The Hindu Business Line : Survey pitches for big-bang reforms

• Revitalising the stalled disinvestment programme to raise “at least” Rs 25,000 crore annually. Allowing foreign direct investment in multi-brand retail, starting with food.

• Total decontrol of diesel and petrol prices along with limiting subsidised LPG sales to 6-8 cylinders annually per household. Decontrol of fertiliser and sugar industry and converting producer-end subsidy/tax into direct subsidy to farmer/consumer. Lifting the ban on all existing commodity futures contracts.

These are among the big-bang reform measures suggested in the Finance Ministry’s Economic Survey 2008-09 tabled in Parliament on Thursday. It remains to be seen, though, whether or how much of all this would feature in the Finance Minister, Mr Pranab Mukherjee’s 2009-10 Budget on Monday.

What they do indicate, nevertheless, is a clear policy direction that the new Congress-led United Progressive Alliance (UPA) Government purports to take in its second term, free of Left shackles. “There is a perception among financial and other investors that Government has been slow on policy reforms in the past five years”, the Survey noted, adding it is “imperative that the government revisit the agenda for pending economic reforms (as outlined)”.

The Survey significantly admitted that the STT, CTT, FBT and DDT, along with a host of new cesses and surcharges, have “partly reversed” the move towards a simpler tax system, while calling for their “review and phasing out”. The Survey is more explicit on disinvestment. To mobilise the targeted minimum of Rs 25,000 crore a year, the 5-10 per cent equity sale process in previously identified profitable non-navaratnas may be completed alongside listing of unlisted PSUs.

Moreover, disinvestment should extend to even non-revivable PSUs (by allowing negative bidding in the form of debt write-off) and port trusts (by converting them into listed companies with at least 49 per cent of shares held by the public).

On the proposed auctioning of 3G spectrum, the Survey has gone a step ahead by recommending the creation of a secondary market, with the capital gains resulting from the freely traded spectrum being separately taxed.

Unlike the previous Surveys, the latest one has refrained from giving any firm growth projections for the current fiscal. Instead, it has advanced a wide range of “around 7.0 +/-0.75 per cent” (meaning 6.25 to 7.75 per cent).

The higher number is subject to the US/global economy bottoming out by September, while the lower figure assumes revival being delayed till early 2010. And in the event of the monsoon not turning out normal, the growth could be revised still downwards.

The Survey has expressed concern at the “sharp dip” in the growth of private consumption, from 8.5 per cent in 2007-08 to 2.9 per cent in 2008-09, which it has attributed to uncertainty in the labour market and the negative wealth effect of declining equity/property prices on spending.

The slowdown in private consumption has come along with the growth in gross fixed capital formation falling from 12.9 to 8.2 per cent. The slump in aggregate demand has been partially offset by government consumption.