The Hindu Business Line : Cut deficit, lift growth: Survey

THE Economic Survey for 2001-02 has suggested policy initiatives and deepening of reforms in agriculture, industry and infrastructure to unleash competitive forces and stimulate economic growth.

The survey, tabled in the Lok Sabha by the Finance Minister, Mr Yashwant Sinha, today admitted of "many challenges to the sustenance of high economic growth in the years to come''.

Real GDP growth this fiscal is estimated at 5.4 per cent compared with 4 per cent in 2000-01 and 6.1 per cent in 1999-2000.

Stating that the momentum achieved in the 1990s must not be lost, it said the efforts made to curtail expenditure and increase revenues notwithstanding, it had proved difficult to reduce the fiscal deficit below 5 per cent of GDP.

The combined fiscal deficit of the Central and State Governments amounted to 9.6 per cent of GDP in 2000-01, causing the combined public debt of the Government to reach 85 per cent of GDP in 2001.

The key reason for the "stubbornness" of the fiscal deficit is the indirect effect on the exchequer of the levy of inadequate user charges for most public services at both the Central and State levels.

It said the levy of appropriate user charges on most services was essential for restoring fiscal health.

The problem of fiscal deficit had to be addressed both on the revenue side and the expenditure side.

Decrying the popular tendency to focus excessively on expenditure reduction, it said this had proved difficult with the rigidity in the structure of Government expenditure, the main components of which included interest payments, subsidies and pensions.

The fall in inflation unaccompanied by a compensating fall in nominal interest rate had also subjected the Government to higher real interest rates along with the rest of the economy.

Since the problem of high administered real interest rate remained despite the cut of 1.5 per cent in the last Budget, "making contractual savings subject to market-related interest rates is essential for containing the interest payments of the Government, as also for reducing interest rates for the economy," it argued.

Revenue enhancement now rested more with enforcing compliance in direct taxes and with extending the service tax.

"To augment tax-GDP ratio it is essential to move away from selective approach to a comprehensive approach in the domain of service taxation," it noted.

Deprecating the erosion of capital expenditure, it said that it was being crowded out in both Central and State Government Budgets.

This needed to be restored by budgetary allocation and higher internal and extra budgetary funding. Such expenditure would have to be in growth-augmenting infrastructure sectors.

Government investment and reforms should focus on leveraging private sector participation in these sectors rather than for furthering the objective of ownership. The composition of revenue expenditure had to shift to social sectors such as education and health.

Subsidies continued to be a problem area in the expenditure pattern of the Centre and there was a need to reform the extant food management system in a direction that would ensure food security on the one hand, and more efficiency and greater investment of private trade on the other.

Simpler systems like food stamps or their variants could be tried, it said. The thrust of farm policy must shift to accelerating the growth of non-cereal food products.

Alongside, accelerated implementation of fertiliser price reform was essential to reduce fertiliser subsidy to sustainable levels and also make the subsidy better targeted and more transparent.

On industry, it underlined the need to provide for stable and predictable tax policies and proactive restructuring policy, which would also address the issue of corporate debt restructuring.

It said the time was also now ripe for carrying forward further financial sector reforms so that the real economy could benefit from a modernised financial sector that exhibited high productivity levels, greater diversification and provided a variety of instruments that served more efficiently the emerging needs of the economy and the real sector for investment and production.

On capital account liberalisation, the survey called for following "a calibrated approach" which should help India to grow in a milieu of "viable BOP, reasonably stable exchange rate, a sustainable external debt profile and an external sector with durable strength and vigour".

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