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  India – From Developing To Developed  
 

 

By: `VIGIL’ Public Opinion Forum
vigilonline@vsnl.net
February 13, 2004

'VIGIL’ Public Opinion Forum (Email: vigilonline@vsnl.net  Website : www.vigilonline.com) is a renowned organisation in Chennai committed to informing and mobilizing public opinion on important national issues. On the occasion of our 20th Anniversary, we had invited Shri Arun Jaitley, Hon’ble Union Minister For Law, Justice, Commerce and Industry, Govt. of India to speak on India - from Developing to Developed at a function held in Chennai on 3rd Jan 2004. Following is the transcript of his speech.

India – From Developing To Developed

By Shri Arun Jaitley, Hon’ble Union Minister for Law and Justice, Commerce and Industry, Govt. of India.

Ladies and gentlemen, let me at the very outset thank Vigil for having invited me on the occasion of its twentieth anniversary to speak on India’s journey which we are undertaking from a developing to a developed nation. To make India a developed nation is a target we have set for ourselves by 2020. And it is going to be one of the greatest challenges; whether we are able to meet the deadline or even perhaps beat the deadline or are found lagging behind remains to be seen. But before I speak on the subject let me just react to some of the observations that were made just now. And that is all the more relevant because the forum that we are attending today, ‘Vigil’ has been a strong creator of public opinion in the city. ‘Vigil’ has always had the courage to take up subjects and express that viewpoint which has normally found logic and struck a chord in the patriotic Indian. At times it has even taken those viewpoints which some of us in the political field have agreed with but had found it not feasible to speak on. And therefore when Radha while introducing the subject just now was mentioning about a class of Indians which relishes in rubbishing India, I thought I might as well start by asking a question and then endeavor to answer it as to what I think, on our journey towards becoming a developed country, is our greatest strength and paradoxically our greatest weakness too.

I have asked myself this question very often and I am now of the considered opinion that India’s greatest strength, which when we speak in terms of our civilization, our culture, our sovereignty is unquestionable, however lies in the great potential and the sense of enterprise that the Indian people have, who despite many odds have the indomitable will and capacity to grow. And perhaps I would agree with her when she says that one of the greatest challenges to India at times is the sense of cynicism that develops among the Indian people. I would therefore say as has been amply demonstrated by the kind of subjects that you have taken up in the last twenty years, ‘Vigil’ has been involved in correcting this sense of cynicism which afflicts the middle-class Indian society. Because a cynical society will occasionally find it very difficult to grow. It is therefore a daunting and a challenging task for a public opinion creating agency to correct that sense of cynicism. And fortunately there could not be a better occasion in recent history than the one that we are passing through for us to create and improve upon that sense which otherwise challenges the Indian society.

There seems to be today, and this has come after many many years of effort, a sense of confidence that is building within India. There is also a changed perception about India when you travel outside this country. I was speaking to a group of businessmen from the exporting community this morning and I shared with them my experience with a large number of international audiences and even the international media in the past twelve months. When I was coming back from Cancun, and there were two kinds of comments about the bold stand that the developing countries had taken, I got a collection of the reactions of the entire American and the British media about what they had to say about our stand. The common thread which ran through all their comments and even when they opposed the stand that we had taken was the kind of adjectives that they used to describe India. ‘Emerging economic power houses like India and China’. This was the most commonly used phrase to describe the two most important countries among the so-called developing nations.

I have traveled abroad frequently with groups of Indian businessmen who were a part of the Prime Minister’s business entourage. And when we had business meetings and conferences in the developed nations of Europe and the United States, I found to my surprise a very large section of the Indian industry standing up but not repeating the theme which we have been prone to repeat to foreign business for the last several decades – please come to India and invest. Some of them still continue to say this but a very large number declared that they had come to these countries looking for investment avenues and opportunities in those countries. I saw this in China. You can count on the fingers of one hand the number of Chinese investors in India. And I raised this point when I met the Indian investors in China. There were so many of them that you needed a small conference room to accommodate all of them. This is the renewed sense of confidence which is building up in India.

