Friday, February 28, 2003, Chandigarh, India

National Capital Region--Delhi


M A I N   N E W S

GDP growth pegged lower at 4.4 pc
Tax reforms key to economic growth: Survey
Gaurav Choudhury
Tribune News Service

New Delhi, February 27
The prolonged dry spell and the expansive drought conditions last year appears to have had a serious impact on the country’s economic prospects, with the government downgrading the GDP growth projections during 2002-03 to 4.4 per cent, but pinning its hopes on services and industry to perk up the economy.

The pre-Budget Economic Survey, presented by Union Finance Minister Jaswant Singh to Parliament today, identified the three areas of infrastructure, tax and regulatory reforms, and fiscal consolidation as the main contours of the country’s economic growth policy.

At the same time, the Survey exuded confidence that the hovering war clouds in the Gulf region did not pose a serious threat to the growth prospects of the economy.

In an oblique endorsement of the Kelkar panel’s recommendations on tax reforms, the Survey said the suggestions were aimed at toning up tax administration to put in place a system that was “simple, effective and on a par, if not better than international standards” and would result in improved tax collections.

The monsoon failure last year affected agriculture severely, with agriculture and allied GDP declining by 3.1 per cent. The overall GDP growth in the current year is likely to be only 4.4 per cent, and the deceleration is primarily induced by adverse performances in the rural economy.

The economic report card of the Vajpayee government is punctuated with strong words on fiscal consolidation by pruning subsidies and plugging revenue deficit. It comes out strongly in favour of freer movement of capital through a more liberalised capital account.

On fiscal consolidation, the Survey lays down a two-pronged strategy of augmenting revenue and restraining expenditure.

“An efficient, computerised, and impersonal tax system is critical for increasing the tax-GDP ratio. In non-tax revenue, there is a clear need for better cost recovery through appropriate user charges”, it says.

The Survey, which has over the years come to be seen as an indicative document for the general Budget, makes more than a cursory mention on the politically sensitive issues of levying user charges on public utilities, reigning in the burgeoning subsidy account and containing the runaway government wages and salaries bill.

“Any successful expenditure rationalisation and reprioritisation programme must address the issue of subsidies through rationalisation of the prices of food, LPG and kerosene. There is a need to look into the whole issue of federal fiscal transfers, including the role of the plans, gross budgetary support for the plans and why plan expenditure affects the path of fiscal deficit and debt adversely”, it said.

The main focus of reforms in the area of direct and indirect taxes so far had been on the rationalisation of tax rates. The existence of a fairly large unorganised sector, exemptions and evasions had affected buoyancy of tax collections, the Survey said.

The fiscal deficit as a proportion of the GDP has gone up from 4.1 per cent in 1996-97 to 5.9 per cent in 2001-02 for the Central Government, and the combined fiscal deficit of the Centre and states have gone up from 9.5 per cent in 1999-2000 to 10.0 per cent in 2001-02.

The growth envisaged in the Tenth Five Year Plan (2002-07) requires an average annual investment of 28.4 per cent of the GDP involving acceleration in the investment rate from 24.4 per cent of the GDP in 2001-02 to 32.3 per cent of the GDP in the terminal year of the plan (2007).

“Without fiscal consolidation, it would not be possible to achieve any improvement in the current levels of public investment”, the Survey said.

Apart from large food stocks held in the central pool, the huge volume of foreign exchange ($ 73 billion) held by the country provide comfort in an uncertain global situation.

However, a prolonged conflict in West Asia is likely to affect the export prospects of several developing economies in Asia, due to their heavy dependence on the US economy.

While underlining the imperative need to stabilise the population explosion, the Survey called for imparting greater dynamism to poverty alleviation programmes and observed that the number of poor people in the country had significantly declined to 260 million compared to 320 million in 1999-2000. Further, the Survey noted that the proportion of poor in rural areas declined from 56.4 per cent in 1973-74 to 27.1 per cent and that in urban areas from 49 per cent to 23.6 per cent in 1999-2000.




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