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Subsidies: It is believed that around 12 per cent of the GDP is being sp
In his response to the FE Agenda, Ficci president Sudhir Jalan says containment of the fiscal deficit, with focus on bringing down revenue deficit to zero level in two-three years, should be on top of the next Government's agenda. Jalan also calls for change in laws governing amalgamations and demergers to make corporate restructuring flexible
On fiscal deficit: No doubt containment of the fiscal deficit should be at the top of the economic agenda. Unbridled fiscal deficit will have a distortionary effect. Fiscal deficit has two components: revenue deficit and capital expenditure deficit. Our focus should be to contain the revenue deficit to zero level in two to three years. The capital expenditure has a multiplier effect, since it would catalyse the growth stimuli and create capital assets. However, it would be prudent to keep the capital deficit also within manageable levels for a healthy growth of the economy. Although there is no clear-cut limit, the fiscal deficit, anywhere between 2 and3 per cent of GDP, could be an ideal benchmark. This could be absorbed by the economy. Given that the fiscal deficit is likely to go beyond 6 per cent of the GDP, there is need for a strong political will to cut the deficit to a manageable level in the years to come.
Subsidies: It is believed that around 12 per cent of the GDP is being spent on subsidies. Of this, around 8 per cent of the GDP could be on non-merit subsidies, such as subsidy on power, water, etc. Our effort should be to eliminate the demerit subsidies at the earliest. One way of doing that is imposing an user charge on public utilities.
PSU disinvestment: The process should be speeded up, especially at a time when the capital market is buoyant. This would help realise more resources. The proceeds should be used in partly meeting the fiscal deficit and for retiring government debts.
Financial sector reforms: Banks should also be privatised along with the public-sector units (PSUs). This would ensure moreaccountability and lower non-performing assets. Side by side, more private banks should be encouraged to be set up. This would induct competition in this vital field. Insurance sector reforms are long overdue. Because of the unfavourable political situation, this process has been delayed. Once the new Government assumes office, the insurance bill has to be introduced, along with putting in place the Insurance Regulatory Authority. Huge funds that are required for infrastructure development can be mobilised through the insurance sector.
India's WTO commitment: For the Seattle Round of Negotiation, it is heartening to note that the Government has invited representatives of apex business organisations. This should become a permanent feature. It is equally significant that India is taking the initiative among the developing countries to evolve a coordinated approach. We have taken some initiatives in developing a common stand among the Saarc countries relating to some of the non-tariff barriers that arecropping up. Regarding the Millennium Round, it appears that Europe is now not very keen about pressing for it, since there is stiff resistance from the developing countries and, to some extent, from the US. The developing countries will have to press for implementation of the decisions taken at the previous round, rather than initiating a fresh round.
Tax reforms: The major planks of tax reforms are simplifying and rationalising the tax laws, expanding the tax base and lowering tax rates, which would lead to higher tax compliance and better tax realisation. Empirical evidences suggests that with lower tax rates and better tax administration, tax compliance and collection could be improved.
There is a case for taxing the rural rich. I have one more suggestion. The benefit of the reduced rate of 10 per cent on long-term capital gains be made available to all securities, whether listed on stock exchanges or not. Investors in the schemes of Unit Trust of India and other mutual funds should also beeligible for the lower rate of 10 per cent. This will help add to the buying in the capital market.
Small-scale sector: To help the small-scale sector improve its operational efficiency, so as to withstand the fierce competition that will be unleashed when many segments would be opened up by 2001 as per the WTO agreement, it is prudent that the protection given to the sector be gradually withdrawn. This will enable it to compete first in the domestic sector and, subsequently, face competition from the external sources.
Infrastructure: Indian industry is handicapped by lack of infrastructure facilities. Investment in the infrastructure sector has to come from the Government, private sector and foreign investors. Foreign direct investment can flow into this sector only when the decision-making process is speeded up. The track record of the pace of implementation, say in power, is not impressive. There are procedural delays. This has to be mitigated, and a proper policy framework has to be putin place. Once this is achieved, there would be a steady inflow of investment into this sector. The second is collecting the user charges from utilities. There is heavy subsidisation and cross-subsidisation. These distortions have to be corrected.
Social sector: India needs more investments in health, education and poverty alleviation. These require huge resources. They can be found by cutting down the demerit subsidies, which would constitute around 8 per cent of the GDP, and pruning the Government's unproductive expenditure. This would help the Government to mobilise additional funds for the social sector. Additional revenue for this could be mobilised through a tax on rich agriculturalists.
Corporate sector: Significant flexibility in corporate restructuring can be effected by changing the rules governing amalgamation, demergers and slump sales, so that Indian companies can successfully meet the challenge of globalisation and sharpen their core competence. However, these rules need minorrecalibration, so that such amalgamations, demergers, etc are fully facilitated.
In the case of amalgamations, the amalgamated company should have the option to change the line of its manufacturing activity. At least, the minimum period the amalgamated company is required to carry on the business of the amalgamating company should be reduced to two years from five years.
Regarding demerger, it should be made possible under Section 293 of the Companies Act, 1956, in addition to Sections 391 and 394. Besides, only those assets and liabilities relateable to the undertaking which are mutually agreed upon for transfer should be required to be transferred. Besides, the resulting company should be allowed to pay the consideration partly by way of issuance of shares and partly by way of debt instruments to the equity shareholders of the demerged company.
Agriculture: Opening up of agriculture is very important. New technologies and concepts have to be practiced in the agriculture sector. There has to bea close linkage between industry and the agriculture sector, so that some segments of industry like agro-processing can undertake farming with the support of farmers. This could be in the form of corporate farming.
Labour: A safety net for workers has to be put in place at the earliest. This would help in rationalisation of labour, which is imperative to restructure corporates. It is time the National Renewal Fund is re-energised to cover private-sector workers also.
--As told to Tina Edwin
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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