reforms decade, the output of pulses grew by 39 per cent; if reforms had sustained that rate of growth, pulses production should have been 18.6 mt; it has actually fallen to 12.3 mt, not only lower than at the start of the decade but at virtually the level attained 40 years ago, in 1960-61

* Oilseeds recorded growth of 25.5 per cent in the last decade of socialism; if they had grown at the same rate in the decade of reforms, output should have been 30 mt; it is actually only 18.6 mt, a third below the commencement of the decade

* In the period 1980-81 to 1990-91, sugarcane production increased by 63 per cent; in the following decade, the same rate of growth should have given us output of 353 mt; the Survey says we have only reached 300 mt

Cotton: the 80s' rate of growth would have given us output of 13.7 mt; actual output has been marginally lower at 13.2 mt.

Happily, growth in jute and mesta has been sustained: actual output at 9.9 mt is fractionally above the 9.6 mt which the 80s' growth rate would have provided.

Similarly potatoes: should have been 23.7 mt, was actually 24.2 mt. No deceleration but virtually no acceleration either

In contrast, milk has been a huge disappointment: where pre-reforms growth rates should have fetched 92 mt, actual results are down to a paltry 78 mt.

The NDA's poverty miracle is that they have slashed rural poverty by slashing growth rates of all agricultural products. This could have been compensated by higher Plan outlays on agriculture, that is higher investment in agriculture. But the Survey says that in the last decade of socialism (sixth and seventh Plans), Plan outlay on agriculture averaged 5.4 per cent and was sustained at virtually the same level through the first half of the decade of reforms (eighth Plan), but in the three years of Yashwant Sinha has been first curtailed to 3.2 per cent, then further lowered to 3.1 per cent in his budget estimates for the year now ending (actuals will be substantially lower). So, the second lesson to be drawn from Sinhanomics is that to reduce poverty you should reduce investment in agriculture.

The paradox might have been resolved if the impulse for rural poverty reduction had come from investment in rural development and anti-poverty programmes or rural industrialisation: but the highest recorded rural development outlay of nearly 8 per cent in the Eighth Plan (1992-97) has been steadily brought down by Sinha from 6.6 per cent in 1998-99 to a mere 4.6 per cent in his BE 2001-01 and further reduced in his budget for next year. So with village industries, khadi, food processing and the small-scale sector generally. Therefore, Sinhanomics proves that to accelerate rural poverty reduction, the government should decelerate investment in agriculture, rural development and rural industrialisation. The proof is that in the Congress years 1980-89, the GDP growth rate in agriculture averaged 4.6 per cent; Sinha has brought it down over the last three years to an average of 2.9 per cent and still slashed rural poverty by the highest proportion ever. Wah! Wah!

Also, says the Survey, per capita availability per day of cereals in Rajiv Gandhi's last year as Prime Minister (1989) was 41.9 grams and the poverty ratio stood at 39 per cent; Vajpayee, Sinha and Shourie have slashed per capita availability to 31.2 grams and simultaneously reduced poverty by an amazing 12-15 per cent compared to 1989. The achievement is all the more fantabulous since employment in agriculture, which was raised by 7.3 per cent under the Congress from 13.21 lakh in 1981 to 14.18 lakh in 1989, has been restored under the NDA to 13.86 lakh -- virtually the same level in 1999 as we had attained 20 years earlier in 1981. Indeed, since the Congress lost office at the centre in 1996, successive non-Congress governments have actually reduced agricultural employment by 3.3 per cent. But dramatically decreased rural poverty. Best of all, the NDA government has virtually halved the physical off-take of foodgrains from the public distribution system from a high of 20.8 mt in 1992 to a mere 12.1 mt in2000, and simultaneously doubled BPL foodgrain prices and forced APL families to pay `economic costs', yet poverty has declined. Can anyone please explain?

The catch lies in the fine print of the section on `Poverty' at pages 193-194 of the Survey. The NDA government has changed the methodology of estimating poverty ratios. In consequence, says the Survey, ``Because of the changes in methodology of data collection, these estimates may not be strictly comparable to the earlier estimates of poverty.'' Ah! Ha! Just as we had suspected. Yet, Sinha had the bare-faced duplicity to say in his budget speech -- I quote the sentence in full -- ``Poverty has fallen from 36 per cent in 1993-94 to 26 per cent or less now" without entering any caveat or giving the least hint of the change in methodology which, says the Survey, makes the two sets of estimates non-comparable.

The Vajpayee-Sinha-Shourie triumvirate has not reduced rural poverty by increasing investment, employment or output in rural economic activity, but by fostering a statistical illusion. We are back to the economics of gillie-gillie. Of course, I await, as all of us must, the outcome of the arcane academic dispute over how to reconcile the two sets of disparate data to make any credible comparison of poverty estimates or come to any credible conclusions about Sinhanomics and its impact on poverty reduction. Meanwhile, might it not be appropriate to re-designate Arun Shourie as Minister of State for Lies, Damned Lies and Statistics?

The catch lies in the fine print of the section on `poverty'. The NDA government has changed the methodology of estimating poverty ratios.