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Orissa in a globalised economy - Challenges ahead

"The government has signed more than 60 Memorandum of Understanding (MoUs) with different players. The setting of new projects has led to a large-scale displacement of the marginal farmers because of their land being snatched away with the collusion of State machinery and the corporates."

Nageshwar Patnaik and Sai Prasan : May 21, 2008

Globalisation and economic reforms have made a direct impact on all the segments of the backward states like Orissa. The industry, agriculture and the financial sector have been impacted alike. The market forces have forced several small and medium scale industries and Public sector undertakings out of race. The rural sector is also not getting a proper price for their agricultural produce because of the traditional farming. And, the poor economic factors have led the financial sector specially the banks to squeeze their operations.
The globalization has led to economic disparity between the rich and poor states like Orissa. The economic backwardness at the geographical level and the gulf between the rich and poor at the social level has its social cost – increase of violence in the civil society and the manifold growth of the radical left extremism in the State. In this backdrop, it is advisable to analyses each segment of the State one by one.

The unrestrained market competition was responsible for the closure of several state owned companies in the state. According to the state economic survey for the year 2007-08, only 32 state owned companies are working out of the total number of 66. The total work force in the organized sector has dipped from 7.98 lakhs in 2000 to 7.41 lakhs in 2006. There is no proper data available on the status of small and medium scale industry in the state.

Contrary to this, a new trend has emerged in the state over the year. The abundance of natural resources and cheap labour has attracted the global players like Posco and Vedanta along with local mega players like Tata to set up their shops in the state. The government has signed more than 60 Memorandum of Understanding (MoUs) with different players. The setting of new projects has led to a large-scale displacement of the marginal farmers because of their land being snatched away with the collusion of State machinery and the corporates. Local people are still putting lot of resistance in these areas.
The State government should analyse whether these projects will benefit the people of the state or it will further worsen their misery before allowing the work to continue in these projects.
Orissa government must take a leaf from the experiment of Enron led Dhabol Power Project in Maharashtra before entering into MoUs one after another. The Rs 13,000 crore power project in Maharashtra is still hanging in limbo because of the unreasonable conditions put forward by the Enron company which the bureaucracy could not understand while signing the Power Purchase Agreement (PPA) in 1992. The dollar linkages with the total cost of the project and fuel prices were the two main reasons for the non-operationalisation of the project.

It is a challenge for the government to safeguard its own industry from getting further effected due to the opening of the economy. And, it must be very careful while entering into any MoU with any mega player. The government machinery must take the advice of the professionals in accounting and legal sector while giving a final shape to the project.

The agriculture sector is the second causality in the globalised economy. The agriculture produce is not able to compete within the domestic market leave the global market due to the absence of a proper rural infrastructure and commodities market.

Here, challenge lies before the state to develop a proper infrastructure for the development of agriculture sector of the state. The farmers need a proper warehousing to keep their agricultural produce which demands a regular supply of electricity. Proper roads are also required to transport these agricultural
Orissa should learn lessons from Gujarat and Maharashtra which has a very strong information network to provide the market prices to the farmers on hourly basis. This helps the farmers in getting the right
price for their produce.

A strong political will is required on the part of the government to develop a local market place where farmers can sell their produce on the lines of rayatu bazaru in Andhra Pradesh. At present, the marketing of paddy only is being done in Orissa which can be extended in other agricultural crops like rice, oil seeds etc.
Financial Sector

The globalization has weakened the financial sector to a great extent. The tough competition has wrecked the financial conditions of the co-operative banks. According to the "Report of the Committee on Financial Inclusion January 2008" prepared under the chairmanship of Dr C Rangarajan, chairman, economic advisory council to the Prime Minister shows that only two districts out of 30 have a strong presence of the commercial banks. The overall indebtness to formal sources of finance is only 20% in the Eastern region including Orissa meaning thereby the grip of the traditional moneylenders is very strong in the state.
A strong banking networking is a must for the overall growth of the state. Because, they help in credit delivery and bringing transparency in the financial dealings of the people. The popular government schemes can be successfully implemented only with the presence of a strong banking network.