Now compare this to what was happening in the past several decades. The Prime Minister has completed six years in office. Now what happens normally is that towards the end of the tenure, psephologists and political commentators begin to talk of the anti-incumbency factor. But I have not heard it said of this Prime Minister or this government in the last few weeks. On the contrary, every channel I flip through is speaking about the ‘feel-good’ factor. And that sense cynicism which sets in when elections are round the corner is now being challenged and fought. I told a group of friends in the media today that the way things are going, this feel-good will soon become feel better, feel greater. And this is a new trend. I visited China twice last year. I am giving these illustrations for a good reason. I met with the Chinese Vice-Premier who also heads the State body looking after trade. Now in the context of our business relationship with China, just a few years ago there was a huge concern about Chinese goods flooding the Indian markets. All of a sudden this concern disappeared. And while I was leaving the room after my meeting with her, her last comment to me was, ‘There are a large number of Indian goods (and she mentioned some of them to me), which are excessively entering the Chinese markets. I hope you advise your industry for self-restraint. We don’t want to move in this matter’. Now this is a turn around, a change in the situation which has come about in the last few years or so. So a lot of changes have taken place along this journey to make India a developed nation, particularly in the decade of the ‘90s and in the last few years. These are isolated changes, the converging effects of which are now being increasingly felt. Indians who were used to borrowing at 18% to 21% interests to build a house, today find a totally new consumer and borrower-friendly policy in this regard; 6%, 7% and 8% interest rates.

Let’s take telecommunications. And I think this is an important case in point when we look at the road ahead of us. When the government in the mid-90s decided to open up telecommunications to the private sector, those that were opposed to it raised the bogey of national security. I remember in 1999, when the present government decided to abolish the license fee because excessive license fees meant that the burden was being transferred on to the consumer, and costlier telephone services really meant that the quality of service itself could not be expanded, there was a huge hue and cry. There were PILs, there was the CAG, and media editorials, and suddenly because the two successive governments had the courage to stand by those decisions you find one of the most rapid expansions in an area of infrastructure having taking place. From 0.8% tele-density in 1996 you have virtually crossed the 7% mark and you are going to be ahead of schedule in reaching the 10% tele-density mark, quality of service, cost of service, these are all factors which signal development in a big way.

One of the greatest expansions that have taken place, and when I deal with the services sector in India, this will be the most important factor to be taken into consideration, has been the educational opportunities that have opened up in the last decade and which is today creating around 1300 to 1400 engineering colleges in India. Creating a large human resource as a natural consequence. And I will be dealing with human resource in the course of my talk, this large human resource is one of our greatest assets. And over the next ten to fifteen years, our human resource will be our most valuable asset not only within our country but also globally. And this relates not just to education but also those sectors affected by education – highways, rural roads, the pharmaceutical sector, the auto sector, all of these are showing signs of rapid development and growth. When I took up the current responsibility in government and attended one of the first multi-lateral meetings, I found that opposition to India came from the world’s most powerful economy as far as our expansion in the pharmaceutical sector was concerned. The US pharmaceutical companies felt threatened by the kind of challenge which India and to a certain extent Brazil were posing to them. And therefore they wanted to step back from some of the commitments that they had made as per the TRIPS agreement. These extremely significant changes are happening in segment after segment in the economy.

When I look back at the last five years, I think the one single factor which has made one of the greatest contributions in this journey of transforming India into a developed nation, is the State re-defining its role. And the State re-defining its role as a major facilitator in this process, the State leading a policy directive permitting the unleashing of the energies of the Indians and allows them to grow. Now contrast this with what was happening in the ‘50s and the ‘60s. We had the Urban Land Ceiling Act at a time when housing and urban development in India really should have been unleashed. The State decided that all surplus land should be taken over by the government. We froze all land resource and allowed land prices to move up and at a time when we ought to have allowed this sector to boom, this sector is one of the largest employment generators even for unskilled labour, we found we were lagging behind. Where specialization was the issue, outsourcing should have been a major component of strength of the economy at a time when we could have capitalised on it; but we said ‘no’, citing the Contract Labour Act for excuse. Therefore outsourcing was prohibited. And one of the important cases, my lawyer friends here would appreciate it better in view of the discussions you have had on judicial activism, this was one area which caused industry after industry in India to suffer.

