Survey sees 7% growth, urges radical reforms
New Delhi, July 2
The speed at which the country’s economy would return to a high growth trajectory in the short term also depends on a revival of the global economy, particularly the US economy, the survey said. India should be back on the path of 8.5% to 9% growth per annum provided policy and institutional bottlenecks are removed, it added.
The survey, prepared by the finance ministry, also said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3%. The deficit grew to 6.2% in 2008-09 as the government unleashed stimulus spending to insulate the economy against the global meltdown.
The survey also called for offloading equity in public sector undertakings, reform of fertilizer and food subsidies and auction of third-generation cellular phone spectrum.
The survey said the government should take advantage of the recent low price in oil costs to deregulate petrol and diesel prices. It also urged it improve the investment climate including hiking the foreign investment cap in insurance to 49% from 26%. FDI in multibrand retail should be allowed, starting with food retailing, and price controls on sugar and fertilizers should be removed, the survey noted.
MANUFACTURING: The survey said the size of the Indian market and the unmet demand for industrial products provides reasonable hope that demand would not be a constraining factor. There is also a reasonable consensus that given the market situation, industry is unlikely to face a price deflation, it said.
It said manufacturing posted 2.4% growth in the last fiscal against 8.5% in the year-ago period. The pace of slowdown accelerated in the second half of 2008-09 with the sudden worsening of the global financial markets and a bleak economic outlook, it said.
With jobs getting lost by the thousands as a fallout of the downturn, the survey asked the government to review labour laws for pushing growth in employee-intensive sectors.
EXPORTS: The government should slash customs duties, streamline export promotion schemes and pay special attention to infrastructure to overcome the contracting exports on account of the ongoing recession faced by India’s major trading partners, the survey said.
Besides short-term relief measures and stimulus packages, some fundamental policy changes are also needed for the merchandise trade sector, it added.
The survey called for “weeding out unnecessary customs duty exemptions” and rationalising the tax structure, including specific duties, in a calibrated manner, taking into account the specific duty levels prevailing in the trading partner countries.
FISCAL DEFICIT: The government should also assess the possibility of entirely eliminating fiscal deficit, but with flexibility that it could be widened at a time of economic slowdown, the survey suggested. It urged the government to review the possibility of zero fiscal deficit as part of FRBM (fiscal responsibility and budget Management) II.
TAX STRUCTURE: Noting the country’s tax system continues to be complex, the survey asked the government to undertake further reforms including implementation of a uniform tax structure. It said the introduction of a goods and services tax (GST) would be opportune for deepening the reforms process already underway. GST is scheduled to be implemented from April 1, 2010.
Commenting on the survey’s proposals, FICCI president Harsh Pati Singhania said given the wide ranging reforms recommended in the survey, industry expects a strongly reformist budget.
PHDCCI president Satish Bagrodia said he wholeheartedly supports the agenda proposed by the survey to lift the economy from the slowdown brought on by global economic turmoil. “It’s gratifying to note the survey has given high priority to revisiting the reforms agenda as well as improving the investment climate to renew the growth momentum”.
Federation of Indian Export Organisations (FIEO) president A Sakthivel said measures such as higher subvention of interest, higher duty drawback rates and DEPB, increased funds for the technology upgradation fund for the textiles sector should be considered for reviving exports by medium and small units.