New Delhi, July 03: With the United Progressive Alliance government back in power for a second term in office, with a thumping mandate and without any encumbrances, the pre-Budget ‘Economic Survey 2008-09 has charted out a roadmap for sweeping financial sector reforms. It also envisages an ambitious programme for public sector equity disinvestment, decontrol of sugar, fertilizers, drugs and petroleum-based fuels, opening up of the railways to the private sector and easier foreign direct investment (FDI) norms in defence, retail trade and insurance.
Tabled in Parliament on Thursday by Finance Minister Pranab Mukherjee, the Survey noted that the worst of the global meltdown was over. A GDP (gross domestic product) growth of up to 7.5 per cent would be possible during 2009-10, it said while cautioning that financial investors could be manipulating global oil and commodity prices.
The Survey, providing an indication of what could be expected in the Budget to be presented by the Finance Minister on July 6, also pitched for radical tax reforms, including phasing out of all surcharges, cesses and transaction taxes, introduction of a new Income Tax Code, review of the Customs duty exemption and moving to a uniform duty structure and implementation of a Goods and Services Tax (GST) from April 1, 2010.
Even as opposition has been expressed by coalition partners of the UPA, the Survey favoured divestment of up to 10 per cent equity in all unlisted public sector undertakings (PSUs) and auctioning of all unviable units for mopping up Rs. 25,000 crore annually through this route.
Alongside, although there are signals that the economy has seen the worst in the wake of the global meltdown, the Survey warned that the situation called for a “close watch on various economic indicators, including impact of the economic stimulus and developments taking place in the international economy.”
In a snapshot of the economy during 2008-09, the Survey said: “The Indian economy has shock-absorbers that will facilitate early revival of the growth,” especially with the banks remaining financially sound and the country’s foreign exchange reserves and debt position “within the comfort zone.” The impact of the global crisis on the Indian economy had been “palpable” in the industry and trade sectors and had also affected the services sector, it said.
On the FDI front, the Survey sought a reduced role for the government, end of State monopoly in areas like the Railways, coal and nuclear power and up to 49 per cent foreign equity in defence and insurance. It also suggested FDI in multi-brand retailing, beginning with food.
Fuel pricing
As for freedom for control in fuel pricing — coming a day after petrol and diesel prices were hiked — the Survey said the government should develop a policy response system and financial buffer for use when oil prices rise above $80 a barrel in the global market.
With uncertainties still prevailing in the world economy and the need for minimising the second round impact of the global shock necessitating continued fiscal stimulus, the Survey said: “Within the proposed fiscal expansion, the mix of expenditure and tax cut would be critical.”
Suggesting faster reforms in the banking sector, the Survey said the government should amend the laws to align voting rights in banks with equity holdings, apart from raising FDI limits. It also made a case for linking interest rates on small savings schemes to debt instruments of the government or rates of bank deposits of similar maturity.
For orderly development of capital markets, the Survey said all financial market regulations should be brought under the purview of the Securities and Exchange Board of India.
