Take, for instance, inflation management. The Survey has suggested supply management within the domestic economy, fine-tuning Indian interest rates with global benchmark interest rates as well as management of funds flows. Overall, Indias policy matrix has become much more complicated and complex than before and the Survey brings out these different facets of Indias policy matrix.
The basic challenge is to sustain growth in the face of inflation, particularly in the context of global food price inflation. The Survey has pointed out agricultural modernisation as one of the critical requirements for meeting this challenge. We also see a thrust on de-bottlenecking land availability, particularly in the urban areas. Today, land prices are soaring and these high valuations add considerably to the business cost. Undertaking reforms that would result in greater supply of land for all purposes is therefore a strong anti-inflationary move and Ficci fully supports such measures.
I am of the firm belief that Indias potential growth rate is much higher than what we are seeing today. We have registered an average annual growth rate of 8.8% over the last four years and can do much better. What we need is another dose of far-reaching structural reforms and de-bottlenecking in different areas of the economy. This years Economic Survey has prescribed just that.
Be it allowing private entry into coal mining, decontrolling sugar, fertiliser and drug sectors, raising the foreign direct investment (FDI) cap in insurance sector to 49%, allowing greater foreign equity in retail trade or completing the process of selling 5% to 10% equity in profit-making non-navaratnas, each one of these measures suggests a break from the past and can alter the scenario in the respective sectors. If the government takes up these and other similar policy prescriptions, then we will certainly see some more zing being added to the India growth story.
Another notable feature is the new approach that we see towards FDI. The Survey has recommended allowing 51% foreign equity in a special category of insurance companies that provide all types of insurance to rural residents and for all agriculture-related activities, including agro-processing. It has also recommended allowing 100% FDI in greenfield private rural agricultural banks. These clearly indicate that the government is open to leveraging FDI in promoting growth and development in the rural areas.
The Survey has also flagged the twin issues of slackening export performance and sluggishness in the consumer goods sector. The appreciating rupee and the hardening interest rate have a taken a toll on Indias industrial performance and the Survey has drawn the governments attention on these issues. On easing the pressure on the rupee, Ficci has suggested that the government set up a sovereign wealth fund and invest abroad a part of our burgeoning forex reserves. As we do this, we must deepen the process of financial sector reforms so that interest rates in the country can be aligned with global interest rates.
In conclusion, we are deeply encouraged by the Economic Survey 2007-08. It has created a lot of expectations about reforms and the Union Budget ought to match this optimism.
The author is secretary general, Ficci