INDIA DEVELOPMENT REPORT 2004–05 Blank Page (ii) INDIA DEVELOPMENT REPORT 2004–05 edited by KIRIT S. PARIKH • R. RADHAKRISHNA 1 1 YMCA Library Building, Jai Singh Road, New Delhi 110001 Oxford University Press is a department of the University of Oxford. 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No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose this same condition on any acquiror ISBN 0 19 566873 1 Typeset in Garamond in 10.5/12.5 by Excellent Laser Typesetters, Pitampura, Delhi 110 034 Printed by Roopak Printers, New Delhi 110 032 and published by Manzar Khan, Oxford University Press YMCA Library Building, Jai Singh Road, New Delhi 110 001 Preface The Indian economy has experienced dramatic turnaround in the last two years since the India Development Report 2002 (IDR) was published. It has made a vigorous recovery from the unprecedented drought in 20023 and attained a high growth rate of 8.1 per cent in 20034. There are signs that India is on its way to becoming an economic power. The previous government had started nurturing the business constituency to fire the animal spirit of entrepreneurs. As pointed out in our previous report, social exclusion, growing regional disparities, and a high incidence of poverty and unemployment are stark realities. The current growth process is showing signs of social disarticulation. Achieving high growth is one thing, making it pro poor is quite another. The IDR 2004 looks at the macroeconomic scene from both growth and human development aspects as well as from the poverty perspective. It analyses issues such as poverty reduction, state of healthcare, public expenditure in social sectors, agricultural R&D, corporate sector performance, intellectual property rights (IPR) policy, and urban transportation; it also discusses policy options related to these issues and suggests possible solutions. While the presentation is kept lucid and non-technical so as to make it accessible to the general reader, we try not to compromise analytical rigour. We hope that the IDR will contribute to the on going debate on various issues of inclusive development. This is the fourth in the IDR series and as before almost all the papers are written by the faculty and research scholars of Indira Gandhi Institute of Development Research (IGIDR), Mumbai. The Statistical Appendices have been contributed by S. L. Shetty of EPW Research Foundation. Through IDR, the faculty of IGIDR communicates to the larger community the results of its research with a view to initiate debate and discussion, and hopefully to improve policy. The views expressed here are the views of the individual authors. In such a report many people contribute in a variety of ways. Their support and enthusiastic participation are critical in bringing out such a report. Patrick Lewis has co-ordinated the production and ably kept track of drafts of various authors, queries from editors, responses and other details. Rohit Mutatkar, our PhD student, has provided research assistance. We are also grateful for the editorial support and help provided by Oxford University Press, Delhi. We thank them all. KIRIT S. PARIKH R. RADHAKRISHNA Blank Page (vi) Contents List of Tables x List of Figures xiii List of Boxes xiv List of Statistical Appendices xv List of Abbreviations xvii 01. Overview: Ten Years of Reforms, What Next? 1 Kirit S. Parikh R. Radhakrishna How Rapidly is the Indian Economy Growing? How Sustainable is our Growth Performance? 1 What is the State of Poverty in the Country and its Character? How do we Make Growth Inclusive? 3 What is the State of Health in India? 6 What have We Done for the Social Sector? How has the Social Sector Expenditure Grown? 8 How are We Facing the IPR Challenge? 10 Importance of New Agricultural Varieties 11 Importance of Transaction Costs: How can We Facilitate Trade? 12 A Healthy Banking Sector 14 Why has not High Fiscal Deficit Led to Inflation and Disasters? 15 What are the Emerging Issues and Possible Solutions to the Urban Transport Challenge? 