The Hindu Business Line : Little of promise

HAD INDEED THE ruling class in New Delhi any real passion in pursuing economic reforms, by now Economic Surveys, presented ahead of Union Budgets, should have turned redundant. That unfortunately is not the case. Piously reformist Economic Surveys continue to be presented, with the Union Budgets blithely ignoring the homilies. The script-writers in New Delhi believe the Indian economy will do well in 2004-05 and favour "vigorous reforms" to keep up the current buoyancy in investment for getting at a 7-8 per cent growth over a decade and more. The investment rate has spurted in the last two years but is still below that in China (India's borrowed new alter ego) and even lower than that assumed by the Tenth Plan to manage and usher in a market economy.

Due obeisance has been paid to fiscal deficit and the Fiscal Responsibility and Budget Management Act, and the Survey hopes State governments will eliminate revenue deficit by 2008-09 and trim fiscal deficit to 3 per cent of State domestic product. Most State governments are living on unhonoured loans. Not many have shown concern for raising fund flows into agriculture or infrastructure; in fact, there is a strong divide with the northern States lagging too far behind their southern counterparts and pulling down the growth rate. A strong case has been made for Value Added Tax even as traders across the country oppose it. Lower import duties have helped the "competitiveness" of the economy though the Centre would like to be compensated for revenue loss, which is strange indeed as higher imports should do the trick. The Survey writers' black humour slips out in their plea for "a hassle-free tax regime with a low compliance cost for the honest tax payer and a high risk for the evader." It can be safely argued that the tax administration — income-tax, sales tax and others — has long gone past the stage of a social corrective to become a punitive burden on the taxed public.

The Survey has yet again stumbled on the ancient fact of low investments in agriculture and allied activities, which contribute only 21 per cent of GDP but maintain nearly 60 per cent of the population. Farm activity needs to diversify with public and private funds enhancing post-harvest facilities to improve "the link between agriculture and rural industrialisation". The rural credit delivery system is in a mess, making it hard for funds to flow into farming communities, and public sector banks, which have qualitatively a better reach, are not keen being pushed into it by the government. There is a strong take on the entry and exit barriers affecting industry though in Mumbai most textile mills have shut down despite them. "In China, the average time taken to secure the necessary clearances for a start up, or to complete a bankruptcy procedure is much shorter than in India," contends the Survey. Business start-ups need a large number of clearances and small-scale reservations have not gone. The economy can don a healthy, human hue only if the Government gets on with the reforms that successive Economic Surveys have unsuccessfully argued for.

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