The implementation of Basel II in the year 2009 will further make the weak banks difficult to operate in the State. The weak banking network is responsible for the mushrooming of the micro-finance institutions in the state who charge abnormal interest rate ranging from 20% to 28% as against an average interest rate of 15% by the banking network.

The state government should convince both the Union finance ministry and Reserve Bank of India (RBI) to take special measures so the banks will open new branches in the backward regions of the state.

>>> Scroll down to read rest of the Story


Social Sector:

The state allocation on social sector too has come down drastically.

(A) Education:

• Allocation for School and Mass Education as a share of total state expenditure reduced to 10.66 percent in 2008-09 from 12.20% in 2005-06 and as a share of GSDP it hovered around 2.5%. It is worth mentioning here that the expenditure on education sector should be a minimum of 6% of GSDP. During 2006-07, Rs. 1341.86 cr was allocated to this sector and in the current budget estimates, this has gone up to Rs. 1837.62 cr., which is a meagre 1.78 % of GSDP.

 As a percentage of total state expenditure, the projected expenditure on elementary education decreased to 6.58% in 2008-09 budget while it was 6.94 during 2006-07. During the last 5 years the allocation towards elementary education as a percentage of total state expenditure has been decreasing which in turn will affect the quality of primary education in the state.

 Allocation for higher education decreased from 2.27 percent of the total state expenditure in 2005-06 to 2.04 percent in 2008-09 budget estimate. As a percentage of GSDP it gives no such encouraging increment (0.53 percent during 2006-07, 0.55 during 2008-09).

The State government should pay proper attention in developing good professional and vocational workforce for a competitive market place. It should work with the private sector for imparting English language and IT education which has become a pre-requisite for getting a job in a market economy.

(B) Health

• During 2006-07 Rs. 590.51cr. was earmarked for health and family welfare department and this has increased to 1004.79 cr. In 2008-09 BE. The total allocation is less than 1% of the GSDP (0.97%). To achieve the target specified in Millennium Development Goals (MDGs) declaration towards health sector, that the expenditure on health sector should be a minimum of 3% of the GSDP.

• What is worse is that the distribution of funds within the health department in 2007-08 is quite discriminating towards the rural health services. The share of rural health expenditure has decreased to 30.55 percent in 2007-08 from 41.29% in 2005-06. There is a scope for changing the prioritization of rural health over urban health in allocation of fund to the health sector at the stage of passing of the budget. Rural health sector needs prioritization to overcome the problem of high Infant Mortality Rate (IMR), which is now 75 per 1000 as against the national average of 58.

 Health status is an essential part of people's well being and health shocks are a major cause of sinking into poverty. One key way of making growth inclusive is helping the benefits of economic growth and prosperity translate into concrete gains in survival of children and their mothers, improving their nutritional status; and reduced exposure of households to economic vulnerability from health shocks.

The must pay enter into public and private partnership for meeting the expectation of the people in the health sector.

Participatory Democracy - Need of the Hour

The state government needs to meet the challenges in different fields. All the concerned agencies – state government, media, NGOs and other similar agencies - must launch a massive awareness campaign related to various issues. The change of mind-set is important to overcome all the challenges.

Only a participatory democracy can help in meeting the challenges of the globalization. And, the participatory democracy can be possible by intensifying the democratic process and bringing transparency across the board.

A paradigm shift is also needed from an individual centric operations to the structural-functional functioning to establish a just social order with double digit growth with equity or what they call Inclusive Growth in the state.
"Economics is not just politics…. There is more to human progress than aggregate statistics of growth. We have to ask the right questions and concentrate on what matters to people” – Amartya Sen.

(A senior Journalist, Nageswar Pattnaik is the Chairman of 'Focus Orissa' and Sai Prasan is its Spokesperson. The article was presented as a paper in the Focus Orissa Summit held in April - 2008)



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