The storm has passed, now all hands on deck
Coming to specific policy proposals, Rajan saw a “strong case” for hiking the 26% foreign investment limit in defence production to 49%.
Rajan said “the benefits of the current offset policy is not visible on the domestic defence industry”. He reiterated the insurance Bill proposal to hike foreign investment ceiling in the sector to 49% so as to reduce premia and expand the services to the untapped rural India. He also proposed raising the FDI limit in public sector banks to 26%, given the capital constraints facing them, credit squeeze faced by corporate India and the inability of the government to re-capitalise the PSBs adequately. FDI norms could be “rationalised”further in many other sectors given the drop in inflows this year.
The rising demand for gold was only a “symptom” of more fundamental problems in the economy, the survey writers said and recommended curbing inflation, expanding financial inclusion, offering new products such as inflation-indexed bonds, and improving savers’ access to financial products. “Insurance sector could be one of the long-term sources of long-term investment in infrastructure.”
The survey dropped a hint that the stronger government spending control, implemented during August-September, could well be extended to the next fiscal.“Reining in expenditure is likely to remain a theme for FY14,” Rajan said.
He, however, added that “it is better to achieve fiscal consolidation partly through a higher tax-GDP ratio than merely through reduction in the expenditure-to-GDP ratio, in view of large unmet development needs.” This signals today’s Budget could still produce sufficient growth impulses through
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