The Hindu Business Line : Needed: reforms 2.0

Coming before the Union Budget, the Economic Survey serves as a convenient curtain-raiser for the detailed sketch of government finances, the way public money is to be spent and — through a fiscal plan that will impact the citizens — how it will be raised or augmented. The Survey would serve its purpose of outlining the macro-economic context much better if it were to be issued at least a week before the Budget. As it is, one hardly has any time to digest the i nformation on economic indicators before being served up afresh with fiscal responses to them. Still, the Economic Survey 2007-08 does address some basic issues about economic prospects that hopefully will find echoes in the Finance Minister’s fiscal packages for the last year of the UPA government in office. But most important, it includes radical policy measures that could galvanise growth. Surprisngly, it does not elaborate them as anything more than “options”.

The year 2003-04 seems to have become a watershed, the year the economy took wing, with the dramatic increase in per capita income and consumption. Interestingly, the Survey points out that though both increased dramatically after 2003-04, per capita income grew faster, except for 2005-06, when they were neck and neck at around 7 per cent. Why the difference? The sharp increases in income rates get adjusted in the higher savings rate; investment growth rates are higher than consumption growth rates after 2004. Unless avenues are found to offset output spurts in, say, global demand, investment demand itself may falter, affecting overall growth.

That may already be happening with GDP slowing down. With exports weakening, domestic demand has to be fortified; that requires fresh investments and a round of radical changes to stimulate growth. The survey mentions, legislative reforms in the coal sector, the labour market, bankruptcy laws, greater FDI in retail trade, completion of sell-off of 5-10 per cent equity in non-navratnas and the listing of all PSUs and significantly, emphasises private sector for urban mass transport . But it weakens their urgency by listing them as “options” without any time table. The current prosperity is the sum of the “full effects” of post-1991 reforms that began in the Tenth Plan, and bloomed in the last three years but may be wilting now. To maintain the pace, a new round of reforms is required and the Survey rightly puts the onus just where it belongs. Among the most critical is governance itself, not tinkering with tax reliefs.

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