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Unleash Reforms: Economic Survey

The Economic Survey, unveiled in Parliament today, is calling for major reforms to be initiated

In what can be termed as a curtain raiser to the much awaited Union Budget 2009-10, which is going to be tabled four days from now, the government today reiterated its proclivity for financial reforms and disinvestment plans and, in a major opposite motion, indicated its resolve to end the subsidy regime to pump-up economic growth in India.

All of this, and more, was unveiled by the government when it tabled the Economic Survey 2008-09 in the Parliament and, in a way, Finance Minister Pranab Mukherjee may well have given a peek into some aspects of the forthcoming Budget.

India can return to its high-growth era, marked by over 8 per cent growth rate, provided the country introduces in-depth reforms that includes ending fuel subsidies and speeding-up infrastructure development, which will go a long way in unleashing its true economic potential, says the Survey.

The Survey said: "India can be back on the 8.5 to 9 per cent per annum growth path provided critical policy and institutional bottlenecks are removed."

It also highlighted that concerns on inflation were not founded on facts, but the country should return to the targeted fiscal deficit of 3 per cent – it is above 6 per cent now as a result of increased government spending including the unveiling of stimulus packages to fightback the effects of the global financial crisis.

The Survey is prepared by the Finance Ministry and is an enumeration of the state of the Indian economy.

The Survey wanted the government to unveil a new stimulus package that would include more tax cutting measures as well as a hike in government expenditure to help the economy recover from the global meltdown.

The Survey brought forth various salient points, which included coming out with various reforms in the financial sector as well as on petrol pricing and also underlined its intent to do away with all cesses and surcharges that included the Fringe Benefit Tax (FBT), education cess and others.

It also emphasised the need to introduce a new income tax code.

The Survey acts like a report card of the economy for the year that has gone by and also makes important suggestions to the government, in other words maps the road for the future.

On disinvestments, according to the survey, the target is a minimum of Rs 25,000 crore every year. This is in addition to another point which the survey stresses that all the Public Sector Enterprise should be listed and those that are beyond revival should be auctioned.

The survey has recommended free pricing of fertilizer and fuels. The Survey recommended the phasing out of surcharges, cesses and transaction taxes, which includes Commodities Transaction Tax (CTT), Securities Transaction Tax (STT) and Fringe Benefit Tax (FBT), and lifting of all restrictions on farm trade.

A very attractive door may well have opened for corporates if the Survey’s suggestions are taken into consideration on ending state monopoly in areas like railways, coal and nuclear power. On the other hand, in sectors like defence and insurance, around 49 per cent of Foreign Direct Investment (FDI) is being sought by the report.

The survey has also come out with pointers on areas like FDI in multi-brand retailing, which are considered to be sensitive as it has merely recommended foreign investment in areas like food to start off with. Surprising as it may sound, while the government raised the prices of petrol and diesel by Rs 4 and Rs 2 respectively just a day before, the survey pointed out that fuel prices should be freed from the latter’s control. However, the government’s step in raising fuel prices recently may just be a harbinger of removing controls and ushering in deregulation.

As far as the international scene impacting Indian economy was concerned, the report had a unique take. It indicated that, anyone who thought the Indian economy was going to get floored due to the global meltdown was wrong. It said that the Indian economy has shock-absorbers which will help in facilitating an early revival in growth.

Despite the Economic Survey giving a positive glimpse on government action as well as outlook on the economy, yet the stock markets were not enthused much, perhaps, preferring to get solid news directly from the horse's mouth when the Budget is unveiled -- Sensex was down by 22 points and Nifty was down by almost 2 points.

Highlights of the Economic Survey (2008-09):

  • GST ought to be implemented from April 1, 2010
  • Households should get only 6-8 cylinders per annum per to reign-in LPG subsidy
  • Unveil a new Income Tax Code that is quite neutral on corporate tax
  • Economic growth achievable in 2009-10 put at 7-7.5%
  • Dividend Distribution Tax must be rationalised
  • Growth in agriculture fell to 1.6 per cent in 2008-09 from 4.9 per cent in previous year
  • 3G spectrum must get auctioned
  • Govt monopolies in coal, railways, and nuclear energy must end
  • Asks for more fiscal stimulus
  • Petrol and diesel prices must be decontrolled
  • Let loose reforms by getting rid of cesses, surcharges and commodities transaction tax, securities transaction tax and Fringe Benefit Tax
  • Remove bans on future contracts to restore price discovery and decontrol fertiliser and sugar sectors
  • FDI in defence and insurance should be hiked to 49%
  • Generate Rs 25,000 crore annually through disinvestment; PSUs must be listed on stock markets and those that can't be revived must be auctioned
  • Growth in imports was 14.3 per cent at $287.75 bn
  • In 2008-09 the fiscal deficit jumped from 2.7 per cent in 2007-08 to 6 per cent
  • Growth in exports was 3.4 per cent at $168 billion in 2008-09
  • Unlisted PSUs must get listed and some 10 per cent equity must be sold to public
  • The balance of trade deteriorated to $119.05 bn from $88.52 bn
  • Profit-making non-'Navratna' PSUs equity (5-10%) should be sold
  • Indicates it would be difficult to spend $500 bn on infrastructure
  • Suggests Zero fiscal deficit target
  • Wants to introduce food coupons for poor people
  • Give entry to foreign players in higher education
  • Equity market volatility at record high in 2008
  • 4.5 cr households benefitted from NREGS in 2008-09
  • In four months India lost 6 lakh jobs
  • Recommends tax cuts as part of a stimulus package