The Economic Survey for 2002-03, which was tabled in Parliament today by Finance Minister Jaswant Singh, has argued against an increase in government expenditure to combat the slowdown in growth.
It has, instead, called for a strong focus on fiscal consolidation, without which there is a risk of crowding out the nascent recovery in private investment.
Pointing out that the measures taken so far to address fiscal imbalances were inadequate, the survey has called for a cut in untargeted subsidies, stemming of growth in wages and salaries and encouraging public investment in physical and social infrastructure.
It has also seconded the recommendations of the Kelkar task force to shore up revenue in the medium term.
Revising the fiscal deficit target for 2002-03 to 5.5 per cent of the gross domestic product (GDP) from the 5.3 per cent projected in the last Budget, the survey has recommended higher user charges, a cut in the small savings interest rate, and rationalisation of subsidies on food, fertilisers, liquefied petroleum gas (LPG) and kerosene.
It has also called for a relook at the issue of fiscal transfers to states, Plan allocation and the gross budgetary support for Plans.
The survey has, however, revealed a disconcerting trend, where the share of the Centre's consumption expenditure in total expenditure increased from 21.9 per cent in 2000-01 to 22.9 per cent in 2001-02. It is budgeted at 22.3 per cent for the current fiscal.
The survey has also pointed out that the savings rate overtook the rate of investment in 2001-02 for the first time since 1975. As a percentage of the GDP, the gross domestic savings stood at 24 per cent, while the gross domestic investment was 23.7 per cent in 2001-02. This clearly indicates a lack of fresh investment.
With the strengthening of the balance of payments, the net foreign exchange assets of the Reserve Bank of India emerged as an important source of reserve money.
The share of net forex assets in reserve money increased from less than 10 per cent in March 1991 to 78.1 per cent in 2001-02. It exceeded 100 per cent in January 2003, which is close to a currency board situation.
Terming the 8 per cent growth rate projected in the Tenth Plan as feasible, the survey says it is imperative to address the problems of infrastructure, regulatory and tax reforms, and fiscal consolidation for sustained growth.
While noting that there have been clear signs of revival in domestic demand this fiscal, the survey points out a marginal dampening of export prospects.
While bulging forex reserves and cuts in the cash reserve ratio for banks added to the liquidity, the survey points out that these favourable developments failed to boost credit flow to the commercial sector.
It has asked commercial banks to reduce the spreads around their prime lending rates and advised them against investing too much in low-yielding government securities. It has also pointed out that lending rate cuts have not kept pace with the reduction in deposit rates.
The survey says that a war in the Persian Gulf could result in the hardening of domestic crude prices, which have been linked to international prices after the dismantling of the administered price mechanism.
However, the huge forex reserves will be able to absorb any major shocks, it has said.
The government should continue with measures to relax capital controls since rising reserves provide greater flexibility for exchange rate management and expedite trade liberalisation, the survey says, adding that lowering of Customs tariffs will stimulate imports and create a demand for foreign exchange.
The survey
