Inflation to rise further due to quake — Pranab

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The Congress leader said the massive relief and rehabilitation work in Gujarat would increase fiscal deficit and even revenue deficit. Inflation was already rearing its head and larger expenditure would result in further hike in prices.

“Of course, the earthquake will cast its shadow on the budget,” he quipped. Finance Minister Yashwant Sinha should try to convert the disaster into an opportunity by constructing new roads, bridges and colonies. This would generate massive demand for steel, cement and other construction material, besides providing jobs to a large number of people.

Mukherjee suggested various measures to achieve seven to eight per cent economic growth and 12 per cent industrial growth by raising investment to 32 per cent of the gdp.

Sinha should send signals by spelling out a medium-term plan to reduce revenue deficit and raise the tax-gdp ratio to 18 per cent, from the present 14 per cent. This cannot be done in one year. But a beginning should be made.

There should be incentives in the budget to encourage domestic savings to take it to the level of 26-27 per cent of the GDP, from the present low level of 22-23 per cent. External sources of investment could be only two to three per cent and the rest would have to come from domestic savings.

To revive industrial growth, it was necessary to expand public expenditure in infrastructure, particularly roads and power, even taking the risk of a little bit of higher fiscal and revenue deficit. This would generate higher aggregate demand and spur industrial growth.

Asked about downsizing of the Government, Mukherjee said it should be done through a gradual process. There should not be any fresh recruitment in non-operational areas and against vacancies arising from retirement. Decentralisation from the centre to states and down to local bodies would also help.

On banking reforms, he said the Congress was opposed to dilution of government equity in public sector banks from 100 per cent to 33 per cent as envisaged in the banking transfer and acquisition bill, which the Government proposed to introduce in the budget session. the Congress Government, had already facilitated dilution of Government stake to 51 per cent which was sufficient to infuse fresh capital and there was no need to reduce it further to 33 per cent which would lead to Government losing its control.

He said the proceeds of disinvestment should not be used to bridge the budgetary gaps but to create additional capital assets of the respective public sector units. Profit making public sector enterprises wanting to modernise and expand to face competition should be allowed to disinvest only to the extent of their capital requirement for the purpose.

As for disinvestment in sick units, evaluation of the assets should be done on market value, instead of book value. Further, the process should be entrusted with a professional body, instead of the disinvestment department. The reports of the disinvestment commission should be made public.

Asked what should be done to safeguard Indian industry from dumping of goods, the Congress leader suggested periodic duty adjustment within the permissible levels of the World Trade Organisation (WTO) and strengthening of the anti-dumping machinery and mechanisms. besides, anti-smuggling measures especially along the porus Nepal border should strengthened.

Charging the Government with pursuing ad hoc policies on subsidy, he said it should first decide the level of subsidy after reaching a consensus among political parties and informed opinion makers. Subsidies should be direct, explicit and come straight from the exchequer.

“We do believe that food subsidy is absolutely essential to maintain food security…If food subsidy is sacrosanct, surely in other areas subsidies have to be reduced and that will depend on to what extent it should be reduced from the present level of 14-15 per cent of the gross domestic product (GDP).” The Government should bring out a discussion paper with political parties, chambers of commerce and informed circles to work out a consensus.

Asked about the steps required to break stagnation inagricultural growth, he said the government should substantially step up investment in agriculture and allied activities such as irrigation and rural roads. “Unless massive public investment in agriculture takes place it will be difficult for us to come out of the stagnation.”