Economic Survey: Time to deliver on reforms

The economic survey largely outlines the past performance and suggests an agenda. It does not take into account political implications and finance ministers usually announce the budget driven by political compulsions. The survey is usually a statement to say that the government knows what needs to be done.

Growth Rate:

The survey gives a GDP growth range of 8.75% to 9.25% for the year ending March 2012. For the year ending March 2011 is expected to witness a growth rate of 8.6% largely backed by a 5.4% growth in agriculture, the highest in 4 years. The survey points out that the pick up in private consumption and investment is driving the demand. The survey hints at the growth rate going beyond 9% on the back of high savings and investment rate and the government plan to gradually withdraw the fiscal stimulus.

Fiscal Deficit:

The survey estimates fiscal deficit 4.8% for the centre for the year and the revenue deficit at 3.5%. The survey is banking on subsidy and tax reform measures to achieve this target. These include subsidy reforms in fertilizers and petroleum, public expenditure management and tax reforms. The government expects to eliminate revenue deficit over the next 3 years and focus on borrowing only for capital expenditure.

• The effective control over the fiscal situation was aided by the revenue from auction of 3G licenses. There is no such cushion next year. Hence, enhancing tax revenue is the key for the finance minister. The stock market pundits are expecting the finance minister to give a clear road map on implementation of the goods and services tax (GST) and eliminate the uncertainty over the direct tax code. The economic survey indicates that DTC could be implemented by April 2012.
• Food and fertilizer subsidies form a significant chunk of the overall subsidies. The implementation of the food security bill is the key factor. To add to that the spike in oil prices to USD 120 per barrel limits the ability of the finance minister to initiate any reforms.