Articles by N A Mujumdar

The mountain of foodgrain stocks is just one of the consequences of the misguided macroeconomic policies of the 1990. Caught up in the euphoria of liberalisation, the new economic policy largely ignored the rural economy and its development. Fortunately, since 2000-01, there has been a new-found interest in resurrecting the agenda of rural development adopting a comprehensive and pragmatic approach.

Notwithstanding the commendable initiatives of the United Front government in 1996 to revive the rural credit system, it continues to languish. What is required is a structural transformation linking banks and co-operative credit institutions with self-help groups and NGOs.

Investment in Agriculture and the Globalisation Syndrome N A Mujumdar Studies in Agricultural Investments and Rural Savings by B D Dhawan; Commonwealth Publishers, New Delhi, 1998; pp 236, Rs 425.

Credit Support to Priority Sectors A Macro Perspective N A Mujumdar THERE are at least three reasons why at this point of time, a fresh look at the issues pertaining to the flow of credit to priority sectors is warranted. First, the period 1991-96, constituting the first phase of financial sector reforms was a period of 'policy vacuum' so far as priority sectors are concerned. Commercial banks defaulted merrily on the priority sector credit target of 40 per cent of net bank credit, as also on the subtarget of 18 per cent credit to agriculture. The size of credit flowing to the small-scale industries sector also shrank. The Reserve Bank of India (RBI) winked at the default and maintained a studied silence on the default till July 1996, when the UF government announced, in its first budget, a number of initiatives to accelerate the flow of rural credit. At long last, public sector banks managed to achieve the credit target only in 1996-97, While credit to priority sectors at 41.7 per cent of net bank credit exceeded the target, the subtarget continued to remain unfulfilled. Credit to agriculture was at 16.4 per cent, What is more, the reform package has affected adversely the apriority sectors in another area, namely, interest rates: with the freeing of banks' lending and deposits rates, the new interest rate structure that has emerged, has become highly regressive and is biased against priority sectors. Secondly, the Approach Paper to the Ninth Plan (1997-2002) does accord high priority to agriculture and rural development activities in general, in the strategy for future growth. It is therefore only appropriate that, monetary and credit policies would need to be modified in such a manner that they are in broad alignment with the priorities of the Ninth Plan, Looked at from this angle, credit policy has yet to react to the Ninth Plan priorities. The question that therefore needs to be considered is: what are the ingredients that need to be added to the credit policy mix? Thirdly, winds of change appear to be blowing in the RBI in the post-November 1997 phase. The RBI appears to have recovered from its amnesia of rural credit; the setting up in December 1997 of two high-level one-man committees to look into the problems impeding the flow of credit to agricultural and small-scale industries sectors, respectively, is a concrete demonstration of this change. The resurrection of the RBI's involvement in rural credit thus marks the end of the 'policy vacuum' phase.

This paper addresses three interrelated medium-term issues arising, directly or indirectly, out of the central budget for 1997-98: price stability, food security and internal debt management. The government had waxed eloquent in 1995-96 about rice and wheat emerging as major export commodities and about the proper use of 'surplus foodgrains'. But even before 1996 was out we were compelled to arrange emergency import of two million tonnes of wheat. This has exposed the vulnerability of the economy in terms of food security and highlighted the importance of supply-side factors in sustaining price stability. While inflation cannot be controlled by a one-point programme of controlling money supply, containing the extent of monetisation of the budget deficit is critical to sustaining price stability. In this context the abolition of Ad Hoc Treasury Bills from April 1, 1997 has been hailed as a systematic change, but in the ultimate analysis what matters is not the mechanics of monetisation of the budget deficit as the political will to observe fiscal prudence.