THREE YEAR ACTION
AGENDA: AN OVERVIEW
1.1. The
objective of eliminating poverty in all its dimensions such that every citizen
has access to a minimum standard of food, education, health, clothing, shelter,
transportation and energy has been at the heart of India’s development efforts
since Independence. The extremely low level of per-capita income and widespread
poverty made it impossible for us to achieve this objective without growing the
economy. Tax revenues were so meagre and the economy’s needs so vast that no
serious dent into poverty could be made through redistribution alone. While we
substantially improved economic performance during the first four decades of
independence over that during the preceding fifty years, growth remained below
4%, which was woefully inadequate for a meaningful decline in poverty.
1.2. But the signs of change began to emerge during the
second half of the 1980s, with 1991 proving to be a turning point. The reforms
that followed first under Prime Minister Narasimha Rao and then under Prime
Minister Atal Bihari Vajpayee placed India first on a 6% growth trajectory and
then, beginning in 2003-04, on an 8% plus trajectory. Rising wages accompanied
faster growth and pulled many out of abject poverty. Growth also yielded
handsome gains in tax revenues, which helped expand social spending manifold,
reinforcing the direct effect of growth on poverty reduction. 1.3. Although a
combination of global economic developments and domestic policy choices led to
a dip in the growth rate to 5.6% in 2012-13, quick corrective action in 2014,
followed by sustained policy reforms, has helped the economy sustain 7% plus
growth during the three years ending on 31 March 2017. Indeed, there are good
prospects that we will return to the 8% plus growth trajectory in another two
to three years if not sooner. Therefore, the chances of a massive cut in the
poverty rate in the upcoming decade are excellent.
1.4. India’s 125 Crore citizens, a majority of which
consists of the youth, increasingly aspire for greater empowerment and a better
quality of life. It is in recognition of these joint aspirations that the Prime
Minister has called for the transformation of India with the “Participation of
All and Development of All” or “Sabka Saath, Sabka Vikas.”
1.5. In this backdrop, the present document charts an
ambitious, transformational yet achievable Action Agenda for the government
during 2017-18 to 2019-20, that constitute the last three years of the
Fourteenth Finance Commission. The Agenda is a part of a longer-term
Fifteen-year Vision and Seven-year Strategy outlined in a separate document.
The Action Agenda proposes a path to achieve all-round development of India and
its people. A brief outline of the subjects covered in the document is provided
below. Part I: Medium-Term Revenue and Expenditure Framework
1.6. The most direct and visible policy tool of the
government is the budget. The allocation of expenditure needs to be aligned to
the government’s overall objectives. Accordingly, chapters 2-4 in Part I
present expenditure proposals for three years based on revenue forecasts. This
exercise has been limited to the Central government.
1.7. During the past three years (2014-15 to 2016-17), the
government has made significant progress towards implementing a sound and
stable fiscal strategy. The fiscal deficit has been cut from 4.5% of the Gross
Domestic Product (GDP) in 2013-14 to 3.5% in 2016-17 while the revenue deficit has
been reduced from 3.2% to 2.1% of the GDP over the same period1 . It is
proposed that the government should capitalize on this progress by maintaining
its course during the next three years. Under the proposed fiscal framework,
the fiscal deficit is to be reduced to its eventual target of 3% of the GDP
under the Fiscal Responsibility and Budget Management (FRBM) framework by
2018-19, while the revenue deficit is expected to fall to 0.9% of the GDP by
2019-20.
1.8. The Action Agenda proposes linking Central government
expenditures to future priorities. It suggests shifting the composition of
expenditures by allocating a larger proportion of additional revenues that
become available over time to high-priority sectors. Under the proposed agenda,
the share of non-developmental revenue expenditure in total expenditure would
decline from 47% in 2015-16 to 41% in 2019-20. At the same time, the share of
capital expenditure, which is more likely to promote development, would rise
significantly. The proposals imply substantial expansion in expenditures by
2019-20 on education, health, agriculture, rural development, defence,
railways, roads and other categories of capital expenditure.
Part II: Economic Transformations in Major Sectors
1.9. This part includes two chapters, one dealing with
agriculture, which is the backbone of the rural economy, and the other focuses
on industry and services in which the key issue is the creation of well-paid
jobs.
Agriculture: Doubling Farmers’ Incomes
1.10. Farmers make up nearly half of India’s workforce.
Therefore, for India to flourish, its farmers and the farm economy must
prosper. It is against this background that the Prime Minister has called for
doubling farmers’ incomes by 2022. To achieve this goal, the Action Agenda
outlines a strong programme for agricultural transformation. It includes
numerous measures to raise farm productivity, bring remunerative prices to
farmers, put farmers’ land to productive uses when they are not able to farm it
themselves and improve the implementation of relief measures. Chapters in
subsequent parts of the document offer an ambitious agenda for empowering the
rural population through improved road and digital connectivity, access to
clean energy, financial inclusion and “Housing for All.”