Airlines – why is it that one of the best international airlines in the world which we had, suddenly became, if not sick, relatively uncompetetive? The Tourism Minister tells me that there has been a huge growth of 20% in the tourism industry this year. We are going to cross, for the first time, a historic record three million mark with regard to foreign tourists. And he says his problem is, and three million is nothing to rejoice or clap about, Dubai a desert city gets around five million tourists and we have sea resorts, destinations of cultural tourism, religious tourism, places of breath-taking scenic beauty, and yet we have been able to attract only three million foreign tourists. We do not know, the bulk of this three million may be non-resident Indians coming home for their annual vacation. I found in Beijing that China attracts Buddhist tourists from the Eastern hemisphere to places of religious importance in their country while India, where the Lord Buddha was born is not drawing the same numbers of religious tourists. The tourism minister tells me that he could have touched the sky in numbers of tourists visiting India only that there are no airline seats to accommodate all of them. We didn’t think of it. And when we began to think about it we found out that some of the most efficient airlines of the world have around 180 workers employed on an average to work on an aircraft. Our airlines in the state sector employed around 700 + per aircraft. The more efficient ones survived by outsourcing. Food would be supplied by some firm, the cleaning by another, the buildings would be guarded by a third firm and transportation also would be outsourced and so on.

When we were confronted with the sheer numbers of those employed by the airlines we were once again faced by the Contract Labour Act which was interpreted by the Supreme Court in a manner that required the airlines to regualrise thousands of employees every year! So the airlines had to bear the burden of over-employment, naturally became sluggish and non-competitive as a result. If the private sector textile mills did badly in the ‘70s the wise government of the day decided that the government should take over the sick mills and the National Textile Corporation did exactly that – took over the sick private textile mills. And the result was we poured into this enterprise, seventeen thousand crore rupees in the last two decades, money that should legitimately have been spent on healthcare, rural roads and other social development projects. And at the end of twenty years, those textile mills were back to square one again. Today the vision is different and a large acceptability for the process of development that will allow Indians to grow.

One of the areas that will see maximum growth, if that is the road to development, will unquestionably be the services sector. And this is one sector where our traditional handicap of lack of infrastructure will not inhibit us. One of the questions frequently coming up to confront us is why is India’s services sector so much better than its manufacturing sector. Why are the US and UK today threatened by the loss of service sector jobs to India and of manufacturing jobs to China? Our manufacturing sector is still not internationally competitive although it is looking much better this year. And our experts think it is the capacity and the ability of Indians, and the quality of knowledge resource that India possesses which has contributed to this immense success. Why is it that between 100 to 200 Fortune 500 companies (the figures are now closer to 200) have in the last few years shifted their R&D hubs to India? In a highly integrated global economy as you find today, both in terms of services and manufactured merchandise, the world is tending to buy both services and goods from those regions and areas where they will get the best competitive quality at the best competitive prices for them. And therefore to out-price yourselves and then say we are not able to survive in this sector is an act in sulking but it still doesn’t help the US and the UK to become competitive in this sector.

When one of the leading international pharmaceutical corporations shifted its R&D hub recently to India, its Chief met me. I asked him why he had shifted the R&D to India and he said very simply, where else will I get this quality of the human mind at such reasonable prices? For him to shift to Bangalore and get a team of Ph.D scientists at Indian currency equivalent of one thousand to one thousand five hundred dollars a month is still economically more viable than going back to the US or to a high-cost European economy and get it that price, which is next to impossible. Therefore a large number of those areas in the services sector where we are doing exceptionally well, has to do with the quality of the human mind. In the last two years the number of patents registered by Indian pharmaceutical companies in India compare favourably with the numbers registered in the last fifty years. That is the speed at which research is developing and progressing. McKenzie’s recently released their report which said that 30% of all doctors in the United States are persons of Indian origin. And if you were to go to urban centers the figures would probably be higher. This is the kind of acceptability that the Indian mind is finding globally. And our persons in the media woke up to this reality only when this child Noor from Pakistan came to India for medical treatment.

