SURVEY MOOTS SWEEPING REFORMS, BUT THAT MAY JUST BE A DREAM

SURVEY MOOTS SWEEPING REFORMS, BUT THAT MAY JUST BE A DREAM
The Economic Times, July 3, 2009, Page 1

Swaminathan S Anklesaria Aiyar NEW DELHI

THE Economic Survey predicts GDP growth as high as 7.75% in 2009-10 if the global economy turns up by autumn, and a reasonable 6.25% if the global recession drags on. Exuding confidence on the external front, the survey predicts a current account surplus of up to 2.8% of GDP, and estimates that the inflow of FDI into India in 2008 was $46.5 billion.

The document suggests that disinvestment of public sector undertakings can raise at least Rs 25,000 crore per year for the government. The details of the asset-sale plan will be announced by finance minister Pranab Mukherjee when he presents the Budget for the year to March 31, 2010, on July 6, finance secretary Ashok Chawla told reporters.

The survey also suggests the re-introduction of tax on dividends (in place of the corporate dividend tax). If implemented, millionaires who today pay no tax on dividends will pay it henceforth at the highest rate.

The document claims that high savings and investment rates, rural prosperity, and resilient service exports have kept the economy going despite horrendous global conditions. It focuses less on the need for fresh economic stimuli than on post-recession strategy to reverse fiscal and monetary easing, and stresses the need to return to FRBM targets, possibly by 2010-11.

Replete with dozens of suggestions for economic reforms, the survey is clearly a Montek-Virmani document rather than a Sonia-Pranab Mukherjee one. It represents the reformism of technocrats rather than the realpolitik of politicians. Once upon a time, the Economic survey used to be viewed as a declaration of intent of the government. This time it is better viewed as a declaration of despair by technocrats, listing reforms that are urgently needed but have no hope of political acceptance.

On the fiscal side, the proposed reforms include a cyclically-adjusted zero deficit target; limiting LPG consumption to 6-8 cylinders/year per family; replacing subsidised kerosene with solar lanterns and cookers; decontrolling petrol, diesel prices and fertiliser and sugar industries; freeing fertiliser prices and instead giving fertiliser subsidies directly to farmers; auctioning 3G spectrum; eliminating tax exemptions and moving towards a uniform duty structure that eliminates inverted duties; lifting the ban on agricultural futures; liberalising spot and future currency markets; auctioning rights to external commercial borrowings; phasing of FDI limits in banks and aligning voting rights with shareholding; allowing private sector entry into coal mining and nuclear power; creating a competitive electricity market by liberalising open access; raising FDI limits to 49% in insurance, and to 100% for companies providing every type of insurance; raising the FDI limit to 49% in defence industries; implementing police, judicial and administrative reforms; and amending labour laws to permit up to 12 hours work per day, including overtime.

That is a reforms agenda that, if taken seriously by the government, would send the Sensex soaring to 20,000.

Worst may be over, survey sees signs of revival, expects a recovery in second half


THE BOOSTERS

Rs 25,000 crore Target suggested by the survey for PSU disinvestment every year

Fiscal stimulus to the economy to continue

Credit markets functioning normally, no dearth of liquidity and benign inflation


High investment rate in recent years has boosted the productive capacity of the economy

Rs 28,000cr From auction of 3G spectrum if the govt accepts the survey suggestions

Robust rural economy to continue to drive growth

THE DAMPENERS

75% DEPENDENCE on imported crude. The survey sees any sharp increase in international crude prices as a major risk to the economy

SLOWDOWN in growth rate of capital formation; a possible current account surplus in 2009-10 means India will be a net exporter of capital

SHARP DIP in growth rate of private consumption

BUDGET WISH LIST

Return to FRBM targets for fiscal deficit at the earliest

Simplify direct tax regime with possible phaseout of surcharge, cesses and transactions taxes— STT, FBT & commodities transaction tax

Abolish dividend distribution tax (DDT), tax dividends in the hands of receiver

Rationalise Customs duties, move to a uniform duty to correct inverted structure

A road map for disinvestments with yearly targets

Reform fertiliser, petroleum and food subsidy regime

Road map for deregulation of oil sector

Sops such as cheaper credit for export sector

Plan for future FDI regime

Tax sops for purchase of commercial vehicles

Open up coal sector as it remains a bottleneck for accelerated development of power sector