Saturday, February 24, 2001,
Chandigarh, India


M A I N   N E W S

Economic outlook gloomy
Need for tough measures, says Survey
Tribune News Service

New Delhi, February 23
The government’s report card on the economic health of the country reveals that it is at a “difficult stage” and measures need to be taken to instill confidence in the economy.

The growth rate in 2000-01 is estimated to decline to 6 per cent from 6.4 per cent in the previous year and this is mainly due to the fall in the growth rate of the service sector from 9.6 per cent in 1999-2000 to 8.3 per cent in the current year.

In terms of growth of value addition, both the industry and agriculture and the allied sectors are expected to achieve higher growth rates than in the previous year.

The bad news is that the production of foodgrains is expected to decline to 199 million tonnes in 2000-01 from the record level of 208.9 million tonnes in the previous year due to the uneven spread of normal monsoon. This in turn is expected to lead to a decline in the overall agricultural output in the current year.

The advance estimates of the GDP indicate better performance by mining and quarrying, electricity, gas and water supply and construction. Among the services, trade, hotels, transport and communications are projected to have the same growth as the previous year while the financial, real estate and business services are expected to experience a lower growth.

The increasing oil prices have put pressure on the inflation rate, pushing it up to 8.2 per cent as on January 27 against a little over 6 per cent rate in September last year.

The government would find it difficult to bring in the targeted reduction in fiscal deficit from 5.5 per cent in 1999-2000 to 5.1 per cent of the GDP as there are shortfalls in indirect tax collections due to slowdown of industrial growth, the negative growth rate of non-oil imports and reduced duties on oil products. There is also a significant shortfall in the disinvestment process.

Export growth has been on the rise due to rupee depreciation and the level of foreign exchange reserves (including gold and SDR) reached the record level of $ 41.1 billion at the end of January, 2001. A tentative assessment of the Balance of Payment outlook for the current year indicates that the current account deficit may widen this fiscal due to the surge in India’s oil import bill and subdued non-oil import growth.

The Economic Survey presented in the Lok Sabha by the Finance Minister, Mr Yashwant Sinha, prescribes a host of possible solutions to tide over the economic difficulties. These include increased privatisation of production by getting the government out of the business, minimisation of wasteful expenditure and reallocation of funds to public goods, basic infrastructure and social welfare, modern management systems to curb the rising defence expenditure, slashing subsidies and reducing interest rates on pension and provident funds.

The Survey recommends that the retention price system in fertilisers be done away with as the fertiliser subsidy goes to the producers and coal and petroleum sectors be deregulated.

A number of other reform measures need to be taken for ensuring that the profitability of farming is enhanced. There is need for comprehensive decontrol of production, storage, transport trade and processing of agricultural goods and the inputs used in agriculture.

Calling for comprehensive reforms in the food economy, the Survey calls for a change in the monopoly role of the Food Corporation of India and in the administration of the public distribution system. Cooperatives and user groups should be allowed to run the irrigation system so that it is properly maintained and regulated for the benefit of all farmers.

A new path for downsizing the government has been recommended. The Survey says the bloated size of departmental public enterprises like the Railways contribute to the government staff in budget documents and they should be converted into companies, which are owned by the people by equity participation. An independent regulatory authority would have to be simultaneously set up to cover natural monopoly segments like the rail track network.

Once the departmental public enterprises are hived off as separate companies, downsizing of the government administration per se would not result in much fiscal saving. In this case, downsizing should be aimed at removing bureaucratic controls and, accordingly, all employee positions of this nature must be identified and eliminated.

Supporting the direct tax reform strategy of reducing rates, broadening the tax base and modernising tax administration, the Survey says that the decline in indirect taxes, by rationalisation of the excise system, and customs, can be offset by introducing a comprehensive service tax regime combined with an efficient CENVAT.

It has pointed out that India’s basic (protective) customs duty rates were still among the highest in the world and there was broad agreement on the need for reducing them to Asian levels.

On the interest paid by the government on pension and provident funds, the Survey says the administered interest rates must take account of the inflation rates, the effective term of the deposits and available tax exemptions. The interest rates paid on small savings instruments must be benchmarked against equivalent market instruments.

A large dose of domestic reforms have also been recommended, including restructuring of industry, removal of any remaining investment controls and provisions for progressive improvement in infrastructure services.

Pointing to poor fiscal deficit situation in the states, the Survey calls for harnessing private and cooperative efforts for filling the growing gaps in government provision for the social sector.



* Real GDP growth estimated at 6 per cent

* Foodgrain production falls to 199 million tonnes

* Oil prices push up inflation to 8.2 per cent

* Fiscal deficit target of 5.1 per cent unlikely to be met

* Export growth on the rise

* Forex reserves touch $ 41.1 billion

* Comprehensive reforms in food economy

* Hiving off Departmental Public Enterprises like Railways into companies suggested

* Comprehensive Service Tax regime recommended

* Reduction in interest rates on pension and PFBack

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