The Economic Survey presented in Parliament on Thursday is cautiously optimistic. More importantly, it underlines the need to focus on poverty and presents structural reforms agenda needed to take the economy to the double-digit growth. The first chapter, which presents the overview of the economy, exudes cautious optimism but the structural reform agenda for the next few years is presented in the second chapter. Indeed, this chapter is very refreshing and it shows the imprint of the changes in the North Block. Hopefully, unlike last year when there was a total disconnect between the Economic Survey and the Budget, the present Survey will be a harbinger of the initiatives in the Budget.
The issue about the growth rates of the economy and food inflation is by now well known. The decline in the savings and investment in the economy, particularly the savings of the government sector and the increasing imbalance between the saving and investment in the public sector, was only to be expected due to the large fiscal deficit in 2008-09. Interestingly, despite the economic slowdown the household sector saving rate has been steady in 2008-09 at 31.1% as compared to 31.4% in the previous year. However, the financial saving of the household sector has declined from 11.4% in 2007-08 to 10.4% in 2008-09. The trade deficit too is within the manageable limits and the foreign institutional flows have not reached an alarming situation.
The Survey attributes the increase in fiscal deficit from the budgeted level to the revision in 2008-09 to fiscal stimulus, which is questionable. Loan waiver scheme, or pay commission implementation announced without costing them in the Budget of 2008-09, or payment of unpaid fertiliser subsidy of the previous year can not be considered giving fiscal stimulus. Surely, these expenditures provided the stimulus and perhaps bigger stimulus was provided by election spending by various political parties. In fact, by pre-empting huge increase in consumption expenditures, the government missed an opportunity of using the stimulus to augment the much-needed infrastructure.
The chapter, ?Micro-foundations of inclusive growth? presents the vision of reforms. In particular, the concern for poverty and focus on targeted interventions are very welcome. The suggestion of direct transfer of subsidy to the BPL households and providing them freedom to choose the shop for their purchases, if implemented will be a great step forward. Critical to this is the need to identify the BPL households and the Survey pins its hopes on the UID system. Similarly, the recommendations to target fertiliser subsidy to the farmers and allowing the prices of fertilisers to be determined in the market is a welcome idea. Again UID will have to bear the burden of identifying the deserving farmer. The Survey does not hesitate to produce enough evidence to show the high transaction costs due to bureaucratic delays. Indeed, there are other areas which require bold reforms and that is in liberalising the education and health sector. Hopefully, these will find action even if not stated in the Survey.
The writer is director, National Institute of Public Finance and Policy. Views are personal
