Eco Survey prescribes reforms that were no-no a year ago

New Delhi, July 2 (PTI) Laying the roadmap ahead of the
Budget, the Economic Survey Thursday sought sweeping financial
reforms, an ambitious disinvestment programme, free pricing
for fuel and fertiliser, opening railways to private sector
and liberalising FDI in defence, retail and insurance areas.

Stating that the worst of the global meltdown was behind,
the Survey, presented in the Indian Parliament, said that a
growth of up to 7.5 per cent was possible during the current
fiscal but cautioned that financial investors could be
manipulating global oil and commodity prices.

The economy grew by 6.7 per cent in 2008-09, pulled down
by slower expansion of 5.8 per cent in the second half of the
fiscal in the face of the global crisis.

It also prescribed radical tax reforms, including phasing
out of all surcharges, cesses and transaction taxes, a new
Income Tax Code, review of customs duty exemption and moving
to a uniform duty structure, as also implementation of Goods
and Services Tax from April next for long-term sustainability.

Asking the government to divest up to 10 per cent equity
in all unlisted public sector undertakings with an annual
disinvestment target of Rs 25,000 crore, the Survey also
recommended auctioning of all the unviable PSUs.

Though there are indications that the economy may have
weathered the worst of the downturn, it cautioned that the
situation needed "close watch on various economic indicators
including impact of the economic stimulus and developments
taking place in the international economy."

Giving a snapshot of the economy during 2008-09, the
Survey said: "The Indian economy has shock-absorbers that will
facilitate early revival of the growth," adding that banks
were financialy sound and forex reserves and debt position
were within the comfort zone.

The fall-out of the global economic crisis on the Indian
economy had been "palpable" in the industry and trade sectors
and had also permeated the services sector, the Survey said,
pointing that the wide-ranging challenges included enhancement
of physical infrastructure and productivity in farm sector.

The Survey, tabled in Parliament by India's Finance
Minister Pranab Mukherjee, also sought reduced role for
government and end of state monopoly in areas like Railways,
coal and nuclear power while seeking up to 49 per cent Foreign
Direct Investment (FDI) in defence and insurance.

The hitherto politically sensitive areas of FDI in multi-
brand retailing, also caught attention of the the Survey,
which recommended foreign investment in the area beginning
with food.

A day after the government raised the prices of petrol
and diesel by Rs four and two, respectively, it said that fuel
prices should be freed from government control.

Besides, it added, the government should also develop a
policy response system and financial buffer for use when oil
prices rise above USD 80 per barrel in the global market.

The uncertainties surrounding the world economy and the
need for minimising the second round impact of the global
shock necessitate continued fiscal stimulus, the Survey said,
adding: "Within the proposed fiscal expansion, the mix of
expenditure and tax cut would be critical."

The Survey also asked the government to auction 3G
spectrum and make it "freely tradable with capital gains on
spectrum to be taxed under the Income Tax Act."

It also suggested that the government should pursue
various pending bills like PFRDA Bill 2005, Forward Contracts
(Regulation) Amendment Bill 2006 and the Insurance Laws
(Amendment) Bill 2006.

Suggesting faster reforms in the banking sector, the
Survey said the government should amend the laws to align
voting rights in banks with equity holdings, besides raising
FDI limits. The suggestions also include phased increase in
FDI limits and easier entry of foreign banks and other
overseas financial sector entities.

It also made a case for linking interest rates on small
savings schemes to debt instruments of the government or rates
of bank deposits of similar maturity.

For orderly development of capital markets, the Survey
said all financial market regulations should be brought under
the purview of the Securities and Exchange Board of India.

High Networth Individuals (HNIs) should be allowed to
register and invest directly through authorised Indian
investment intermediaries, it said, adding "this will allow
ban of indirect ways of investment such as P notes". PTI TEAM
RAI
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