Reforms on track, jobs big worry: Govt

The Survey boldly earmarks some more sectors that could be opened to FDI including coal and mining, retail trade, and insurance and hints at more flexibility in the forex regime.

Presenting the economy’s report card, the Survey points to the sound fundamentals—a 6.9 per cent GDP growth, industrial growth of 8.4 per cent, services sector growth of 8.9 per cent, exports growth of 23.1 per cent and forex reserves at $129.8 billion.

Spoiling the big picture somewhat is the annual inflation rate which is at 6.4 per cent (against 5.5 per cent the previous year) and a 5.4 million tonne decline in foodgrain output from 212 million tonnes in 2003-04 to 206.4 million tonnes in 2004-05.

But it is on the fiscal front that the real test lies. When he presents the Budget on Monday, Chidambaram will require a Herculean effort to live up to his reputation of a fiscal hawk.

He has to contain fiscal deficit at the budgeted level of 4.4 per cent of GDP in 2004-05 as against 4.6 per cent the previous year and revenue deficit at 2.5 per cent.

This, the Survey hints, could be possible through a vigorous drive to collect tax arrears, mobilisation of minimum dividend payable to the government by PSUs, a 10 per cent ‘‘austerity drive’’ cutting budgetary allocations for non-plan and non-salary expenditure, restricting expenditure by ministries to 33 per cent in the last quarter between January and March. Chidambaram’s unrelenting emphasis on these factors could be the only way to keep fiscal targets under control.

Stepping up investment, the Survey says, must be major priority but five issues need to be addressed to make this a reality: the need to step up public-private investment in agriculture and allied activities, simplifying entry and exit procedures in industry, providing credit at low rates, providing infrastructure and higher FDI.

The target of over 10 per cent industrial growth projected in the Tenth Plan will not be achieved going by the current levels of investments, warns the Survey.

Areas of worry in the Survey has lack of job opportunities right at the top. With over four crore job seekers—70 per cent of them educated—registered with employment exchanges in 2004, the placement was a poor 1.03 lakh in the first eight months of the year.

West Bengal topped the list of job seekers and the Survey says there’s need to generate employment growth at a higher rate than the increase in labour force through more public investment in rural areas, enhanced funding to small and medium enterprises (SMEs) and large-scale employment in the construction sector.

The Survey points out that the organised sector, which contributes a small 7-8 per cent of the total workforce, saw employment decline by 0.8 per cent in 2003 due to a fall in public sector employment by one per cent.

Pointing out the excessive demands made on resources by the National Common Minimum Programme on the social front, the Survey admits that improved resources alone cannot guarantee the uplift of masses.

‘‘The efficacy of a large number of government programmes on the ground would have to be vastly improved through various measures,’’ the Survey states. The Centre’s expenditure on social sector services had increased by 185 per cent in a decade—from Rs 18,240 crore in 1995-96 to Rs 52,090 crore in 2004-05.

In yet another indicator of reforms, the Survey hints at more flexibility in capital account convertibility in the Budget as a measure to counter appreciating rupee.

‘‘Further liberalisation of the external sector is also likely to counter some of the upward pressure on the exchange rate of the rupee,’’ the Survey says. It, however, calls for ‘‘broad approach of caution, watchfulness and flexibility for the foreign exchange market to be continued.’’

Treading this path carefully, the Survey states that the current exchange rate policy of managing volatility with no fixed rate target, while allowing the underlying demand and supply conditions to determine the exchange rate movements in an orderly way, has stood the test of time.

India ranks eighth among the world’s most indebted countries, but prudent external sector policies pursued since the economic reform in 1990s places her at a comfortable level, the Survey states.

With an external debt of $ 113,590 million till September 2004, the Survey states, notwithstanding the increase, although moderate, in the absolute level of external debt, ‘‘both solvency and liquidity indicators show signs of continuous improvement.’’