Faster economic growth calls for bold initiatives
|
There should be no bottlenecks while accessing financial resources
|
Foreign interests and entrepreneurs in the private sector should be encouraged to participate actively in the mega projects proposed in various sectors.
A VIBRANT industrial sector, a fairly high level of exports, sustained boom in the services sectors and a significant increase in the incomes of middle income groups have enabled the Union Finance Minister to formulate his budget proposals for 2007-08 from a comfortable position.
The buoyancy in tax revenues has been due mainly to profitable functioning of the corporate sector and larger receipts from income tax and customs duties. The tax effort was helped by a 9 per cent growth in the gross domestic product in the current year against the earlier estimate of 8.5 per cent.
Sound Central finances
There has been a record collection of tax revenues in the revised estimates for the current financial year, in spite of lower than budgeted excise revenues. With this comfortable position, it has been possible for the different ministries to increase non-plan and plan revenue expenditure. The burden of subsidies is heavier even though the public sector enterprises in the oil sector bear a good portion of the oil subsidy.
As a further rise in GDP by 9.2 per cent is expected in 2007-08 with all the segments of the economy, including agriculture, likely to fare better, the budget estimates for next year in respect of tax revenues have been framed liberally.
The revenue and capital expenditure will thus be increasing sizably as the objectives of the National Common Minimum Programme (NCMP) will be vigorously pursued.
The Finance Minister, however, has missed the opportunity for sustaining buoyancy in the secondary and primary markets and encouraging a larger inflow of non-debt external receipts on capital account.
There is disappointment over the hike in the tax on distributed profits, extension of minimum alternative tax (MAT) to software companies and enlargement of the list of services liable to service tax. The budgetary position will remain comfortable though net market borrowing, which will be larger next year, will have to be on a costlier basis.
Gross tax revenues will be rising to Rs. 5,48,122 crore from Rs. 4,67,848 crore (revised) and net tax revenues to Rs. 4,03,872 crore from Rs. 3,45,971 crore (revised). Even with higher non-plan revenue expenditure of Rs. 3,83,546 crore against Rs. 3,62,183 crore and plan revenue expenditure of Rs. 1,74,354 crore against Rs. 1,44,584 crore, the revenue deficit will be declining to Rs. 71,478 crore from Rs. 83,436 crore(revised), working out to 1.5 per cent against 2.0 per cent of GDP.
Again, despite an increase in capital expenditure, the fiscal deficit will be lower at Rs.1, 50, 948 crore against Rs.1, 52, 328 crore, working out to 3.3 per cent against 3.7 per cent of GDP. However, the comfortable Central finances will only go to increase outlays on social services, agricultural sector and other areas under the NCMP.
Implementation of the imaginative Eleventh Plan schemes will call for active public-private partnership and a big increase in the aggregate pool of forex and rupee resources.
In this complex situation, it is important that foreign interests and entrepreneurs in the private sector should be encouraged to participate actively in mega projects in the power, transport and other sectors. Towards this end, suitable reform measures should be adopted simultaneously for augmenting the pool of resources, as stated above.
There should, however, be no bottleneck in accessing financial resources as the banking system is getting soaked and the boom in the bourses has not been sustained latterly. If the economy is not to get overheated in many directions, commercial banks and financial institutions should be enabled to meet the needs of all classes of borrowers. In fact, the Deputy Chairman of the Planning Commission has expressed his concern over the overheating of the economy.
The emerging squeeze in the money market will be evident from the record inter-bank call rate of 100 per cent at one stage last week. The abnormal conditions of the money market have been overcome to some extent with the Reserve Bank buying U.S. dollars. The call rate however came down to around 10 per cent on Friday. This situation has arisen because 85.63 per cent of incremental deposits in the current financial year up to March 2 has been utilised for expanding credit, while fresh investments accounted for only 18.55 per cent, implying that the statutory liquidity ratio (SLR) of 25 per cent could be observed only by using the earlier excess investments in government and approved securities.
The credit:deposit ratio has risen further to 74.07 per cent in the 12 months ended March 2, 2007 from 71.20 per cent and 63 per cent comparably in the two previous years. On the other hand, the investment:deposit ratio has dipped further to 32.17 per cent from 35.54 and 43.66 per cent correspondingly. Because of the gradual disappearance of liquidity in the banking system, there is a scramble from banks to secure funds by jacking up deposit rates. With costlier deposits, lending rates too may have to be raised.
While various ministries are busy trying to avoid a further rise in inflation caused mainly by shortage of several primary products, the urgency of providing incentives for boosting saving and investment should not be overlooked.
However, the outlook for the economy is considered attractive by foreign interests. This has given rise to expectations that there can even be a double-digit growth in GDP if agriculture also can be helped to increase its output by 4 per cent yearly from the present average of less than 2 per cent.
High forex reserves
As successful bilateral agreements have also been concluded with major countries and the nuclear deal with the U.S. too is likely to be implemented earnestly, forex reserves have been rising steadily and they stood at $194.41 billion on March 9 against $ 151.62 billion at the end of March 2006.
The additions to reserves this year up to March 9 were as much as $ 42.79 billion against a bare $ 2.41 billion a year ago. Foreign direct investment also will be setting a new record at over $13 billion.
With world oil prices on the downtrend and exporters keen to repatriate retained earnings, the external parity of the rupee vis-à-vis the U.S. dollar has improved dramatically to around 43.63 to a dollar from 45.31 six months ago. As all underlying factors are favourable, the planners and the UPA Government should act with imagination and ease bottlenecks wherever they exist and aid faster economic growth.
P. A. SESHAN
Printer friendly
page
Send this article to Friends by
E-Mail
Business
