New Delhi, July 03: The UPA government dropped broad hints about its intent to revive the pro-market agenda as its Economic Survey stressed on the ”imperative” need to unveil some ”pending” reform measures to spur growth.
The Survey for 2008-09, presented by Finance Minister Pranab Mukherjee on the opening day of the budget session, virtually cautioned that in the absence of some bold and radical reform measures, the economic growth rate may not recover during the current fiscal.
The Survey that gives a general summary of the government’s assessment of the economic situation isn’t clear if the economic recession in the US and other developed countries has bottomed out. If it has, clearer signs of international recovery would be available by September this year. Otherwise, the US recession could continue until 2010, the Survey felt.
Thus, it said, the only assured path of economic revival for India would be to unveil some bold and radical economic reform measures to regain the growth momentum. The Survey projected a growth rate of around 7 per cent during the current fiscal year, as against 6.7 per cent in the last fiscal.
But the rosy growth scenario is conditional upon the government returning to the reform agenda and on the assumption of a normal monsoon. A bad monsoon, coupled with lack of any major reform initiatives and a prolonged recession in the US could lead to a further deceleration of the growth rate, which could be as low as 6.25 per cent.
On the contrary, if the situation on all the three fronts turns out to be positive, the growth rate could improve to 7.75 per cent, the Survey projected.
Among the measures spelt out are: aggressive disinvestment of PSUs, auction of the perennially loss-making PSUs, deregulation of the pricing of petroleum products, revamp of the subsidy regimes for food, fuel and fertilizer with a proposal for targeting the subsidies directly to the beneficiary, hike in FDI limit in defence sector and multi-brand retailing in food products, ending government monopoly in Railways, coal and nuclear power sectors.
The Survey recommended that the government must generate at least Rs. 25,000 cr a year through disinvestment.
The 281-page Survey also came out with clear suggestion that the higher rate of interest presently available for deposits should be lowered in order to ensure that credit flow is facilitated at attractively lower rates to boost investment. The Survey also felt that reduced private consumption was a hindrance to reviving economic growth and it attributed the reduction in private consumption to, among others, to job loss during the last one year.
The Survey also suggested a wide range of reforms in taxation. For instance while recommending introduction of a new Income Tax Code the Survey prescribes review and phasing out of surcharges, cesses and transaction taxes such as Commodities Transaction Tax, Securities Transaction Tax and Fringe Benefit Tax. The other radical reforms recommended by the Survey include review of Customs Duty exemption and move to a uniform duty structure. Significantly, the Survey recommended implementation of Goods and Services Tax from April One, 2010 to ensure long run fiscal sustainability.
The Survey also expressed concern about the fiscal deficit of 6.2 pc as against 2.7 pc during the previous year. Stating that the ballooning deficit was due to the implementation of 6th Pay Report and the tow stimulus packages packages unveiled last year, the Survey said the deficit must be pegged down.
Prescription
* Cut fuel, food and fertiliser subsidies
* Raise foreign investment cap in insurance to 49 percent
* Allow 100 per cent foreign investment in health, weather insurance
* Raise Rs 25,000 crore from divestment every year
* Auction loss-making state-owned firms
*Removal of fringe benefit tax
* Review customs duty exemptions
* Remove commodity and security transaction taxes
* Limit subsidy on cooking gas to six-eight cylinders per household
* Kerosene subsidy only for non-electrified, non-cylinder homes
-Agencies