High on hope & reforms

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 FDI inflow 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 reform, 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 that 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, and fertiliser and sugar industries; freeing fertiliser prices and instead giving fertiliser subsidies directly to farmers; auctioning 3G spectrum; eliminating tax exemptions and moving toward 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 in 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 reform agenda which, if taken seriously by the government, would send the Sensex soaring to 20,000. In fact, the Sensex shot up only briefly, and then ended flat, after marketmen realised that the survey had produced no more than a technocratic wishlist, not to be mistaken for a blueprint for action.

The survey spells out in detail what the government has done — and will continue to do — for the aam aadmi. Agricultural credit went up by 23%, and industrial credit by 21.6% in 2008-09. Bharat Nirman, the rural infrastructure programme, has been provided Rs 40,900 crore in the Interim Budget 2009-10, against Rs 31,280 crore the previous year.

More than 4.47 crore households were provided work under the National Rural Employment Guarantee Act in 2008-09, up from 3.39 crore the previous year. Of the 215 crore person-days of work created, 29% and 25% went to scheduled castes and tribes, respectively.

The food subsidy shot up 40% to Rs 43,668 crore in 2008-09, and will presumably rise still higher once the Food Security Act is enacted and implemented. The survey expresses apprehensions of a poor global agricultural harvest this year, which may send global prices up and put pressure on food security. This implies that the government may be cautious in permitting food exports.

The share of social services in the central government spending has risen from 11.23% in 2002-03 to 19.4%. The National Rural Health Mission has created a massive cadre of 6.5 lakh accredited social health activists. Eight crore farmers have been given kisan cards. The government provided Rs 25,000 crore for the farm loan waiver last year, and will provide most of the balance this year. It will also provide most of the balance of the Pay Commission arrears to employees.

What do you think?