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An impractical wish list

The Economic Survey for 2008-09 presented to Parliament ahead of the Union Budget has taken note of the deceleration in the GDP growth to 6.7 per cent last year. Though that is 2.1 percentage points lower than the average growth rate over the period 2003-04 to 2007-08, India’s growth rate compares favourably with the rest of the world in this downturn. Higher growth has raised expectations. Simultaneously, the government will have to counter the second round effects of the global economic shock through a judicious combination of tax cuts and increased spending. Such a mix would be critical for restoring growth and moving towards a stable regime of interest and exchange rates. Unlike the earlier stimulus packages that targeted specific sectors, the one in the budget will have to aim at long-term, more permanent gains. It would also be necessary to rein in the fiscal deficit. The fiscal deficit, which the interim budget projected to be 5.5 per cent of the GDP, has already exceeded one-fourth of that figure in the first two months of the year. While at the moment huge deficits are clearly the lesser evil, it will be necessary for the government to revert to fiscal consolidation by 2010-11.

The Survey has called for major tax reforms, an end to all cesses and surcharges on taxes, and free pricing of fertilizer. It has also favoured an aggressive disinvestment policy that has an ambitious annual revenue target of Rs.25,000 crore and seeks to list every public sector undertaking while enabling the chronic loss-making ones to be sold. Ironically, a day after the petrol and diesel prices were raised, the Survey has suggested that fuel prices be freed from government control. Many of these suggestions are impractical at this juncture. It will be difficult to countenance market pricing of petrol and diesel when international oil prices are on the rise again. Also, any attempt at disinvestment would run into trouble not just with the opposition but with sections of the United Progressive Alliance as well. Past experience supports the view that a more gradualist approach will yield better results. As a means to bridging the rural-urban divide, the Survey has asked the government to do away with annual licence fee and other charges on provision of broadband connectivity to the hinterlands. The recommendations may not be fully reflected in the budget. Yet, its survey of the macroeconomy and its analysis indicate the direction in which government policy would be moving. Some of its suggestions seem radical and it is unlikely that many of them will find immediate acceptance.

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