The Hindu Business Line : Undeterred by inflation, Survey plumps for high growth

Even as the creeping inflation has evoked concerns among the allies of the ruling United Progressive Alliance as also the Government headed by the Prime Minister, Dr Manmohan Singh, the pre-Budget Economic Survey, presented to Parliament on Tuesday, has plumped for high growth but with an inclusive approach to social sector development.

Survey 2006-07 departs from the customary exhortations of the document for completing the unfinished reform agenda. However, it unequivocally contends that fostering the momentum of growth continues to be "a top priority and there is no scope for uneasiness or nervousness about high growth". Its high growth fixation, the Survey explains by saying that the East Asian `miracle' of the latter half of the last century has been followed by even more rapid growth in China in recent times.

Flexible Policies

Making a case for the sustainability of high growth with moderate inflation, the Survey states the need to avoid the misconception that inclusiveness, by necessity, will have to be low growth.

It rightly contends that the accelerating growth and the demographic dividend would continue to boost savings and investments, but policies need to be designed in a flexible way to augment investments in the economy to lay a robust base for growth.

The Survey asserts that the sustainability of such growth will depend on carefully calibrating policies to taming inflation without dampening growth: Formulating supply-side measures, particularly in agriculture; better designing and more effectively delivering social services to render growth more inclusive; and giving fresh impetus to infrastructure.

The Survey takes due note of the "recent spurt of activity in food processing and integration of the supply chain from the farm gate to the consumer's plate has the potential of redressing some of the root causes such as low investment, poor quality seeds and little post-harvest processing."

Fiscal profligacy

Even as there is need for investment, public and private as also domestic and foreign, the Survey counsels resisting the temptation of fiscal profligacy in the anxiety to augment public investment.

It underscores the need to improve the effectiveness of government intervention in the critical areas especially the social sector such as education, health and support to the needy.

"Value for every tax rupee spent has to be ensured by emphasising the outcomes and avoiding any wastage or leakages in the delivery mechanism. Appropriate design for programmes and placing effective monitors over the programmes are critical in this regard."

In a refreshingly innovative move to ram home the point that every thing has a price and there is no free meal, the Survey draws a comparison of two alternative schemes to generate self-employment opportunities among the rural poor — the Prime Minister's Rozgar Yojana (PMRY) and the Self-Help Group-Bank linkage — to highlight the significance of programme design.

Whereas the recovery under the PMRY has been around 35 per cent in the three years ending 2005, with the programme of linking SHGs of the rural poor with the banking system the recovery rates are close to 90 per cent; uniquely, the programme is also zero subsidy.

A loan programme with poor recovery cannot be sustained, the Survey says, leaving the conclusions unsaid.

Even as subsidies are important fiscal policy tools to correct market failure, the Survey pitches for effecting tangible progress for cost-effective income transfers to the truly needy.

Takes on Plan panel

The Survey hits the nail on the head when it states that the experience of the past few years has clearly demonstrated the benefits of fiscal prudence along the Fiscal Responsibility and Budget Management Act (FRBMA) lines. The authors of the Survey have taken issue with the Planning Commission's Approach Paper to the Eleventh Plan which states that "meeting the fiscal deficit targets would limit the scope for increasing Plan expenditure in the first two years unless the reduction in non-Plan expenditure could be significantly front-loaded."

The Survey urges the Plan panel to take "a more long-term view of the implications of FRBMA than a myopic one of how it constrains liabilities and hence Gross Budgetary Support (GBS) in the short-run."

The Survey points out that liabilities, augmented by debt and the interest burden thereon, of the Centre enhance the non-Plan revenue expenditure. This is especially true of liabilities above a certain sustainable level, it says.

Given the emphasis on high, inclusive growth and the Finance Minister's unswerving commitment to treading the path of fiscal prudence, the fourth Budget of the Finance Minister, Mr P. Chidambaram, being unveiled on Wednesday, would not contain any unpleasant surprises to disrupt high growth and fiscal prudence under populist pressures or electoral compulsions.

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