Even as of last year all the quality hospitals in India had at least ten percent of their earnings in foreign exchange. And that happened because they were becoming a regional medical hub. Our mission in Bangladesh informed me that there were days when they were issuing close to 400 visas a day for those coming to India for medical treatment. And even in Europe today, their national health service is under tremendous pressure. People find it cheaper to come to India for treatment for the same quality of medical treatment. Persons in Europe can travel to India, stay for the duration of their treatment and a period of recovery, with a companion to take care of them, they will still be paying only one-third of what he will be spending on his treatment back home. That is the quality of services we are offering. I know that my friends in the legal profession have serious reservations about this and the discussion is still on in this issue. But I have been reading articles in the newspapers that outsourcing of drafting legal documents in India has already started. We are not outsourcing to them and while we are still debating this in our country, the western nations have already started to outsource their drafting to us because they have realised that they can get quality drafting of legal documents at very reasonable prices. This became symbolic during the Business Process Outsourcing (BPO) debate.

I went to the US and we had interactions with sections of the US industry. We found that our best ally with regard to BPO was the US industry. They came out strongly against all these prohibitions and hurdles that were being created in different states in the US against outsourcing of office operations to India and I am glad that their federal government too has opposed such restrictions. Prime Minister Blair too has spoken out in favour of outsourcing office operations to India. The logic behind this is simple. The cost of maintaining these operations in their own countries is astronomical. The income tax department of one of the states in the US had outsourced its entire income tax records to India. I asked one of them about the cost involved and he told me that for the same operations in the US it would cost them two dollars per record whereas outrsourcing the job to India, they could get the same work done for eight cents per record. The Goldman Sachs report states that the GDP of India, China, Brazil and Russia would equal that of the developed nations in another 50 or 60 years, what it does not say is that these developed economies have out-priced themselves in several products. Whenever we have business or industrial interactions with foreign countries, I meet financial sector experts, banking experts, insurance experts, capital market experts, somebody representing a submarine company, somebody in high-technology representing a defense equipment company, they are the ones who come and talk to us; but in terms of general manufactured goods I have not met anyone so far because this activity has almost come to a standstill there. These countries of Europe and the US have out-priced themselves in this area - in garments, in leather goods, in shoes. I visited some very beautiful factories in Chennai today. And all these glamorous brands for which Indians pay astronomical amounts in dollars outside, the hard reality is that they are all being manufactured within ten kilometers of this auditorium. And they are being manufactured here at one-eighths or one-sixth of the price which you are going to be paying abroad. Therefore you will find that the low-cost Asian economies are overtaking the developed nations in these sectors. Therefore in each one of these areas in the services sector we have a great future and we have the potential to become the back office for the entire world.

And this is not confined merely to IT. It can extend to health care and to other services too and the economic climate is such that it tends to favour us. I now come back once again to education. Free from the regime of five IITs and the one regional engineering college in every state which was true of the ‘60s, ‘70s and the ‘80s, this private-public partnership in encouraging education, its consequences on India and the global economy and its impact on the entire process of development is there today for all to see. And what is striking is, no matter what orders the Indian judicial system may pass in this regard regulating this, or states pass legislation or issue executive directions to stabilise our population, they must bear in mind that there is a great demographic differential taking place globally. The population of the developed nations is actually coming down. If you see the UNDP report, there is a chart listing all countries and if you go through the column on population, the developed nations show that replacement of two is a mere 1.2 or 1.5. What this means is husband and wife must be replaced in the population numbers by two children. Two replacing two. But this is not happening in the developed nations which effectively means the population is declining. Healthcare has improved and so the longevity of the population has increased. The numbers of the older population has therefore increased and today the numbers of the geriatric segment of the population spectrum is increasing. The burden on these countries’ social security system is also increasing because these are non-working people and it is the social security system which has to maintain them. Economies are growing but the population with the knowledge mind resources to maintain that economy is going down. Germany decided as of July 1st last year to abolish the green card and then decided to continue with it because it was short of 500,000 persons to manage the economy.