1.11. Enhancing agricultural productivity requires of
efficiently using inputs, introducing new technologies and shifting from low to
high value commodities. We need to expand the scope of irrigation to increase
crop intensity, improve access to irrigation, enhance the seed replacement rate
and encourage the balanced use of fertilizers. Precision farming and related
new technologies, that allow highly efficient farming and conserve resources,
must be spread through appropriate policy interventions. Conditions conducive
to shift into high value commodities such as horticulture, dairying, poultry,
piggery, small ruminant husbandry, fisheries and forestry need to be created.
1.12. The reform of the Agricultural Produce Marketing Committees (APMC) Act
needs a new lease of life. Farmers should get genuine rights for direct sales
to buyers of all commodities, potential buyers should get the rights to buy
produce directly from farmers, entry of private agricultural markets should be
free and an effective legal framework for contract farming should be
established. Minimum Support Prices (MSPs) have distorted cropping patterns due
to their use in certain commodities in selected regions. There has been an
excessive focus on the procurement of wheat, rice and sugarcane at the expense
of other crops such as pulses, oilseed and coarse grains. These distortions
have led to the depletion of water resources, soil degradation and
deterioration in water quality in the North-west. At the same time, eastern
states, where procurement at the MSP is minimal or non-existent, have suffered.
One measure that can help reduce distortions in the MSP system is the system of
“Price Deficiency Payment.” While MSP may still be used for need-based procurement,
under the deficiency payments system, a subsidy may be provided to farmers on
other targeted produce, contingent on prices falling below an MSP-linked
threshold.
1.13. Over the years, landholdings in India have become
smaller and fragmented. According to the 2010-11 Agricultural Census, 47% of
landholdings had become less than half a hectare in size. These holdings are
too small to support a family of five so that many farmers now seek alternative
sources of income. But stringent tenancy laws in most states have meant that
these farmers hesitate to lease the land they leave behind. As a result, an
increasing amount of farmland is being left fallow. The introduction of a
modern land-leasing law that balances and protects the rights of the tenant and
landowners would be a potential solution.
1.14. Finally, to alleviate distress in case of natural
calamities, the government has recently introduced the Fasal Bima Yojana. This
is an important positive step toward mitigating risk but requires improvement.
Capping the subsidy amount per farm household to a fixed amount and charging
the full premium for additional insurance would not only economize on financial
resources but will also be more equitable.
Trade, Industry and Services: Creating Well-Paid Jobs
1.15. Contrary to some assertions that India’s growth has
been “jobless,” the Employment Unemployment Surveys (EUS) of the National
Sample Survey Office (NSSO), which till date remain the most reliable sources
of information on India’s employment situation, have consistently reported low
and stable rates of unemployment over more than three decades. Even under the
most demanding definition of employment, the unemployment rate consistently
remains between 5% and 8%.
1.16. Indeed, unemployment is the lesser of India’s
problems. The more serious problem, instead, is severe underemployment. A job
that one worker can perform is often performed by two or more workers. In
effect, those in the workforce are employed, but they are overwhelmingly stuck
in low-productivity, low-wage jobs.
1.17. Three examples illustrate the point. First, in
2011-12, as per the NSSO Employment Unemployment Survey, 49% of the workforce
was employed in agriculture. But agriculture contributed only 17% of India’s
GDP at current prices. Second, in 2010-11, firms with less than 20 workers
employed 72% of India’s manufacturing workforce but contributed only 12% of
manufacturing output2 . Finally, services are no different. According to the
2006-07 NSSO survey of service firms, the 650 largest enterprises accounted for
38% of services output but only employed 2% of services workers. Put another
way, the remaining services firms employed 98% of the workforce but produced
only 62% of the output.
1.18. Therefore, what is needed is the creation of high-productivity,
high-wage jobs. Accordingly, Chapter 6 of the Action Agenda focuses on the
measures necessary for the increased emergence of larger, organized-sector
firms. The experience of countries that managed to transform rapidly, such as
South Korea, Taiwan, Singapore and China, shows that the manufacturing sector
and the ability to compete in the vast global marketplace hold the key to the
creation of well-paid jobs for low and semi-skilled workers. The “Make in
India” campaign needs to succeed by manufacturing for global markets.
1.19. A focus on the domestic market through an
import-substitution strategy, however attractive it may seem, would give rise
to a group of relatively small firms behind a high wall of protection. They
will not only fail to exploit scale economies but also miss out on productivity
gains that come from competing against the best in the world. The electronics
industry offers a case in point. Our domestic market in electronics as of 2015
is only USD 65 billion. In contrast, the global market is USD 2 trillion. Our
policy of import substitution under high protection has given rise to a group
of small firms none of which is competitive in the world markets. In contrast,
a focus on the global market can potentially result in output worth hundreds of
billions of dollars and hence a large number of well-paid jobs.
