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Economy in resilient mode, says Survey

Alok Mukherjee

Wednesday 7 July 2004, by MUKHERJEE*Alok

NEW DELHI, JULY 7. The new United Progressive Alliance Government today confirmed that the economy was in a resilient mode in terms of growth, inflation and balance of payments, and that this combination offered a large scope for consolidation of the growth momentum.

The Economic Survey 2003-04 was presented in Parliament today by the Finance Minister, P. Chidambaram. While the economy grew 8.2 per cent during the last fiscal year, India had an impressive 23-year record of growth averaging 5.7 per cent a year, with a large potential for even better performance.

Appreciating the good macro-economic parameters of the last year of the National Democratic Alliance regime, the Government added that a benign world economic environment provided a conducive backdrop to the robust performance of the Indian economy in 2003-04. Strong performances by the United States, China and Russia, and a strong turnaround in Japan helped brighten the world economic outlook, facilitating the volume of world trade to grow rapidly by 4.5 per cent, compared to only 3.1 per cent in the preceding year.

Major challenges

The survey has identified five major challenges. These are sustaining the growth momentum and achieving an annual average growth of 7-8 per cent in the next five years; containing the inflation rate to medium single-digit level; boosting agricultural growth through diversification and development of agro-processing; expanding industry by at least 10 per cent a year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year. Lastly, effecting fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management.

The survey cautioned that the benefits of the relatively low inflation of last year could be upturned. The surge in international oil prices, if it continues, could impact inflation while the high growth in money supply, brought about by the upswing in foreign exchange reserves, could call for a "dexterous combination of policies which may include measures such as external liberalisation and sterilisation to reconcile the multiple goals of limiting fiscal costs, maintaining orderly conditions in the foreign exchange market and low inflation".

Another caution is on fiscal deficit, which is reflective of the borrowings that the Government undertakes. After decreasing in the early Nineties, the combined fiscal deficit of the Centre and the States had worsened to reach 10.1 per cent of the gross domestic product (GDP) in 2002-03, higher than the pre-reform level of 9.4 per cent. The revenue deficit followed a more disturbing trend, deteriorating more sharply than the fiscal deficit. Hence, the prescription for fiscal consolidation and expenditure management.

While the survey endorses most of the commitments of the Common Minimum Programme of the new Government, some other suggestions have been included.

For instance, on foreign investment, the survey said the slowdown in foreign direct investment observed since 2002-03 required to be remedied through suitable liberalisation of both FDI and foreign institutional investment regimes, including procedural issues. The strong interest displayed by foreign institutional investors in the Indian market in 2003-04 was encouraging and that it was likely to continue if there were no exogenous factors.

For the small-scale industry, the recommendation is for de-reservation of the remaining list of items from the reserved list since small and medium-scale enterprises are critical for industrial development.

On labour issues, the survey called for a popular consensus on the twin issues of more flexible labour laws and less friction in the creation and closure of firms in response to normal competitive market dynamics.

Income tax rates

For the salaried class, there is just a hint of change in income tax rates and slabs with the survey acknowledging the Kelkar Committee report commissioned by the previous Government and leaving it with the observation that "a number of measures have been taken in pursuance of this and a lot more remains to be done".

The survey dealt exhaustively with the current state of the agriculture sector, and social issues covering health, education, women and children and poverty. It sums up this portion with the recommendation that "India needs to reformulate an anti-poverty strategy that is fiscally sustainable and more finely targeted to those who cannot benefit from the opportunities offered by growth. Safety nets should focus on those who either cannot participate in the growth process (for reasons of extreme deprivation or vulnerability combined with poverty) or face continuing exposure to risks".

See online : The Hindu


in The Hindu, Wednesday, July 07, 2004.

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