Today after September 11, the US has become very strict about issuing visas but they need more nurses. They are liberal as far as visas for health attendants is concerned because they need nurses not only in their hospitals but considering the condition of their family system they need these attendants to take care of their aged. And the analysis globally is that the by 2020 the developed world is going to be short by four crores or forty million in terms of knowledge minds. And with the expansion of the middle-class and the expansion of the educational network we are one of the few countries happily poised to exploit this situation. Even China which has a vast human resource has started the process of stabilising its population. It is anticipated that only by 2026 will India’s population be stabilised where two gets replaced by two. And it is because of this demographic differential that we are going to be almost exactly forty million in surplus of knowledge minds. And therefore in the services movement of Indians globally is going to be on the increase. How far this will help the Indian economy remains to be seen. In some states it has brought immense benefit while in other areas, we invest and the people leave. But our economy is still large enough to manage all these people. India has been very proactive in the multilateral negotiations of the WTO on the issue of the movement of natural persons across borders.

The manufacturing sector provides India with the greatest challenge so far. A challenge because there is occasionally a grievance that the growth we see in the economy is not accompanied by a matching job creation. It is the manufacturing sector which creates jobs and so it is the manufacturing sector which has to grow. It is a fact the manufacturing sector has not grown in the last few years with the same momentum as the services sector although the latest figures show that the GDP in the second quarter has grown by 8.4% and the manufacturing sector has registered a growth of over 7%. The increased non-oil imports is an indicator that there is a spurt in activity in domestic industry and manufacturing. But it is also true that we have finally found our niche in some areas of manufacturing. Our Prime Minister has left for Islamabad today and hopefully there will be an agreement signed on SAFTA. SAFTA will provide our manufacturing sector with great opportunities and we must look at this in a spirit of give and take.

Automobiles. Now this was a sector where two decades ago we didn’t exist at all. Now one of the fastest growing areas of Indian accomplishment today is the auto sector. Our auto parts industry today is growing rapidly year after year and is today eyeing the global market. Today the best corporations in the world in the auto sector, including the two giants in Germany and General Motors are getting their auto parts manufactured in India. This is an area where we did not exist in any significant way. Ditto with our pharmaceutical industry. When negotiations on TRIPS started we all feared, and understandably so considering the plight of our industry at that stage, that once the agreements binding upon us in 2005 come into place there will be a sudden steep increase in the price of medicines. It’s a great tribute to our pharmaceutical industry, and we must actually visualise the capacity of this industry and the manner in which it has grown for a true appreciation of what it has achieved in the last few years. There is almost no country that I have visited in the last one year where I didn’t find that the largest contingent from among the representatives of the Indian industry and business community was that of the pharmaceutical sector. From Myanmar to the United States it is our pharmaceutical industry which has seen the fastest growth. And why are the American multinational companies in this sector so scared of our growth? Because today in generics we are manufacturing quality medicines at the cheapest price globally. And so when poorer nations start getting their medicines in cases of their need on a compulsory licensing basis and these are going to be countries in Africa, they are actually going to see the quality and the cost of medicines that they get from us. The AIDS package being supplied to the countries of Africa by American companies when they had no challengers in the business, cost Africans close to ten thousand dollars for a year’s supply of medicine per patient. Now that’s the kind of money Africans cannot afford. And suddenly when the same package was developed by Indian companies it started at 300 $. And that is when the debate on public health considerations and protection of the intellectual property of those multi-nationals started. Because life-saving drugs are not merely commodities, there is also the question of public health wound up into it because it concerned human life. And so when Indian pharmaceutical companies started to pose serious competition to American multi-nationals they had to slash prices drastically and the package came down from 10,000 $ to 1200 $. And Indian companies, for their part have now slashed the price of the AIDS package to cost around 240 $ now. That’s the kind of competition we are able to pose now to foreign multi-nationals.

