Step on the gas, says Survey

5 key measures identified to boost economic growth.

The Economic Survey tabled in Parliament today said the economy was likely to grow by at least 7 per cent in the coming years but identified five key measures to provide a boost.

It called for stepping up investment, greater availability of finances, institutional reforms, removal of infrastructural bottlenecks and higher doses of foreign investment. Besides pushing up economic growth, the government reckoned that these measures will create jobs and reduce poverty.

Seeking a shift in the focus to investment and export-led growth, the annual document suggested more foreign direct investment (FDI) in insurance, coal mining, retail and real estate and called for more competition in the banking sector to reduce interest spreads. It also underlined the need for more foreign institutional investment.

A committee is looking at the concerns expressed about an earlier proposal to raise the FII limit in private banks. Earlier, there was also a plan to scrap the sub-limits for telecom and defence, while raising the foreign investment cap.

With foreign exchange reserves at a comfortable level, the survey suggested faster external sector liberalisation.

"Even after its increase in the last two years, the investment rate continues to be not only far below that in China and East Asia but also lower than that assumed in the Tenth Plan," the survey said, adding, the current level of investment was not sufficient for achieving 10 per cent industrial growth.

It said higher industrial growth had resulted in sustaining the growth momentum despite deficient rain, higher prices of oil and metals in the international markets and the damage caused by the tsunami.

The survey said the highest priority should be accorded to investment in agriculture, which would not only increase value addition and create adequate storage and transportation facilities but also generate employment and reduce poverty. Upgrading irrigation facilities was another area identified for greater investment.

It also said infrastructural bottlenecks were affecting economic growth and lower public spending was not matched by greater private investment because of regulatory concerns. It called for an appropriate framework for public-private partnership and advocated a minimum subsidy bidding scheme.

It also recommended procedural simplification with simpler entry and exit rules. The Survey said the policy of dereservation was constraining investment in critical sectors like knitwear.

The Survey further said Indian companies had little flexibility on labour laws, particularly under the Industrial Disputes Act.

While identifing fiscal consolidation at the Central and state levels as another key reform area, it said one of the challenges was calibrating changes in the indirect tax system with the government's revenue needs.

At the same time, improving the tax-GDP ratio was essential to meet the targets set out in the Fiscal Responsibility and Budget Management Act as there were limitations to expenditure compression.

To meet the objectives of the National Common Minimum Programme, the way forward was to target the subsidies sharply at the poor, carry on with pension reforms, maintain a benign interest regime, improve the delivery of public services and shift spending to Plan capital expenditure, it said.

"While it is essential to increase the level of expenditure in social sectors and build the productive capacity, it is equally important to transform the outlays into better outcomes," the survey said, adding that better targeting of subsidies could release funds for financing social sector schemes.

On tax reforms, it said a phased rationalisation of Central sales tax to remove tax on inter-state sales, and consolidation of all state-level taxes into the value-added tax, together with the calibration of rates were required.

The process of aligning the Customs duty with Asean levels needed to be continued, while more services should be brought under the tax net, it added.

To make up for the Centre's revenue loss, the survey called for generating resources from other sources and removal of tax exemptions. Further simplification of the tax administration and streamlining of procedures were identified also as priority areas.

The Survey called for a policy framework for inter- and intra-port competition and sought improved regulation and competition in airlines for better airports, besides pushing investment in trans-national pipelines for energy security.

The Survey pointed out that the availability of resources alone could not guarantee social sector development. An efficient management and improved delivery of government programmes was essential to implement most schemes through the decentralised system of Panchayati Raj Institutions with the full participation of the people.

The Economic Survey emphasised that sustained economic growth guaranteed social sector development in a tangible manner. On the other hand, adverse macro economic imbalance and high inflation adversely affected the poor and vulnerable segments of the population.

Though India had improved on the human development front, some indicators for health and education continued to lag behind and India's rank in terms of human development index and gender development index were low as compared with some countries in the region.

Chapter-wise documents of Economy Survey 2004-05

General Review

Public Finance 
   
Monetary and Banking Developments 

Securities Markets

Prices and Food Management 

External Sector

Industry

Agriculture

Infrastructure

Social Sectors