The risks listed include natural factors like a weak monsoon, political factors like war and terrorism and market factors like the financial crisis in Latin America and the global economic slowdown.
However, the Survey cautions against fiscal populism and calls for improved government finances. While sluggish growth suggests counter-cyclical policies, there is need to step up progress in the field of fiscal consolidation, says the Survey. Given the indices of growth recovery already visible, without fiscal consolidation, there is a risk that the preemption of resources by the general government will crowd out the nascent recovery in private investment.
Interestingly, even as the Survey calls for increasing the tax/GDP ratio, it shies away from aggressively supporting the report of the finance ministrys Taskforce on Direct Taxes, chaired by Vijay Kelkar, limiting itself to an endorsement of the report on indirect taxes and of tax administration.
The section entitled Issues and Priorities in Chapter 1, authored by chief economic advisor Ashok Lahiri, does not make any direct reference to the Kelkar committee reports apart from stating that fiscal consolidation requires augmenting revenues through an efficient, computerised, and impersonal tax system and better cost recovery through appropriate user charges. No reference here to Kelkars Option I or II variants on direct taxes.
In the chapter on Public Finance, there is a brief reference to these reports, in the very last paragraph, where it is stated that the appointment of two taskforces on direct and indirect taxes ... indicates the importance attached to these aspects by the Government. The follow up on the recommendations of these taskforces is expected to result in improved tax collections in the medium term.
Says economist Bibek Debroy of the Rajiv Gandhi Institute of Contemporary Studies, The Survey takes cognizance of what Vijay Kelkar has to say but takes no position on his proposals on tax reform!
Expressing satisfaction with the robust profile of the external sector, the Survey says the current account surplus is mainly on account of net invisibles inflows equivalent to 2.9% of GDP, estimated at $14.05 billion, the highest in the last decade. It expects the current account to be in surplus this year also.
While not worrying about inflationary pressures, the Survey draws attention to fuel price inflation of 6.4% in mid-January 2003 owing to the Gulf crisis.
Advocating forward movement on economic reform, the Survey identifies labour market policies, agricultural trade, energy and food and fertiliser subsidies, tariffs, reservation policy for small-scale sector, and interest and savings rate policies as areas for further reform.
The Survey identifies technology, competition and benchmarking to the best international practices as the drivers of change and states that these require an enabling environment facilitated by appropriate social and physical infrastructure, a suitable regulatory framework, an efficient tax system, and macro-economic stability.
The Surveys emphasis on investment in agriculture and human development may be seen as pointers to finance minister Jaswant Singhs fiscal and economic priorities. In an uncharacteristic emphasis on the social sectors, the Survey says, Amongst the priority areas requiring focussed attention are the elimination of illiteracy, reduction of infant and maternal mortality rates, eradication of diseases... provision of quality transportation facilities in the form of roads, railroads, ports and airports, reliable and reasonably priced power supply and safe drinking water and sanitation.
The Survey calls for a new role for the government in the economy by calling for a change in paradigm of the public sector providing public goods and services, without necessarily producing them itself.
The Survey expressed concern about the developing security environment in the Middle East and its likely impact on the US economy. It sees this hurting global trade and thereby Indian export growth. The Survey nevertheless expresses the hope that notwithstanding a marginal compression in export prospects, the overall growth performance of the Indian economy in the coming months is unlikely to be seriously affected by developments in the Gulf, due to the clear signs of revival in domestic demand, and the resultant buoyancy imparted to domestic economic activity.