New Delhi, July 7: Between the two of them, Manmohan Singh and P. Chidambaram have produced at an interval of six years budgets that have changed the face of the Indian economy. In 1991, hardly anyone expected a burst of reforms; in 1997, even fewer expected a shower of tax cuts.
This time, together, if MS and PC can spring a third surprise — and it’s just over six years since 1997 — is not known, but such expectation there was not in either of the two landmark years. Expectation such that the stock market could barely breathe in suspense for the morrow. The Bombay Stock Exchange sensitive index ended the day 27 points higher at 4955.97 — a gain that is neither here nor there.
The air only thickened with expectation when Chidambaram said today after presenting the economic survey: “We need to sustain the growth, the growth momentum, and we need to consolidate — all that I hope to be able to deal with tomorrow.”
A five-point agenda figures in the survey: reduce government expenditure and increase earnings, stimulate farm growth, expand industry by 10 per cent a year, hold inflation rate to 5 per cent and grow the economy at 7-8 per cent. The goal is to propel India from a $604-billion economy into an $850-billion giant in five years.
In the survey, which forms the backdrop to the government’s budget-making exercise, there are hints of continuing with reforms. But there could be more than just that.
Import tariffs may be cut, tax administration overhauled, foreign investment rules liberalised and the ghost of subsidies grappled with as part of reforms.
It is the farm sector, though, that enjoys central focus in the survey — a feature that may be a distinguishing mark in the budget. At the core of the thrust is likely to be schemes to increase farm yields in the east and the south through a second green revolution and a diversification away from rice and wheat cultivation in the country’s original bread basket in northern India.
High public investment in rural infrastructure, irrigation and research and development, besides legislative moves to unify the Indian market for farm produce, are among other important survey prescriptions. There could also be moves to strengthen rural credit delivery that would release at least some of the Rs 125,000-crore bank loans promised by the finance minister a few weeks ago to farmers.
The survey tempers expectations of an agricultural bounty by saying that the market should be allowed to determine the minimum support prices for farm products. So far, the government has fixed the price and bought from farmers.
Food subsidy has grown over 10 times since the early 1990s to exceed Rs 25,000 crore in 2003-04.
Burdened with a gigantic debt burden of Rs 17,80,064 crore, the government says it needs to keep interest rates low, though it acknowledges that banks may need to raise rates.
The need to sustain growth by turning India into a low-cost economy, the survey says, calls for reduction in import duties. Such a cut will have to be accompanied by lower excise duties on domestic produce to keep Indian business competitive.
Tax administration is almost certain to get attention in the budget. The survey refers to recommendations for an overhaul of the tax regime. It also highlights the importance of establishing a rigorous penal and enforcement mechanism to punish those who violate the trust reposed in them.
A more liberal foreign direct and institutional investment is a part of the survey’s medicine-list. A far more politically volatile prescription is to abolish the list of industries reserved for the small-scale sector.
While the task might prove too tough for this government, another recommended measure is perhaps a necessity — get private money to flow into infrastructure in tandem with government investment.