Cushioned candour

Updated: Feb 29 2008, 04:57am hrs
The economic survey released on Thursday by the finance ministry seems to relish getting down to the brasstacks for some plainspeak on the Indian economya luxury the Finance Minister himself may not have when he makes his televised Budget speech for 2008-09. As always, the survey takes a close look at the constituent sectors of the economy, and offers prescriptions for wide-ranging problems. The document is candid on the point that maintaining GDP growth at 9% will be a challenge, given current circumstances. Dreams of leaping into double digits in a leap year will have to be kept on hold until later. There is similar candour on meeting FRBM commitments. Though the 3% fiscal deficit target for 2008-09 could be attained without much difficulty, the zero revenue deficit target will pose problems since non-Plan expenditure has a habit of busting its bounds. This admission of truth is a good sign, and it is reassuring that the government prefers not to pretend that it has taken no latitude in presenting itself as a fiscal angel. Even the Prime Ministers Economic Advisory Council has noted that the issue of securities in lieu of direct subsidies has made a difference of some 2% of GDP to Central finances, which would otherwise have looked a lot worse; the real revenue deficit would be much higher for 2007-08 than last years Budget estimate of 1.5%. One should hope that actual market demand can be generated for these bonds in the manner that there is perennial demand for US Treasury bills. Its fanciful, but not entirely if the government plays its cards well. Still, on balance, a safety cushion would have to be kept handy, which means fiscal caution in 2008-09 and beyond.

The surveys composure on inflation, expected to stay moderate in the months ahead, may surprise some onlookers. The only risk, in its view, is a possible failure on domestic supply management, which is becoming even more critical in containing inflationary expectations as global commodity prices soar. The surveys inflation confidence is suspect mainly because the agriculture sector has not achieved a new plane of sustainable growth, as it too admits. The sector is troubled both by exogenous factors like climate change and endogenous ones like reduced capital investment and plateauing of yields of major crops. Reiterating the need for a pickup in farm output for the sake of food security and price stability as much as inclusive growth, the report adopts a refreshingly new stance in outlining backward and forward linkageswhich would enhance productivity through efficient resource useas a way out. But the big question is whether the political establishment would risk such lofty long-termism in an election year, since quick returns are what count. Other recommended policies, like building an outcome-oriented perspective for implementing public programmes in the agriculture sector, would also call for long-term planning.

The survey also strikes a different note on the manufacturing slowdown underway right now. It holds the consumer durables downturn responsible for the industrial deceleration, but also states that the slowdown shown by the available data on consumer durables may not in itself be a serious concern, so long as overall growth buoyancy is intact. The big task to be achieved in the manufacturing sector, according to the survey, is the effective easing of infrastructure constraints. As usual, labour market inflexibility finds a mention here, with the need for reforming labour laws and regulationsespecially for the promotion of labour-intensive industriesput across in the quaint, delicate language of a seasoned coalition dharma artist.

In terms of stacking up platitudes, however, the winner is the surveys discussion of infrastructure projects. Some of it reads like a pep talk to rally the disheartened. The challenges, it proclaims, are by no means insurmountable. It reminds readers that the growth of different sectors of the economy is contingent on physical infrastructure and related services. This air of exhortation carries over into the social sector section. This lists all manner of programmes for the upliftment of the countrys suffering have-nots, but places the burden of delivery squarely on the states and district administrations, absolving the Centre of direct responsibility and hoping that high-minded moral suasion would work magic.

The most inscrutable part yet is the surveys take on the external sector. Noting that flagging exports call for policy shifts, it recommends such booster shots for merchandise trade as the continuation of customs duty cuts, weeding out of exemptions, streamlining existing export schemes, checking the proliferation of SEZs and maximisation of gains from bilateral trade pacts. For services, it wants domestic regulation reforms and better market access. Though the survey takes a liberal view on capital account convertibility, it pushes the deadline almost indefinitely by making the convergence of global and domestic interest rates a sine qua non for this. As for the rupee, it asks for a balanced policy.