The Hindu Business Line : ‘Inflation control will be a major challenge’

New Delhi, Feb. 28 In a refreshing break, the Pre-Budget Economic Survey 2007-08 has boldly shed its conventional format of providing a slew of exhortatory prescriptions under the rubric “issues and priorities” but instead incorporated a sub-title in the opening chapter “challenges, policy response and medium-term prospects”, robbing the scribes of picking up cues on what one could conjecture of the Union Budget that would follow the next day.

In yet another novelty, the Union Finance Minister, Mr P. Chidambaram, read out a prepared statement, soon after tabling the report in Parliament, declaring that “keeping inflation under control in an uncertain global environment will be one of the major challenges in 2008-09. There are also downside risks to growth arising from the slowdown and possible recession in the global economy”. He, however, hastened to sound sanguine about growth and containment of inflation.

While adverting to the feat that the Indian economy at market exchange rate is all set to cross $1 trillion in the current fiscal, the Survey candidly conceded at the outset that “an appreciation of the rupee, a slowdown in the consumer goods segment of industry and infrastructure (both physical and social) constraints, remained of concern”. No wonder, it maintains that “raising growth to double digit will therefore require additional reforms”.

Without spelling out what these additional reforms and on what fronts, the Survey laid bare in a box “policy reforms options” as if the box bears no meaning to the main report! Interestingly, the options spelt out touch upon a range of areas covering coal mining, industrial decontrol (sugar, fertiliser and drugs), oil, retail FDI, banking, railways, urban public transport and bankruptcy law.

One that would definitely raise the hackles of the supporting Left parties refers to “complete the process of selling of 5-10 per cent equity in previously identified profit-making non-Navratnas”. In a move that would warm up the cockles of retail investors, it has suggested to “list all unlisted public sector enterprises and sell a minimum of 10 per cent of equity to the public.” This is when the very word disinvestment of PSUs had disappeared from the lexicon of governance under UPA’s Common Minimum Programme a couple of years ago.

Oil sector

In the oil sector, the options allude to sale of oilfields to private sector for application of improved/enhanced oil recovery techniques, besides entering into strategic geopolitical alliances to access the energy assets in the region.

On the labour laws, its counsel for augmenting work week to 60 hours (from 48) and daily limit to 12 hours to meet seasonal demand through overtime as is being sought by garment industries is important. What strikes analysts is that all these reforms, important as they are and set out as options by the Finance Ministry’s mandarins in the Survey, remain on paper with the Government unable to muster the political will or the backing of allies, to put them on fast-track, leave aside implement them in fits and starts.

Urban infrastructure

There is yet another tangible dichotomy in thinking of the authors of the Survey. While talking about urban infrastructure, they declared that the provision of public goods coupled with policy reforms could energise private initiatives in development of housings (including rental housing), industrial estates and property development thereby impart additional momentum to overall growth.

They went far to praise the Central sector programme, Jawaharlal Nehru National Urban Renewal Mission and SEZs which have imparted “some impetus” in this direction.

Down couple of pages later while explaining about measures for export growth, the Survey said these include “continuation of the cuts in customs duty resulting in low import duty, weeding out of unnecessary customs duty exemptions… and checking the proliferation of SEZs”.

If SEZs could provide some impetus for improvement in urban infrastructure, why is it they need to be checked just because they entail notional revenue loss in the form of tax foregone? Unless the benefits embedded in statute are ensured in letter and spirit how can these engines of growth help in urban development to cope with the burgeoning aspirations of demographically young India?

For the proponents of decoupling – that growth in India is insulated from the developments in the US or the world economy which appear heading for a major slowdown – the Survey points out that “the current revenue buoyancy is riding on the performance of the economy which is more globalised than ever. A closer monitoring of the global economic developments that have a bearing on India’s domestic economy would remain critical”.

This is the reality and India’s globalisation would get a jolt if the global economy emits symptoms of downturn in activity, as is evident in the market corrections noticeable in the bourses in recent period.

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