Reforms must go full steam: Survey

By Our Special Correspondent

NEW DELHI, FEB. 23. The 2000-2001 Economic Survey presented to Parliament today by the Finance Minister, Mr. Yashwant Sinha, called for ``full-steam ahead'' reforms including total privatisation of the public sector, reduction in interest on small savings, pension and provident funds, deregulation of the coal, petroleum and sugar industries, disbanding of the retention price system for fertilizers and ending the monopoly role of the Food Corporation of India.

The Survey is an elaboration of the note put up earlier by the Finance Ministry to the Prime Minister's Office on the likely route of future reforms. Hence, there are suggestions that the Departmental Public Enterprises be converted into companies and be subjected to market incentives and competitive pressures, that the service tax net be widened to cover more items, that a modern bankruptcy law be incorporated to facilitate closure of sick industries and a modern contract labour law be enacted to provide flexibility in the labour market.

Other recommendations are for scrapping the Rent Control Acts by the States, complete dereservation of the small- scale sector to make it more competitive and the creation of a special task force to push power sector reforms with the State Governments.

Practically pin-pointing the high fiscal deficit of the Centre and the States as the one major factor responsible for the ills of the economy, the Survey tailored most of its recommendations towards reducing this deficit. ``The key problem affecting the economy is the persistence of high fiscal deficit... and this has reflected itself in an increasing share of debt services in the expenditure budgets of both the Centre and the States. Consequently, the Government's ability at any level to undertake significant public investment has been seriously eroded, and this has led to a decline in demand for Indian industrial goods. The lack of public investment has also slowed down private investment in infrastructure and the continued high borrowing, as a result of the high fiscal deficit, has also kept real interest rates high. Thus, the industry faces interest rates of 8 to 10 per cent, which would be among the highest in the world.''

The administered interest rates on pension and provident funds must take into account inflation rates, the effective term of deposits and available tax exemptions. ``This will ensure that the after-tax real rate of interest paid on these borrowings reflects the market rates and is consistent with the overall demand and supply conditions in the debt market. The interest rates paid on small savings instruments must be benchmarked against equivalent market instruments.''

On the public sector, the Survey says, ``privatisation will allow the Government's capital expenditure to be allocated to public goods and basic infrastructure that is not commercially viable. A significant portion of Central capital expenditure could be reallocated this way, of all public sector units producing private goods are sold to the public. The funds received from privatisation would also help in reducing public debt incurred for setting up these units and will put the debt- GDP ratio on a sustainable path.''

`Reduce subsidies'

Significantly, the Survey has slightly altered the privatisation proposal by suggesting that the public sector units be sold to the general public and not necessarily to strategic partners as is being tried now. The move has attracted strong opposition from political parties. ``The identification of public sector with state monopoly needs to be replaced by a public sector that is owned by the people/public. Shares of these companies would be eventually sold to the public while retaining majority only in companies producing major defence systems.''

On subsidies, the prescription is the familiar one that there is a need to reduce subsidies, target remaining subsidies on the poor and search for more efficient mechanisms for protecting the poor. Food subsidies could be either channeled into guaranteed unskilled manual employment that is self- selecting or into food or income supplement system for the poor, using the latest smart card technology, including its inputs.

On fertilizer subsidy, the Survey said the retention price system was one of the most anachronistic and should be disbanded. On the other hand, to minimise the effect on farmers, the prices of fertilizer and natural gas should be at par with international prices, through appropriate customs and excise duties, the Survey said adding that as the current price to farmers was close to the landed cost of urea, this was the appropriate time for aggressive action in this direction.

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