Steel. Around three or four years ago we were all worried about the fate of our steel sector. We have a large iron ore resource. I have addressed similar meetings and I have myself made the observation that Indian steel plants have become non-competitive because of the high cost of their steel. But within a few years we have Tata Steel manufacturing the cheapest steel in the world, the Jindals are saying give us two years and we will be manufacturing the cheapest steel. Both the United States and China are complaining that Indian steel is coming into their respective countries in very large quantities. But they are getting quality steel, no questions on that. Our cement plants too are becoming truly world class today. These are all areas where we have been moving rapidly. But there are many sectors in manufacturing where we still have a lot of distance to cover. And please remember no matter how much we may complain about the fact that we are not doing so well in manufacturing, we will be able to sell our products only if we are quality conscious and cost effective. They may sell domestically but if you follow these principles they will sell internationally. And this is one sector which has always been handicapped as far India is concerned.

The first handicap we had - successive governments in the first five decades after independence paid little attention to the development of infrastructure. We had sea-ports where consignments had to wait for weeks; you had a customs system which delayed trade; just the cost of facilitating trade, efficiencies versus inefficiencies can actually add 14% to the cost of your product. And the pressure on margins internationally is so intense that with 14% added to your products because of inefficiencies, your products are becoming non-competitive internationally. And these are areas to which we paid very little attention although now we have started to deal with them in a focussed manner particularly in the last five to seven years. We have started to improve our seaports and we now have electronic data interchange at our customs. The cost of capital. The four grievances which the Indian manufacturing industry still has and to deal with which the system has to gear up in the years to come:

-- Are we in a position to be provided capital at the same cost as is available to our competitors internationally?

-- Are we in a position to maintain productivity standards unhampered by the labour laws that obtain in our country today? Can we usher in a labour regime that is pro-productivity?

-- Do we have infrastructure which aids and facilitates trade?

-- Do we get uninterrupted power supply and power on the same terms as our foreign competitors?


Let us take an area which is a great asset area for India – textiles. Apparel, garments, fabric, yarn. It is the textile industry, which after the construction industry, is the biggest employment generator for our people. And for India, employment generation is a very important factor we take into account in any policy decision. From the 1st of January, 2005, we are going to see a global regime free of all restrictions and quota in trade. In international trade the cost of manufactured goods plays a vital role in deciding whether our businessmen get those orders or not. The buyers, whether they are from the developing or the developed world will approach ten countries simultaneously to find out which country gives them the best price and in a situation of such fierce competition even half a dollar difference in cost can decide who gets those orders. The western economies, the developed economies have out-priced themselves as I told you earlier, on several manufactured goods. Their cost of manufacturing this shirt may be fifteen or twenty dollars. In India, the cost maybe eight dollars; so our competition is not with these economies but with the low-cost economies of this region – with Thailand, with Malaysia, with Korea and China. And if any one of these countries can manufacture the same shirt for half a dollar less than India, either because in China the workers do not have the same kind of labour law protection that operates in India and therefore their productivity levels are higher than India. Or because of the cost of power which can become a very important factor in those industries where power is the raw material. Or because of interest rates. We are rationalising our interest rates now but there are differences still. The cost of trade facilitation will depend on our efficiencies.

And so if we have to keep making progress on the road to becoming a developed nation, I have not the least doubt that in the services sector where human resources is the best raw material, we have a great potential to grow. But if the same potential were to be used in the manufacturing sector, there are other hard decisions that we must take as a country if manufacturing has to progress. Because it is only when we get those orders, it is only when our products are selling that we are going to be able to create more jobs. We must therefore gear ourselves to taking difficult decisions which may appear difficult in the first instance but if we persist with them and implement them then the longer route may be easier and more rewarding.

The sector which poses the biggest challenge to all of us is the agricultural sector. It’s a tribute to our farmers that from a shortage economy in food and agriculture they have transformed our country into a surplus economy. But international trade in agricultural produce and products suffers from global distortions. And our farmer is a direct victim of this process. There is no doubt that the lot of our farmers can be improved by long-pending domestic reforms but it is equally true that the situation in global trade is so much to our disadvantage given that in India our farmers are into subsistence farming. Let us not forget that 60 to 65% of our people depend on agriculture for their livelihood. Most of them are farmers with small land-holdings for whom their toil on their lands means the critical difference for them and their families, between food and starvation. I have absolutely hesitation in saying that the developed nations have distorted the agricultural market completely. The US has two million farmers, Europe has five million farmers while in India those that are dependent directly on agriculture are around 650 million people. If people think that is an exaggeration it may come down by five, ten or twenty million. That is still around over 600 million people dependent on agriculture for their livelihood.