16 Indias Strengths and Weaknesses 16 Is Bharat Wilting? The Challenges 18 02. Macroeconomic Scene: Growth and Equity Perspectives 21 Manoj Panda Macroeconomic Performance 21 Fluctuations in the Incidence of Poverty 33 Interstate Growth Performance 35 Summary and Conclusions 37 03. Poverty in India: Dimensions and Character 40 R. Radhakrishna Shovan Ray Poverty in the Post-reform Period 42 Profiles of the Poor 45 Malnutrition 52 The Emerging Scenario 55 viii CONTENTS 04. Public Health Scenario in India 62 Srijit Mishra Burden of Diseases 62 Infant and Child Mortality 64 Maternal Health 64 Some Infectious and Parasitic Diseases 67 Lifestyle Diseases 69 Morbidity and Physical Disability 70 Outpatient and Inpatient Treatment 72 Health Care Expenditure 74 Some Other Emerging Issues 77 Conclusions 81 05. Lack of Energy, Water, and Sanitation and its Impact on Rural India 84 Jyoti Parikh Kirit Parikh Vijay Laxmi Estimation of Drain on Human Resources due to Cooking Fuels 85 Recommendations for Energy Supply and Utilization 93 Recommendations for Action for Gender Equity 93 Recommendations for Water and Sanitation Facilities 94 Recommendations for Health Care Facilities 95 Recommendations for Transportation Facilities 95 06. Patterns in Social Sector Expenditure: Pre- and Post-reform Periods 96 S. Mahendra Dev Jos Mooij Trends in Social Sector Expenditure 96 Trends in Expenditures by the Central Government 98 Trends in Expenditure by the States 101 Comparisons with Other Countries and International Norms 102 Effectiveness of Social Sector Expenditure 104 Experiences of Some States 105 How to Improve Effectiveness in Social Sector Policy Implementation 106 By Way of Conclusion 107 07. Indias Patent Policy and Political Economy of Development 112 Anitha Ramanna Economic Costs and Benefits of Patents 113 Patent System in India 113 Indias Patent Policy Shift 114 Explaining Indias Patent Policy Reforms 115 Opposition to Patent Reform 116 Rise of Actors that Promoted Reform 116 Public Sector Research Institutions and Patent Policy Shift 117 Promoting Patent Activity 117 Defeating the Bio-Piracy Argument Against Patent Reform 118 Building Coalitions for Reform 118 Public Sector Research Institutions and Patent Activity 119 Public Sector Research Institutions and Development Strategy 120 08. New Technologies for Indias Development 126 Jayan Jose Thomas Opportunities from New Technologies 127 Challenges to Technology-aided Growth 132 CONTENTS ix The Urgent Need to Create New Technologies 135 Human Development and Diffusion of New Technologies 136 Complementarities between Policy Interventions for Economic Growth and Diffusion of New Technologies 138 09. Hybrid Rice: The Indian Experience and Comparison with the Rest of Asia 141 Aldas Janaiah Rice production in Asia and India 141 Hybrid Rice: Viewed as an Innovative Technology 144 Insights from the Farm Level Experiences in India 144 Comparison with the Chinese Experience 146 Some Policy Issues 150 Conclusions 151 10. Trade Facilitation 154 Nirmal Sengupta Moana Bhagabati Trade Facilitation in India 155 Conclusions 168 11. The New Basel Capital Accord: Rationale, Design, and Tentative Implications for India 171 D. M. Nachane Partha Ray Saibal Ghosh Regulation of Banks 173 The New Basel Accord: Genesis and Major Features 174 Possible Implications for Emerging Market Economies 179 Reactions from the Developing Countries 182 Emerging Scenario 187 12. Puzzles in Indian Performance: Deficits without Disasters 191 Ashima Goyal Trend or Shocks 191 Openness and the Current Account 197 The Twin Deficits 198 Investment Fluctuations 201 Monetary Policy, the Term Structure of Interest Rates, and Expectations 202 Credit and Finance 205 Conclusions 207 13. Urban Transportation Trends, Alternatives, and Policy Issues 209 Sudhakar Yedla Growth of Vehicular Stock 209 Projection of Vehicular Stock 212 Travel Demand Projection 214 Trends in Environmental Emissions and Ambient Air Quality 215 Technological and Management Alternatives 217 Policy Initiative and Measures 222 Statistical Appendices 227 Tables 2.1 Average Annual Growth in GDP 22 02.2 Annual Growth Rates in Index of Agricultural Production 23 02.3 Growth Rates in Index Number of Industrial Production 24 02.4 Growth in Index Number