An agenda for the economy

THE ECONOMIC SURVEY of 2000-01 predicts a difficult time for the economy in the short-term but is optimistic that growth will accelerate in the medium-term on the basis of a surge in private investment that will take place if the many reforms it suggests are carried out. The solutions it offers for the economy's problems are not new. In recent weeks, much the same agenda has been presented in the report of the Prime Minister's Economic Advisory Council and earlier this week in the President's address to Parliament.

The short-term scenario that has been painted in this annual report is one of having to confront many challenges. A slow-down in agriculture, the persistence of negative business expectations, the uncertainty about the U.S. economy and the fall-out of the Gujarat quake together make for what the Survey describes in a very understated manner as ``some problems of growth''. Somewhat ominously, the current fiscal year is projected to end with a current account deficit that is 1.5 to 1.7 per cent of GDP, nearly double the gap in 1999-2000 and the highest since 1995-96. This indicates that the continued buoyancy in remittances and software exports has not been able to fully neutralise the effect of high oil prices on the trade deficit. If there was a great deal of (unwarranted) optimism on the eve of 2000-01, there is now a worry about how the economy will perform in 2001-02. The implicit message in short is that if GDP growth has declined moderately this year to 6 per cent, it could fall even lower next year. While all this is far removed from the 9 per cent target that the Prime Minister, Mr. Atal Behari Vajpayee, has laid down for the economy, in the Survey's opinion an even higher growth path can be charted in the medium-term. The steps that the report says have to be taken are many. Foremost among them is a lowering of the fiscal deficit which even if not exactly a radical prescription has been extremely difficult to achieve. The key measure in this respect is privatisation (which among other things is seen as a way to reduce the public debt) where the 2000-01 Survey goes much further than previous editions. With refreshing candour, the report also points to the decline in the tax-GDP ratio during the course of a decade of reform. But surprisingly there is a complacency about excise tax collections, which is where an indefensible deterioration has taken place in spite of a much-vaunted streamlining of procedures and administration. To compensate for this it now seems certain that the Government will soon expand the scope of taxation of the service sector. Even as downsizing of government has become a live issue on the reform agenda, an intriguing observation of the Survey is that contrary to public perceptions the problem of over-staffing is in the departmental public enterprises and not in government administration. Indeed, the report goes as far as to claim that downsizing government will not contribute much to fiscal saving.

A number of areas have been identified for major deregulation. Foremost among them are the retention price system in fertilizers and controls in the coal and sugar sectors. To what extent policy decisions on all these issues and more that have been listed - a substantial relaxation of labour legislation, dereservation of small-scale industry and a new bankruptcy law - will be announced in the Union Budget for 2001-02 is an open question. The only certainty must now be a reduction in the administered interest rates on pension and provident funds which has been talked about in many contexts in the recent weeks. After many years, the Survey at last acknowledges (albeit indirectly) that the Government's embarrassingly large food stocks should be put to use in guaranteed unskilled manual employment programmes. It is now up to the Government to find ways of putting close to 50 million tonnes of food to good use and not allow an accumulation of the interest costs of carrying these large stocks.

Send this article to Friends by E-Mail

Section  : Opinion
Next     : An elephantine challenge