The Hindu Business Line : Optimistic Survey

Much of the diagnosis in the Economic Survey presented by the Finance Minister, Mr Pranab Mukherjee, in Parliament on Thursday sounds familiar. There are a few surprises and traces of inconsistency, but they do not blunt a keen optimism that India will weather the storm. As a guide to the Budget, some observations may cause concern about policy reversals that could have various stakeholders on edge.

The Survey flags off with the assertion that the ‘speed’ of economic recovery will depend on the fortunes of the US economy. This seems plausible enough but a little later the Survey finds India’s economic prospects better than the rest of the world because of a large domestic market and ‘resilient’ banking system. Both hold the promise for a revival independent of global cues. As if in confirmation, the Survey surprises us with the news that investment demand in 2008-09 at 32 per cent of GDP was a shade higher than in the previous year. A surplus current account for the first time in three years is also noted approvingly. The Survey wants the fiscal deficit to be hauled back to around three per cent from the current 6.2 per cent. Does this mean the Finance Minister will be tempted to roll back those excise duty cuts? It is to be hoped that Mr Mukherjee will think differently; the economy is still in the red as it were and needs all the fiscal encouragement it can get. Confirming those temporary cutbacks in excise for at least a year will send the right signals. The domestic market is shoring up output and a soft indirect tax system may help push manufacturing out of its low levels. The Survey sees the fiscal gap narrowing in the medium term through a bounce back of tax collections once the economy picks up in the second half of the year. That is a laudable goal but to get there policy will have to revive private consumption demand that has fallen significantly. Credit growth too slipped to just 17 per cent despite an easy monetary policy.

The Survey holds out reforms as a condition for growth; the list is impressive, from decontrol of coal and petroleum fuel to divestment in more public sector units. These are not new agendas and they have not enthused the market. What could, however, become a novelty is a commitment from the Government that these will be implemented. The prospects for 7 per cent growth this year, as the Survey points out, depends as much on them to fire domestic markets as on global recovery.

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