Budget pointer in Economic Survey: Stress on GST, farm, factories

Key focus areas in Survey are agri reform to reduce food inflation, ways to revive manufacturing.

By: ENS Economic Bureau | New Delhi | Published: July 10, 2014 9:01:26 am
Finance Minister Arun Jaitley poses for photographs while giving final touches to the Union Budget 2014-15 in New Delhi. (PTI) Finance Minister Arun Jaitley poses for photographs while giving final touches to the Union Budget 2014-15 in New Delhi. (PTI)

Starting a national market for food, replacing factory inspectors with a system of self certification by manufacturing units, and moving away from auctions to a revenue-share formula for exploiting natural resources are some of the key elements of the NDA government’s economic management plans for the next five years.

The Economic Survey tabled in Parliament by Finance Minister Arun Jaitley on Wednesday also says that the Centre is considering national legislation to override the state agricultural produce marketing committee (APMC) laws to free farmers from having to sell only in mandis.

“This law can override state APMC laws and restrictions that have been placed on the farmer’s right to sell food within and outside the state… Under such a law, APMCs would become one among many trading venues in a competitive market… Parliament can also legislate the creation of a Commission that monitors the country for anti-competitive practices”, it says.

The Survey contains other pointers as well for Thursday’s Budget. On taxes, it notes that “there should be single rate central GST”, which states can implement later.

It suggests removing dividend distribution tax and all cess and surcharges to make corporation tax rates lower, but with few exemptions, and transform tax administration.

Social sector programmes like the National Rural Health Mission (NRHM) should be moved to a zero-budgeting platform and merged, so they can be measured by improvements in health and education rather than by the money spent on the programmes, it says.

Key focus areas in the Survey are agriculture reform to reduce food inflation, and ways to revive manufacturing to create jobs.

It suggests various measures for “restoring economic freedom of farmers and allowing them to be part of a competitive national market essential for controlling food inflation”, and notes that manufacturing units should not be penalised for lack of compliance, but instead be given time to remedy faults.

In addition, the Survey suggests moving to an information technology platform for all government to unit-level interactions.

At the macro level, the Survey pitches for a new Fiscal Responsibility and Budget Management (FRBM) Act with stiff penalties.

It expects the fiscal deficit for FY14 to be 4.5 per cent, and GDP growth rate in FY15 to be between 5.4 per cent and 5.9 per cent, the same as RBI.

Echoing RBI Governor Raghuram Rajan, the Survey wants the government to cap its borrowing for the private sector to get bank credit at competitive rates. It says that with fiscal numbers on track, the government must now revive private sector investment by “creating the legal and regulatory framework for a well functioning market economy”.

Pointing out that the demographic dividend of the economy will not last indefinitely, the Survey adds that “policy focus now needs to target key growth drivers in the short term”, one of which can be revival of private corporate sector investment.

“The current industrial sector downturn presents an opportunity to push ahead with critical reforms and removal of infrastructure bottlenecks. Industrial policy needs to focus on labour-intensive and resource-based manufacturing in informal sector to rejuvenate small businesses. In the medium term, challenge for Indian manufacturing is to move from lower tech to higher tech sectors, from lower value added to higher value added sectors, and from lower productivity to higher productivity sectors,” it says.

In several sectors, the Survey accepts recommendations from previous years. On plans to replace the fertiliser subsidy with direct cash transfers to farmers, it notes: “The recommendations of the Task Force… under the chairmanship of Nandan Nilekani… merits consideration on priority…

“The new technologies of biometric identification, and payments through mobile phones, have created a range of new possibilities for the design of programmes. These would lead to a reduction in poverty at a lower cost when compared with the present subsidy programmes.”

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