Last year?s Survey captured the market?s imagination by bringing the lost ?D? word-disinvestment-back on the public agenda. It wasn?t that no one was talking about it. Many considered disinvestment critical to temper the surging fiscal deficit. However, it always adds credence if the CEA of the country discusses it in the government?s flagship economic document. The following day the Budget did not even mention the d-word. But in the months that followed the government put together a medium-term disinvestment program broadly along the lines of the Survey.
So what was new this year? Two things struck me as important. First, the chapter right up front on the micro foundations of inclusive growth, drafted by one of the best economists on this subject-Kaushik Basu-the new CEA. The chapter strongly argues that while India?s rapid growth has trickled down to the poor, more resources need to be allocated to eradicate poverty. But, with a caveat. Instead of doing more of the same, change the way the subsidies are provided. Rather than mending the failed PDS system and providing more subsidies to fertilizer and oil companies, the Survey suggests shifting to direct transfers to users through food, fertilizer, and oil coupons. This is not new. The US and several Latin American economies have successfully implemented variants of such a system. And clearly, a lot of new plumbing and political maneuvering will be needed to get it through, if at all. But what is important is that it is now in the government?s flagship economic document. As last year?s Survey showed this can be a catalyst for future actions.
The second was the exhortations to cut import tariffs and excise duties to improve competitiveness. This may be difficult now as revenue loss could be high and the fiscal deficit needs to be cut back significantly in the coming years to meet the 13th Finance Commission targets. However, cutting duties is a far better way to support exports than our and Asia?s favorite tool-an undervalued currency. The welfare cost and the distortions created by the latter far exceed that revenue loss from the former.
Views are personal