Shadow of Drought on Indian Economy: Can India come out of it?

Shadow of Drought on Indian Economy: Can India come out of it?

India may not have been hit by recession as much as the western countries, but it is circumvented with problems of its own that pulls it back from the great revival of the Indian Economy. Despite all the inefficiencies in the system, India witnessed an overall growth of 7-8% in the last 2 years. This was mainly attributed to the focus of investment in different sectors by the government. Amidst the economic recession, the agriculture witnessed a growth of mere 1.2% as compared to 4.1% in 2008. As the country is seeing the back of recession and the industries emerging from a sluggish growth, an overall growth in the economy was anticipated. However, with no monsoons this season, and the rising inflation, the government officials have been left gasping for breadth. It seems a complete paradox however, that a nation growing at the rate of 7-8% does not even have an irrigation system that supports the sector in conditions of drought and that we are still majorly dependent on rains to ensure adequate food supply and proper functioning of the other industries. Agriculture employs 60% of people and its contribution to India’s GDP is just 17% as compared to the services industry that employs just 10% of population and contributes around 58% to the GDP. Perhaps we require sustainable development in this sector to ensure economies of scale.

It is surprisingly absurd that when the government is focusing in developing and strengthening the nation’s economic infrastructure and looking for sectoral growth, it is letting a trivial reason of ‘no rain’, impact all the sectors in this downturn. The adverse effect of inadequate irrigation facilities has resulted in the decrease of rice production by 15%. Prices of maize have crossed Rs 900/quintal for the 1st time, tuar and urad daal have crossed Rs 6000 and Rs 4000 a quintal already. This heightened surge in the food prices has increased the grocery bill by almost 1% in just one month. This increase in basic commodity prices will affect almost all the industries that were witnessing a green-shoot until now and may also see a premature death very soon.

Impact on:
a.) Consumer Goods (FMCG):
With consumers spending more on basic necessities like food commodities, this could result in a lesser portion of their wallet going to the purchase for consumer goods which in-turn could see a slowing demand yet again. Thus, with rising food prices, the government may increase the interest rates that may result in forcing the companies to defer investment projects. Thus, a sluggish demand with no investment could spell dooms day for the economy which is reviving from recession.

b.) Textile:
The already export hit industry is haunted by the delaying sowing of Cotton, which could increase the price of yarn.

c.) Stumbling Stock Market:
With reduced demands and sluggish investment growth, the stock market is also seeing a downturn with no rains and high inflation affecting the common man’s budget.



d.) Manufacturing:
Shortage of water is affecting the supply of steel as at least 4 tonne of water is required for the production of 1 tonne of steel. The deficit has affected water inflow in many steel plants affecting the manufacturing industry and the revenue generation.

e.) Tea Production:
Due to reduced rains and lack of summer showers needed to grow first flush teas, the Tea production in the FY 09, has decreased from 240mn kg in 2008 to just 216mn kg this year, resulting in lower export profit and lesser consumption in the domestic market.

It can utilize its vast resources in an efficient manner to stop relying on the rain gods for a hassle free functioning of the economy. Indeed, a scope of improvement is huge.

Reducing Dependence:

India receives a rainfall of around 4000 BCM every year, actually enough to take care of India's water needs, but most of this water is received within 4 months of 'monsoon' season between June and September, or to be more precise, during less than 100 hours of precipitation spread over these four months. Most of this water is lost. A small part of it goes into soil and recharges ground water, but most of it evaporates and is lost. Today, the groundwater levels are falling everywhere throughout the country. In some cities they are falling at an alarming rate of almost 10 meters every year, indicating a crisis.
India would have to become self dependent in terms of adequate water supply for irrigation facilities for its farms and for other industries like steel & cement to function properly.

1.0) Water conservation policy as solution to water scarcity:
With a rainfall that is adequate to take care of its needs, it is being accepted that water conservation is the only answer to India's problems.
· Local water bodies - This used to be one of the main local sources of water earlier, but gradual siltation and shallowing of those bodies and their pollution by people and industries have made most of them dysfunctional. Now their renovation is looked upon as one of the means to store and conserve rain water.
· Urban water harvesting - as India gradually shifts from rural to urban areas, the role of water conservation in urban areas is increasingly recognized and accepted as a solution to water problem.
· Afforestation - Planting of trees has been accepted as the single biggest means of holding water in a territory, and is increasingly resorted to as a means, especially in the semi-arid regions. However most of these efforts are not well coordinated till now due to lack of comprehensive planning.
2.0) Developing a Village Irrigation Office:

A complete overhauling of the system, to ensure optimal utilization of the resources and making sure that the agriculture sector & the farmers are reaping real benefits from the policies of the government is what is imperative in today’s India. Development of a Village Irrigation Office would take care of the problems of irrigation, shortage of water supply, giving regular guidance to farmers of how to save and procure water and how to efficiently use water resources (eg. Sprinkling water in 2-3 short cycles rather than 1 long cycle). The village office would also take care of arranging Irrigation Audits for the farmers to find loopholes in the irrigation system. The auditor carefully examines and tests the irrigation system. They create a report detailing the condition of the system, including a list of recommendations for repairs and improvements. Some auditors also provide an irrigation schedule showing how often and how long a farmer should water during each month of the year.

2.0) Improving Technology:

In the need to preserve water and preventing Low-head drainage that causes loss of water, farmers can opt for Smart Controller. Smart Controller changes the run times to reflect the current water needs of the plant.

