27 February 2013, 06:44 PM IST
The Economic Survey 2012-13 is lucid, well-argued and short of new big ideas, commendably so. New brainwaves are the last thing we need in India, while ignoring well-identified action imperatives.
The Survey makes three pronouncements that would be welcomed by industry. One, while it is imperative to cut the fiscal deficit, it is necessary to do it by raising the tax/GDP ratio, rather than by curtailing expenditure and hitting development. Two, it is desirable to raise the tax/GDP ratio by broadening the tax base rather than by raising marginal rates of tax. A special tax on the super-rich clearly finds no favour with the Survey.
And, three, it talks of the need to raise savings in the economy. Of course, the chief operative imperative here is to cut the fiscal deficit and reduce government dissavings. But also, there have to be measures to increase financial savings by the households. Such a move would help industry raise resources as well. Raising savings is important as that is the way to cut the worryingly large current account deficit, which is an outcome and measure of the gap between domestic savings and investment in the economy. The way to reduce the savings-investment gap without sacrificing investment and hurting growth is to step up savings.
The picture presented by the Economic Survey is that of self-inflicted pain. Growth has stalled because investment has stalled, primarily — it is true, of course, that exports malinger because of tepid world growth but there is little that we can do about that. Investment has stalled because of problems with obtaining assorted clearances: mining linkages or forest or environmental clearances suddenly turn beyond reach. In some cases, project sanctions just dry up. The Survey finds comfort in the setting up of the Cabinet Committee on Investments. It is strange that it does not ask, and vocally, for scrapping the Coal Mines (Nationalisation) Act of 1973, which is a major source of project uncertainty when it comes to fuel linkage, besides of coal shortage. In the case of telecom projects, difficulties in spectrum allocation have been a reason for stalled investment.
Another reason for the investment deficit that has crimped growth is high nominal interest rates. Forestalling monetary easing by the RBI has been inflation, particularly food inflation. Food inflation this year has been driven by cereals – 17% in the third quarter. This, when the government has 70 million tonnes of grain in its stocks. If this is not reason enough to sack the food minister, food secretary and all other senior babus in the ministry, it is difficult to see what could be. But of course, it would be politically incorrect for the Survey to talk about sacking those in the government.
It would be extremely politically incorrect for the Survey to point out another constraint on the economy: the courts stepping outside their remit to ban or disrupt huge swathes of economic activity, such as mining and telecom. But the government needs to summon the political nerve needed to quietly but firmly tell the courts that they are messing up. Telecom minister Kapil Sibal has begun the process, others have to follow through.
It is indeed welcome that the Survey has devoted an entire new chapter to reaping the demographic dividend. But it is surprising that it has not deemed urbanisation important enough to warrant anything more than a sub-section.
The Survey cites research finding to the effect that large, centralised banks tend to be insular to the needs of the small and medium enterprises sector, and, in countries with variegated banking systems, migrate to small, local banks. This should inform the RBI when it begins licensing new banks.
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