G. Srinivasan

New Delhi, Dec. 10

THE scorecard of the economy in the first half of the current fiscal, placed in Parliament on Friday by the Union Finance Minister, Mr P. Chidamabaram, is a mixed bag in that while it exudes justifiable satisfaction over the growth trajectory the economy is traversing, it also emphasises the need for further policy push to sustain the higher economic growth rate to ensure even spread of development benefits.

Projecting the continuation of the high growth path of around seven per cent for 2005-06, the penultimate year of the Tenth Plan (2002-07), it said the Indian economy is buoyed by the first half overall gross domestic product (GDP) growth of 8.1 per cent.

With encouraging trends of expenditure and receipts during the first half of the year and the measures already set off to boost receipts and moderate non-plan expenditure, the Government is gung-ho about achieving the budgeted deficit target.

Underscoring the need to persevere with the extant revenue-led fiscal correction strategy and adequate provisioning for both physical and social infrastructure, the review by the mandarins of the Finance Ministry contends that it is only through sustained fiscal consolidation that the Union and State governments could release more public funds for financing development initiatives.

On agriculture, it said enhancing the growth rate to 4 per cent per annum and improving its robustness vis-à-vis the monsoon require substantial investment in irrigation and water management technologies, diversification and boosting the productivity of different crops through improved seeds and plant-care practices.

A revamp of food and fertiliser subsidies with better targeting and more efficient delivery mechanisms would benefit agriculture by not only increasing the farmers' share of the benefits of such subsidies but also opening up fiscal space for enhanced outlays on irrigation and rural infrastructure.

The moot point is that food and fertilisersubsidies being the holycow, whether the UPA Government should resort to any such revamp knowing the sensibilities of coalition partners and their own vulnerability to pressure for rolling back any such steps?

Taking note of a shift in demand away from cereals and in favour of high-value food products such as pulses, fruits and vegetables, dairy, fish and poultry, the review maintains that higher yields and diversification away from cereals to high-value and labour-intensive agricultural growth of 4 per cent or more.

On industry, the review notes that the first half growth was marred by "a disappointing performance" in mining and electricity sectors and calls for "a strong growth recovery in these two sectors" for vigorous industrial growth during the second half of the year.

Textile sector, touted to be a strong growth pole in the post-quota regime, demands substantial additional investments if India is to capitalise fully on the opportunities opened up in the aftermath of the dismantling of the quota regime.

This would be facilitated by reforms in labour laws and removal of infrastructural constraints, even as the former is hostage to strident political backlash.

The review extols the Special Economic Zones Act in June 2005 as constituting a major policy initiative for not only accelerating export growth but also providing a fillip to industrial activity, though the said Act remains not yet notified, thereby pouring cold water on the morale of prospective units in SEZ or SEZ developers!

Even as the review gives credit to the external sector's performance amid turbulence in cross-currency rates and upward pressures on global interest rates, it has called for this to be durably anchored in a vibrant industrial sector that could widen the product base, capture new markets and expand the extant ones.

But this in turn demands "a quantum jump in investment, flexible factor markets and a much-improved infrastructure".

Again, even as the Prime Minister, Dr Manmohan Singh, is talking about GDP growth of 10 per cent and the Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, an eight per cent plus GDP growth, the Finance Ministry has its feet firmly planted on the ground when it mentions that "sustaining a growth rate of 8-10 per cent with an investment rate of 26.3 per cent of GDP (2003-04) would be difficult in the medium term".

As the need for additional capital is enormous in infrastructure, industry and agriculture with bulk of this investment to be financed by domestic savings, the review does not mince words when it underlines the need to reduce public dissavings by eliminating revenue deficit and to stoke corporate savings by appropriate investment-friendly policies.

There seems to be a leeway for supplementing domestic savings by foreign savings by attracting more foreign investment. The review also concedes the fact deficiencies are not just in physical infrastructure but in social infrastructure as well.

Given the compulsions of coalition governance, whether Mr Chidambaram would factor in all the reform ideas into his 2006-07 budget which his officials put into the Mid-Year Review will be known when the UPA Government's third budget is unveiled.

(This article was published in the Business Line print edition dated December 11, 2005)
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