The distortion takes place at all stages in terms of the kind of subsidies and support granted to the farmers of developed nations by their respective governments. The developed countries credit ‘market access’ in agriculture with a lot of importance. And they have been very effectively arguing that market access in various economies which permits the free movement of agriculture from one country to another may perhaps be the answer to a lot of problems. I am sure it will resolve a lot of their problems but not ours. As far as we are concerned it can actually cause social chaos. Because the field is not level for the kind of market access the developed nations are arguing for.

You have close to four hundred billion dollars worth of subsidies being given to the farmer annually, and that works out to a little over one billion dollars a day, equivalent to 4600 crores of rupees everyday. That is the quantum of subsidies being given to the farmers in the developed nations today. And these subsidies are given under various heads. The most trade-distorting subsidy is the export subsidy. The more you are able to export to other countries the more the State will pay you from out of its pocket. So the State pays those who are able to grow the product in their country, transform it and sell it to another country. There are production-linked subsidies; the more you grow, the more you will be subsidised. The production-linked subsidy puts money into both pockets of the farmer. When the farmer grows more, he naturally makes more money be selling his produce and the state incentive to grow more means the state too gives him more subsidies for growing more. So production is encouraged but trade is distorted because of that. As a result of which when the farmer in the developed nation grows more, his product is cheaper. But the moment our surplus goes into the international market, please bear in mind our surplus is not subsidised and it has to compete cost-wise with the highly subsidised and cheap product of the farmers from developed nations. As a result of this our surplus is not saleable. So if our surplus is returned and floods the domestic markets, it results in depressed prices in the domestic markets because of the resulting glut.

Last year, in 2002, the US Farm Bill increased the subsidies. The common agricultural policy of the European Union in 2003 did not reduce the quantum of subsidies but transferred the subsidies from one category to another. Let us say they no longer have export subsidy or production-linked subsidy but they can give subsidies to farmers who protect the environment, for those who protect livestock, perhaps for those who keep their land barren and who agree not to grow crops that year. Something like that. No matter under what name the subsidy is given, the idea is to enrich and protect the farmer. And therefore if we are expected to put our farmers into a market access regime and competition with the highly subsidised farmer from the developed nations, the field is not level. Therefore developing and least-developed nations which are not in a position to subsidies their farmers have suffered on account of this trade distortion. This is one of the greatest global injustices. There are four countries in Africa which are cotton growers. They are single-crop nations depending on cotton alone for their survival. There are 25,000 cotton farmers in the US. And those 25,000 farmers get a total of about 3.6 billion dollars by way of subsidies annually. Now their cotton prices are therefore rock bottom, the African countries can’t compete with US cotton, and therefore they are in a state of economic ruin.

India can never hope to become a developed nation unless the entire stock of our rural and agricultural community, their quality of life improves. Which is why I stated at the very beginning that investing in rural roads is a priority in the journey to becoming a developed nation. Telecommunications – by way of reach and connectivity at cheaper rates to our villages, this too will benefit our rural and agricultural people. At the end of the day we have to create jobs so that people in rural areas can get out of the rural sector and get jobs outside this sector. Which means we have to focus on the level and quality of education so that the rural sector registers an increase in the numbers of educated people. These are all areas that need immediate and focussed attention because this sector has to grow if India has to transform herself into a developed nation. Here not only do we need to put in place domestic reforms but we will also have to fight the global aberrations and distortions that has a direct impact on the poverty and the suffering of rural India.