1.20. Today, with Chinese wages rising wages due to an
ageing workforce, many large-scale firms in labour-intensive sectors currently
manufacturing in that country are looking for lower-wage locations. With its
large workforce and competitive wages, India would be a natural home for these
firms. Therefore, the time for adopting a manufactures- and exports-based
strategy could not be more opportune. Keeping this context in view, the Action
Agenda offers detailed proposals for the implementation of an exports-based
strategy. Among other things, it recommends the creation of a handful of
Coastal Employment Zones, which may attract multinational firms in
labour-intensive sectors from China to India. The presence of these firms will
give rise to an ecosystem in which local small and medium firms will also be
induced to become highly productive thereby multiplying the number of well-paid
jobs.
1.21. India has, of course, already achieved considerable
success in some key services and skilled-labour-intensive industries. It has
had great success in the global markets in information technology (IT),
information technology-enabled services (ITES) and pharmaceuticals. Its
financial sector, including capital markets, has also acquired a modern
character and has been exhibiting healthy growth during the past one and a half
decades. Therefore, unlike past rapid transformers such as South Korea, Taiwan,
Singapore and China, India has the advantage of walking on two legs:
manufactures and services . The Action Agenda offers specific proposals for
jumpstarting some of the key manufacturing and services sectors, including
apparel, electronics, gems and jewellery, financial services, tourism and cultural
industries and real estate.
Part III: Regional Development
1.22. Chapters 7-9 in Part III focus on urban, rural and
regional development, respectively. Urbanization is an integral part of
modernization. Often, urban centres such as Mumbai and Shanghai are home to the
organised sector activities. But even when these activities locate in rural
areas, they quickly turn the latter urban. Shenzhen in China offers the most
striking example of such a transformation. From a group of fishing villages with
a population of 300,000 in 1980, today, Shenzhen is among the most urbanized
spots on the face of earth. Accordingly, the Action Agenda spells out how we
can facilitate urbanization in the country. Key challenges faced by the urban
sector include affordable housing, infrastructure development, public
transport, promotion of Swachh Bharat, reform of urban land markets and waste
management.
1.23. A large part of India’s population resides in rural
areas. The challenges in the rural areas include creating jobs such that some
agricultural workers could shift to non-farm sectors, skill development,
accessing education and health facilities, infrastructure, local governance,
drinking water and sanitation and financial inclusion. The Action Agenda
outlines possible avenues to achieve progress in these areas.
1.24. The final chapter in Part III turns to a discussion of
regional strategies to achieve balanced growth across the country, such that a
minimum level of prosperity comes to all. The areas covered include the North
Eastern region, coastal areas, islands, North Himalayan states and desert and
drought prone areas. Developing infrastructure in these areas to bridge the
divide created by geographical uniqueness is an important element of government
actions.
Part IV: Growth Enablers
1.25. Part IV discusses how to enhance the contribution of a
number of growth enablers. These include infrastructure, digital connectivity,
Public Private Partnerships (PPPs), energy, science and technology and creation
of an effective innovation ecosystem. Chapters 10-15 discuss each of these
subjects in detail. Infrastructure development is one of the most crucial
elements of economic transformation. The development of transport and
connectivity infrastructure, including the roadways, railways, shipping &
ports, in-land waterways and civil aviation, is discussed in Chapter 10. The
challenges faced in this sector include physical capacity constraints, severe
modal imbalances and a lack of holistic planning, maintenance and safety.
1.26. Digital connectivity has become an important driver of
economic growth. In order to leverage efficiencies promised by the adoption of
digital technologies, we need to develop a physical digital infrastructure
network that is accessible to all. We must also create a host of software drive
services including government services that can be provided digitally. The
Action Agenda discusses the Digital India campaign and the actions related to
enhancing digital connectivity.
1.27. Private sector involvement in infrastructure projects
across different sectors helps in bridging the gap between the available public
resources and the required investment. In addition, it helps in bringing
private sector expertise into play. However, the institutional framework governing
Public Private Partnerships (PPP) needs to be strengthened so that bottlenecks
to implementation are avoided. Chapter 12 deals with these hurdles and suggests
ways to overcome them.
1.28. The energy sector is one of the key drivers of
economic growth and development. Access to reliable sources of energy is a
crucial issue. Chapter 13 discusses this subject including actions necessary
for increasing energy consumption and increasing energy efficiency and
production. It pays particular attention to how we may improve the efficiency
of distribution of coal, electricity, oil & gas, and harness renewable
energy.
