Economic Survey may bear Virmani's mark

While suggesting reforms in Economic Survey 2013-14, advisors in the finance ministry may take a leaf out of the 2008-09 Survey, which Arvind Virmani, then chief economic advisor, and his team had authored.

The Bharatiya Janata Party-led National Democratic Alliance has formed a government after a decisive mandate in the Lok Sabha elections. Therefore, it is felt there is no uncertainty on whether the government will complete its term of five years. “As such, we will suggest reforms — to be taken in the short run and the full five years — to put the economy on a sustained high-growth path,” said an official.

This time, no chief economic advisor has been appointed yet; the principal economic advisor, Ila Patnaik, is coordinating the work on Economic Survey 2013-14.

THE ARVIND VIRMANI EFFECT

• Economic advisors in FinMin to suggest big-bang economic reforms for the Narendra Modi government
• These will form part of the Economic Survey for 2013-14, to be presented in Parliament next month
• Reforms to be taken in the short run and the full five years
• PM is already in the process of seeking the 100-day agenda from various ministries
• Survey to take cues from reform measures suggested in Economic Survey 2008-09, brought out by Arvind Virmani’s team
• However, the reforms would be different in nature from the ones suggested then, since the economy has undergone change

Advisors in the economic division of the finance ministry are deliberating over the reforms to be included in the survey, to be presented in Parliament in the first week of July.

This time, a chapter on challenges, policy response and medium-term prospects will be reintroduced in the survey. The chapter, included in the 2007-08 and 2008-09 surveys, was discontinued by Kaushik Basu’s team when it authored Economic Survey 2009-10.

The number of chapters in the survey may be retained at 13.

On the measures recommended by the Financial Sector Reforms Commission (FSLRC), an official said, “FSLRC suggested reforms in the financial sector. Some of these can be implemented in the short run, others in the medium term and the rest, in the long run.”

For instance, there is near-consensus that merging the four regulators — the Securities and Exchange Board of India, Pension Fund Regulatory and Development Authority, Insurance Regulatory and Development Authority and Forward Markets Commission — will take time and cannot be implemented in the short run. So, in the short-run, it had to be seen what kind of convergence could be implemented in the financial sector, the official added.

This time, advisors may take cues from Virmani, Kaushik Basu’s predecessor at the finance ministry. In the 2008-09 survey, Virmani had suggested various big-bang reforms to the government of the day — United Progressive Alliance-II. These included suggestions on fiscal sustainability and tax simplification, financial market, energy, improving the investment environment, public goods, institutions, education and employment-generation. On fiscal sustainability and tax simplification, the survey had suggested phasing out surcharges, cesses and transaction taxes.

An official, however, said this time, the nature of reforms suggested might be quite different as the economy had changed a lot since then.

While the government did away with the surcharge on personal income tax in Budget 2009-10, it cut the one on domestic companies from 10 per cent to 7.5 per cent in Budget 2010-11. A year later, it lowered this surcharge to five per cent.

In Budget 2013-14, the government had imposed a surcharge of 10 per cent on those whose taxable income exceeded Rs 1 crore a year. The measure, initially proposed for a year, wasn’t withdrawn in the interim Budget for 2014-15.

Various forms of transaction tax, such as the securities transaction tax (STT) and commodities transaction tax, remain. Also, education and diesel cesses are there. There are talks of doing away with short-term capital gains tax, with higher STT.

Officials said the government had implemented only some of the reforms suggested by Economic Survey 2008-09.

Speaking to Business Standard, Virmani said, “I gave six boxes of policy reforms in different areas in the 2008-09 economic survey. My reason for giving these was the growth was likely to decelerate unless reforms were undertaken to de-bottleneck the economy in different areas.”

Bolstered by the stimulus package given by the government to industry to face the 2008-09 global financial crisis, India recorded 8.6 per cent growth for 2009-10, against 6.7 per cent the previous year. In 2010-11, growth further rose to 8.9 per cent.

After that, growth fell to 6.7 per cent in 2011-12 and a decade-low of 4.5 per cent in 2012-13, before improving a tad to 4.7 per cent for 2013-14.

Virmani said an exercise similar to his (Economic Survey 2008-09) would be useful in the coming survey.