Comparisons are made often between China and India. Both these nations are racing towards becoming developed economies. Malaysia and Thailand too and Korea, all these nations are making rapid progress in the last decade and two to transform themselves into developed nations. I can say that these Asian economies have all suddenly realised the areas of their core competence. And that’s the race we are in too. But there is a difference. The Chinese model is a State-driven model. China is not a democracy, but India is a democracy. In a democracy, there are various stages at which decisions can be stalled. They can be stalled within the government, because of the pressures of democracy, they can be stalled in parliament, in courts. Therefore in democracies decision-making and implementing is a lot more difficult than in systems which are not accountable to any power outside of themselves. In States which are not democracies questions are not asked and therefore the levels of accountability of the State and the government is entirely different. That factor apart, there is a difference being taken note of by global observers. The Chinese model is a State driven model, an FDI driven model while the Indian model is entrepreneur driven. And in terms of long-term sustainability an entrepreneur driven model has greater potential. And on the strength of this model, I have a few suggestions to hasten and expedite our becoming a developed nation.

1. On terms of our potential in the services sector, we have a huge capacity to become the back office for the entire world. this will generate jobs and strengthen at least one segment of our economy. This is almost happening.

2. The second challenge. We are moving slowly towards that but we have to effect course correction and take a few hard decisions which I mentioned earlier. And one of our challenges will be, and this is a lesson we can learn from China, to become a global manufacturing hub. Our costs are going to be lower and over the next decade this will be a major area of challenge for us.

3. We have a food surplus. We have to fight the global distortions and effect domestic reforms like making larger investments in processing, we need an integrated food law, we require a greater movement of food products even within our country and so on. We have the potential to become one of the world’s granaries for food. It is not a simple task, it is going to be extremely difficult but we have to move in this direction.

4. Fourthly, we have to become the knowledge economy for the world. And this is already happening. Academicians across the world, technocrats, IT experts, engineers, medical practitioners, management consultants, we are there everywhere. Every time I see a financial sector programme in the BBC or the CNN, from Hong Kong or New York I usually see an Indian expert commenting on it. And since this is already happening, all we need to do is to consolidate our achievements.

5. One of the hallmarks of a developed nation is urban sector reforms and this is one area in which reforms in our country have been long overdue. Unplanned urban areas, absence of transport systems, rent laws which dissuade the creation of the urban sector, huge property taxes which are a dis-incentive on the construction industry. If we can set in motion these urban sector reforms we have six towns in India, big cities with the potential to become global cities. One of the targets in the next decade would be urban sector reforms whereby these six major towns are picked up and converted to global cities.

6. Rural development is another target. In the last five years we are making major inroads into providing rural roads, we are connecting all the 800,000 roads for rural connectivity, schools, hospitals, housing. These are important development projects in the rural areas.

7. The below poverty line (BPL) figure, one of the targets for this decade, maybe by the beginning of the next decade, must be brought down to a single-digit number. The numbers are already reducing. They are being transformed and we must do everything to sustain the momentum.

8. Tourism. Eleven percent of the global population is directly or indirectly employed by the tourism industry. Its an un-exploited sector. It is in tourism where the rich man from across the world comes here and spends and the poor man in India gets the job. This sector needs a major thrust. From mountains to seas to forests to religion we have every kind of tourist adventure and experience to offer. Also historic monuments. We need to give a thrust to the tourism industry.

9. The two regions whose economic activity and progress and have been very rewarding and encouraging in the last decade is Jammu and Kashmir and the North-East. A major part of our national resources have been spent on protecting these regions and now that the indicators in both regions are better, economic development of these regions must now be a priority.

All this requires investment, resources, and above all this requires a leadership with the determination to implement. At times all this may require a moving away from everyday populism with our eyes set upon the larger road map. And both the President and the Prime Minister are speaking about becoming a developed nation by 2020, to make it a reality. There are many countries in the world at least in this region which are also moving in this direction, and which are facing the same challenges as we are. One of our greatest strengths has been the knowledge potential of India and the sense of entrepreneurship that our people have. Given these facilitatory environment and a sense of purpose and direction, we have the capacity to meet the deadline of 2020 to become a developed nation. I hope and pray that we do it. Thank you all.


Shri Arun Jaitley, Hon’ble Union Minister for Law and Justice, Commerce and Industry, Govt. of India.
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