1.29. Another important element in India’s development
strategy is spurring science and technology including creating an enabling
environment for innovation and entrepreneurship. With economic growth, India’s
contribution to science and technology has gained some momentum but it still
lags behind the other major economies in the world. A culture of innovation is
also essential for India to find ways to tackle its development challenges such
as access to education, improving agricultural productivity and wastewater
management. The Action Agenda for science and technology is presented in
Chapter 14, while that for creating an effective innovation ecosystem is
discussed in Chapter 15.
Part V: Government
1.30. Part V considers issues related to the government such
as governance, taxation, competition and regulation. Chapter 16 discusses
rebalancing the government’s role in favour of public services and away from
manufacturing. It also recommends reforms in the civil service, and electoral
process. It suggests actions to eliminate corruption and black money, which
have emerged as important policy priorities. Finally, the chapter offers
suggestions for strengthening federalism and bringing states to the forefront
of reform agenda.
1.31. Chapter 17 includes reforms to taxation policy and its
administration with the view of reducing the scope for tax evasion and
generation of black money, expansion of the tax base, and creation of a
predictable and stable tax policy.
1.32. The government
influences market outcomes through a regulatory environment that consists of
laws, policies and rules. As elsewhere, India’s regulatory environment has
features that do not facilitate competition and may harm the public interest.
Public procurement policies also need improvement. Chapter 18 discusses reforms
that will encourage competition, improve the public procurement system and
enhance the capacity of sectoral regulators.
1.33. Chapter 19 looks at the Justice System and includes a
reform agenda to strengthen the rule of law in India. It covers three broad
areas in which the Justice System needs reform - statutory and administrative
laws, the judicial system and police. The suggestions on statutory and
administrative law reform focus on modernizing and weeding out old and
dysfunctional elements in legislation, unifying and harmonizing laws, reducing
government intervention in areas where it is not required, undertaking statutory
reforms in criminal justice and procedural laws, and reforming land/property
related laws. The suggestions for reforming the judicial system revolve around
streamlining human resource availability and performance, increasing and
strengthening avenues for dispute resolution and extensive use of ICT to
improve efficiency. For police reform, the important areas are state level
legislative and executive reforms to help police forces serve more effectively
within the modern-day democratic state.
Part VI: Social Sectors
1.34. Part VI of the Action Agenda turns to education, skill
development, health and issues facing specific groups such as Scheduled Castes,
Scheduled Tribes, women, children, differently abled and senior citizens.
Education, skill development and health contribute to the creation of a
productive workforce. Addressing the needs of all members of society is
critical for inclusive growth of the country.
1.35. Given that a large and growing segment of India’s
population is under 25, education and skill development are critical to fully
harvesting India’s demographic dividend. Chapter 20 discusses the actions for
improving the country’s education system. The goals of improving learning
outcomes in schools, raising the quality of education and research in higher
education and promoting skill development are priorities for the sector. At the
school level, while we have successfully brought all children into the fold of
elementary education, quality education remains a distant dream. Actions to improve
education quality can no longer be delayed. The chapter provides various steps
to improve outcomes in the areas of school as well as higher education.
1.36. In the next fifteen years, we must entirely transform
the delivery of health services and engineer a quantum jump in health outcomes.
With this in view, Chapter 21 discusses measures necessary to lay down the
foundation of a transformational change in the next three years. It focuses on
public and preventive health, assurance of health care, reforming fiscal
transfers from the Centre to states for better health outcomes, accelerating
human resource development and improving access to medicines.
1.37. The guiding principle of the Prime Minister’s
development philosophy has been “Sabka Saath, Sabka Vikas” which implies that
development should include every citizen. In this spirit, Chapter 22 discusses
actions for building a more inclusive society. The chapter outlines actions
aimed at the removal of obstacles faced by specific groups on the basis of gender,
caste, age and physical impairment.
Part VII: Sustainability
1.38. The last part of the Action Agenda, Part VII, turns to
environmental sustainability. We must address the high levels of air pollution
in the cities, black carbon pollution indoors from the use of biomass fuels in
cooking, massive volumes of solid waste in urban areas and deforestation. On
the one hand, we must strengthen and streamline regulatory structures governing
sustainability of the environment while on the other we must remove hurdles
that adversely impact growth without protecting the environment. Chapter 23
outlines the action items contributing to these objectives.
1.39. Finally, water demand for irrigation, drinking and
industrial use has been increasing with growth in incomes and population. But
the sources of water supply remain scarce. We must address issues such as water
scarcity, uneven distribution of water resources across people, sectors and
regions, deteriorating water quality and excessive dependence on groundwater.
These issues are taken up in the last chapter of the Action Agenda, Chapter 24.
1.40. Only by working together towards common national goals
can the Centre and states meet India’s development challenges. “Maximum
Governance and Minimum Government”, and “Competitive and Cooperative
Federalism” are critical to achieving the full potential and creating a modern
India, which brings prosperity to all of its 125 Crore citizens
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