Installing a Rain Switch: A rain switch is a simple rain sensor. When it detects measurable rainfall, it turns off the automatic irrigation valves. Devices like these, can really help the farmer to conserve water in periods of drought.
Installing filters to prevent sprinkler malfunctions: Filters will stop the contaminants in the water supply that most often cause sprinkler malfunctions.
Making easily available shut-off devices: These devices save water by automatically shutting off the water when something in the irrigation system breaks.

3.0) Increasing use of Crop-Rotation Facilities & BT-Cotton cultivation:
Crop-rotation, most preferably with legume crops helps restore the ground water availability and cultivation of BT Cotton also helps to support the protection of groundwater resources, since it requires only one to two irrigations per crop as compared to four to six for maize.

Summary:
India would have to either develop its water resources to feed its population, or has to reduce its dependence on water resources and look for alternative means to not only feed the ever growing population, but also to ensure that the economic stability & growth of the country does not get affected by a trivial reason of “no rainfall” in the country. If we have to witness an over all growth of the nation, we would have to reduce our dependence on factors that are out of human control.

China-Getting bigger and better?

The way China is growing and the speed with which its GDP is increasing, puts shame to countries whose GDP growth would be far from what China is achieving right now in the global recession. Chinese government being modest about their growth pattern and releasing consevative figures of 8-9% growth in the current downturn could be an eye wash for the rest of the world. The growing dominance of China is becoming and the leverage on the world exports is becoming a force to reckon with for the International market. Talking about the FII in the Chinese market, portfolio investments of the order of $42.6 billion and with huge investments in developing the physical and social infrastructure (40% of GDP), China can only go better from here. Its foreign reserves are of the order of $2.3billion, which more than enough to serve the deficit of America for the FY2009. Also, it already own $800 billion worth of American Assests. Also, other major reason is the massive saving rate of China, which is 72% of the GDP against India's 38% of GDP is the major reason of consumer led growth of China. To maintain & further develop its competitiveness, India's main focus would be in increasing the domestic saving rate, invest in the rural sector, bring and implement reforms at the grass root level to achieive economies of scale, develop infrastructure to maintain and further enhance the ability of international firms to compete on the international platform, enhance education and health reforms in the country and most importantly increase consumer confidence on the banking and financial condition of the country so that the market could earn from domestic purchases and thus lead to economic wealth.

Stimulus package-Further deepening Recession

The US has really gotten into a mess which is creating further problems as the country is going under serious debt with the increasing stimulus packages that the federal reserve is lending to the financial institutions. The bail out package announced by the democrats of $778 billion, is not going to suffice the $248trillion economic crisis that had its epicentre in the US. The government is focusing on increased spending and is quite bullish & optimistic that this will take the country out from the hole. However, we are again repeating the same problem which created the economic crisis, i.e. allowing people to spend more of what they can really earn. The fed is putting more and more pressure on the consumers by giving them the leverage of spending the money, thus leading to a greater debt. The increased stimulus package may result in the devaluation of the dollar thus with the rippling effect of going further debt. There is a better way to get out of this mess than relying on a consumer-led recovery. The government should let and encourage consumers to put more of what they earn into their savings accounts and for banks to use this money for infrastructure and capital investments which in turn will create jobs and then automatically encourage consumer spending.

Trade deficit Vs Growth

India has seen an unprecedented growth during the recession with the International monetary fund speculating a growth of around 6% in 2009. The growth has basically been sparked by the kind of reforms and investments the government plans to do in the FY 2009. The latest news in investing $350000 in Bharat Nirman, increasing the effort to up Infrastructure facilities, eliminating tax exemptions and moving towards a uniform duty structure that eliminates inverted duties, lifting the ban on agricultural futures all if carried forward and implemented, will take the sensex soaring above 20000. The problem that is inturn getting worse and is decreasing the economic stability of the nation is the raising fiscal deficit. The fiscal deficit now accounts for 5.2% of the GDP which means that whatever the revenue that is generated by the domestic companies in India, 5.2% of it now would go in meeting out the deficit. The borrowings from the international market has lead to such a huge deficit which is still going to last till 2012, according to the finance minister. However, whether the government should create a balance between both of them and start looking at ways in reducing the fiscal deficit or stop worrying about it,is a topic that needs some attention....

Will FDI play a role in the development of education sector

The proposed government regulation to have FDI in education upto 49% has raised questions over the education system of this country. Having international curriculum in the Indian syllabus will obviously not have a positive response from the critics. Other thing that the government would have to be mind ful of the risks involved regarding the entry of diploma mills. One argument worth considering is that FDI in education would transform and make the education system much more competitive with the quality of foreign education pooling in its resources and different ways of improving the way we teach. If private partnership in banks has been allowed, which has inturn lead to the development of the banking system, making the nationalised banks much more competitive, why not education system which needs a complete overhaul. The UGC from 2005 has inssued deemed status to around125 institutions without taking into account teir level of infrastructure and education. Indeed, theres more and more room of improvement...and discussion...comments would be appreciated....

Recognising your Desires

Fear and desire are the fundamental energies that drive our lives. We act either out of a desire to achieve something or out of a fear of not wanting to experience something. Attraction and repulsion are not merely forces of molecules but also essential to human behaviour. One of the manjor driving forces in human life is desire. If you look in to your life, you can see most of the time we are driven by either desire or fear. We have so many desires and many times we feel we dont have the energy to fulfil them. According to the Jain tradition, the Divine sends us with enough energy and capacity to fulfil all our desires, but most of us dont feel this way. Why?
There is a difference between out true desires and borrowed desires. Our true desires are called our needs.Borrowed desires are called our wants.