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Indias Economic Survey sees recovery, but with reforms

By:  Tupaki Desk   |   27 Feb 2013 5:57 PM GMT
Pushing for reforms and tangible action on removing bottlenecks to investment and job creation, India's Economic Survey for 2012-13 pegs the country's growth at 6.1-6.7 percent next fiscal, with inflation easing soon to 6.2-6.6 percent.

The survey released hours ahead of the annual budget said India is likely to meet the fiscal deficit target of 5.3 percent of the gross domestic product (GDP) in the financial year ending March 31.

The forecast came against the backdrop of a deceleration in growth to around 5 percent and 6.2 percent in the previous two fiscals from 9.3 percent and 8.6 percent in the two fiscals before that, induced largely by the global slowdown and financial crisis.

"The slowdown is a wake-up call for increasing the pace of actions and reforms," said the survey, adding that India has navigated difficult times as these before, and with good policies and strong reforms programme, it will again come through stronger.

Authored by Chief Economic Advisor Raghuram Rajan, the report card on the state of the economy, with recommendations for the way forward, was tabled in parliament by Finance Minister P. Chidambaram Wednesday, a day ahead of the national budget for 2013-14.

Addressing a media conference after release of the survey, Rajan said Indian economy was at a "turning point" and the macro-economic situation would improve in the next financial year, helped by moderate inflation and better external factors.

"India is in a difficult but not impossible situation...we are at or beyond the turning point of the economy," he said.

Rajan, a former chief economist of the International Monetary Fund (IMF), said a wide gap in upper and lower projections of the GDP growth was mainly due to uncertainty prevailing in the economy.

"Given the uncertainty, we are giving wider band," he said.

The survey also pushed for fast action on the ground after the opening up of the retail trade industry to overseas companies and said this will not just pave the way for flow of investment in new technology, but also for marketing of farm produce in India.

"Fast agricultural growth remains vital for jobs, incomes and food security."

In the survey, a special chapter has been added focusing on jobs that says the future holds promise for India if it seizes the demographic dividend, with nearly half of the additions to the labour force till 2030 expected in the 30-49 age group.

"Because good jobs are both the pathway to growth as well as the best form of inclusion, India has to think of ways of enabling their creation," says the survey, adding new jobs are currently being added mainly in informal and low productivity sectors.

Coming a day ahead of the general budget, the survey also calls for widening the tax base and prioritisation of expenditure, holding them as the key ingredients to a credible medium-term fiscal consolidation plan.

"The policy recommendations of the Survey focus largely on stimulating investments and reducing supply bottlenecks particularly in the agricultural sector," the Confederation of Indian Industry said in a statement.

"The analysis shows that bottlenecks relate mainly to regulatory hurdles that prevent small firms from growing," the chamber said, adding that India Inc has precisely been stressing on these very issues to stimulate growth.

The survey also expresses concern over the high current account deficit due to a higher share of imports vis a vis exports and says this in the short run must be corrected by cutting oil and gold imports with market-determined prices.

This, the survey argues, is all the more necessary, since the flow of invisibles - such as money in the form of remittances by Indians abroad and software earnings - are not particularly sufficient to cut current account deficit, now at 4 percent of the GDP.

On the controversial issue of land acquisition, the survey seeks a balance between the need for economic growth and the costs imposed on the displaced with proper mapping of land, easier means to facilitate leasing and transparent compensation policy.

On foreign direct investment, the survey notes that India, with a rank of four in the global restrictiveness index, fares better than China, ranked first. Yet, there is scope to reverse the moderation seen last year in inflows of overseas capital.

Accordingly, it calls for a review in increasing the foreign investment cap in a host of areas, notably public sector banks, insurance and defence production as they promise new technology and practices and such capital are better than portfolio investment.