NEW DELHI: Upbeat over the 9.1 per cent overall growth in the first half of the current fiscal, the Central Government on Tuesday sought to allay fears about the likely overheating of the Indian economy, while noting that maintaining macroeconomic stability was the key to investment promotion and further growth.

According to the Mid-year Review 2006-07 — the second quarterly review for the fiscal as mandated by the FRBM Act — presented in Parliament, the economy witnessed a robust GDP (gross domestic product) growth of 9.1 per cent during April-September.

Contributing majorly to this impressive show were two sectors in particular — industry which grew by a healthy 10.9 per cent and services that witnessed yet another increase of 10.7 per cent.

In an effort to set at rest the debate whether the economy was getting overheated, the review, carried out by the Economic Division in the Finance Ministry, has pointed out that although the combination of high economic growth and slow creeping up of inflation in manufactured products has generated concern over the issue, there was no cause for alarm with regard to crucial parameters.

At the same time, the review is in agreement that there was indeed the need for continuous caution in maintaining macroeconomic stability to support the pick-up in investment and growth on an enduring basis.

"This is particularly so in the current conjuncture with large global macroeconomic imbalances and uncertainty in currency markets,'' it said.

Noting that a durable solution to the problem of price rise has to be found in increasing yields and the domestic output of such products (wheat and pulses), the review has said that simultaneously, "the macroeconomic policy response has to be prospective rather than retrospective... If investment continues to be buoyant and efficiency improves, the problem of overheating may turn out to be less real and more imaginary.'' On the reforms front, the review has reiterated the need for legislation of labour laws and regulatory framework in various sectors, particularly mining.

"A review of the flexibility or lack thereof in the current labour legislations,'' it said, was essential while pointing out that regulatory reforms of the mining sector still remained an unfinished agenda.

Commenting on the dismal performance of the farm sector, having witnessed a mere 2.6 per cent growth this fiscal, the review concludes that the minimum support price (MSP) mechanism has not delivered the desired results and failed to discover the market price.

"There is a need for a clear separation of price support to farmers and procurement by the states, on the one hand, and subsidy to the poor citizens on the other,'' it said.

On the issue of subsidies, the review said that the payment often "failed to reach the beneficiaries due to poor delivery. The issue of subsidies and how they are delivered should be revisited." In this regard, it noted some of the international best practices for delivery of subsidy such as food stamps and smart cards.

Dubbing the weak infrastructure as the "Achilles heel'' in an otherwise robust economy, the review suggested rapid steps on the "user pays'' principle to promote greater investment. Turning to the plethora of tax exemptions and concessions, the review said that these distorted resource allocation and stunted productivity. The exemptions should be subject to a sunset clause, it said.

As for the financial situation, the review said the Government was confident of endomg its finances in the current financial year in conformity with the FRBM targets.

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