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ShareNew Delhi: If wishes were horses, the economic surveys presented to parliament should be taken as policy pointers. Few governments, however, have had the stomach to swallow the politically bitter medicine prescribed by policy wonks in the finance ministry. There is no reason to think that finance minister Pranab Mukherjee is going to prove the cynics wrong this time by espousing the economic radicalism proposed in the Economic Survey for 2008-09.
The survey, presented to parliament on Thursday, talks of reforms left, right and centre. Among the things prescribed: sell Rs25,000 crore worth of public sector equity every year; auction off sick government companies; list upto 10% of all profitable government companies; raise the foreign investment limit in insurance to 49% (100% in health insurance); open up the retail sector to foreigners in phases; and cut fertiliser, food and fuel subsidies.
If the survey's recommendations are implemented, no household will
get more than 6-8 cooking gas cylinders at subsidised rates. Households will get subsidised kerosene only if they don't have power or cooking gas connections.
The idea is to weed out people who can afford to pay the full market price from obtaining cheap kerosene.
The fertiliser subsidy, says the survey, should be paid directly to farmers, and not fertiliser companies as now. Oil prices should also be deregulated, which means that your petrol and diesel prices may start changing month-to-month, if not more frequently, depending on global prices.
"Most of the suggestions are just wishful thinking...it's a very radical statement and its implementation will be very difficult. Such measures can be implemented only over a long period of time," Abheek Barua, chief economist at HDFC Bank, told Newswire 18.
On the other hand, corporate tax reforms are more likely to get a look-in this time. Among other things, the survey recommends the scrapping of the much-hated fringe benefits tax (FBT), as well as the not-so-hated securities and commodities transaction taxes. The latter two are levied on every transaction done on recognised stock or commodities exchanges. The corporate sector is hopeful that at least the FBT will go.
The survey also calls for allowing free trading in telecom spectrum auctioned for providing 3G mobile services, and private and foreign investment in nuclear power. It says 100% foreign investment should be allowed in high-tech defence production, with 49% being the cap for other defence ventures.
The Union budget, scheduled to be presented in parliament on July 6, may make some attempts to match prescription with performance, but few observers expect the government to go the whole hog.
Wednesday's decision to push through a hike in diesel and petrol prices is cause for hope. "The key difference is that this government does not have political roadblocks as it is no longer dependent on Left support. It can start to push with some reforms," saysHDFC Bank's Barua said.
But opposition is already building, with two UPA partners - Mamata Banerjee and the DMK - protesting the fuel price increases. Equally difficult will be the survey's call to target a zero fiscal deficit - the gap between government revenues and spending that has to be bridged by borrowings - at a time when the economy is still to pick up steam after last year's meltdown.
India's economy could grow more than 7% this year, but the expansion will rely on a recovery in the United States and the global economy as a whole. "The speed at which the Indian economy returns to a high growth path in the short-term depends on a revival of the global economy, particularly the US economy," the survey says. If that doesn't happen, growth could be as little as 6.25%.
A return to the 9% growth rate, however, depends entirely on reforms. "India should be back on the new trend growth path of 8.5-9% provided the critical policy and institutional bottlenecks are removed," the report said.
The answer to whether or not the government will take the bold path or the muddle path will be available next Monday when Mukherjee rises to present the budget for 2009-10. (With agency reports)
60-hour work week?
The economic survey says the Factories Act needs to be amended to increase the work week to 60 hours, up from the current 48 hours. Also, it wants to set the daily limit at 12 hours to "meet seasonal demand through over-time". The survey has also called for amendments to the contract law to allow for the use of contract labour in non-core activities or when the activity is of an intermittent nature during the year. It is, however, highly unlikely that the UPA will take on organised labour when it has other priorities.
