By A.V. Vedpuriswar
-91
-00
-01
-02
-03
-04
-05
-06
-07
-08
GDP at factor cost Manufacturing Foodgrain (Mt) WPI FDI ($mn) FII ($mn) Forex reserves ($bn) IPOs (Jan-Dec)
5.6
6.1
4.4
5.8
8.5
7.5
9.4
9.6
8.7
9 176 12.1 97 0
2.2
40
51
72
108
136
145
272
525
1981
1940
12402
9918
24779
33912
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EIU forecasts
Key indicators Real GDP growth (%) Consumer price inflation (av; %) Budget balance (% of GDP) Current-account balance (% of GDP) Lending rate (av; %) Exchange rate Rs:US$ (av) Exchange rate Rs:100 (av) 2007 2008 2009 2010 2011 2012 8.7 6.4 7.8 5.8 7.2 5.5 7.4 5.2 7.7 5 8 5.2
35 34.5
38 38.1 37.6
Recommendations in survey
Complete the process of selling 5-10% equity in previously identified profit making non-navratna PSUs. Phase out control on sugar, fertilisers, drugs. Sell old oil fields to private sector. Allow a share for foreign equity in retailing. Raise foreign equity in insurance to 49 per cent.
Key challenges
Challenges
Although BPO, IT, Telecom, manufacturing have boomed in recent years, Indias economy remains mostly agricultural.
Many parts of the economy are cut off from free trade.
Restrictions on FDI make growing businesses difficult. Economic reforms, especially labor market reforms, have been slow in coming. Even without significant reform, Indias economy has performed so well (growing by 9.4% in the fiscal year ending in March 2007) that it may be overheating. Huge supply side challenges remain. Especially when we consider that by 2025 the country could have more than 580m middle class consumers - Source : The Economist
Unfairness and ambiguity Uneven enforcement Reservation for SSIs FDI restrictions Licensing
Unclear ownership Counter productive taxation Inflexible zoning, rent and tenancy laws
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Growth inhibitors
According to McKinsey (2001) these factors inhibit GDP growth to the extent of 4% plus every year.
Plan exp
Total exp Revenue deficit Fiscal deficit Primary deficit
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169,860
583,387 80,222 142,573 -7,699
207,524
709,373 63,488 143,653 -28,318
243,386
750,884 55,184 133,287 -57,520
15
Rural development
17,511
18,972
Agriculture
8,544
10,075
12,049
14,878
Education
23,073
29,054
Urban development
4,808
5,674
16
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Excise 15%
Customs 13%
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Excise
Service Tax
1007
142
1379
644
26
4
18
8
Other
Tax revenue Non tax rev Total revenue
9
3060 751 3811
18
6877 958 7835
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0
80 20 100
0
88 12 100
19
Budget deficit
Currently, the revenue deficit is 1% of GDP.
What
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India vs China
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If the profits of state-owned firms were also added in, the government could have a surplus of around 3% of GDP. China's public debt has also fallen to only 17% of GDP, well below the average ratio of 77% in OECD economies.
Indeed, China has the best fiscal position of any big country, giving the government plenty of room to cushion the economy if demand suddenly falls. By contrast, India, though improving, has one of the worst fiscal positions in the world.
The Indian government claims it has reduced its deficit to an estimated 3.3% of GDP in the year ending March, from 6.5% in 2001-02. However, in a recent report the IMF argued that the true total deficit is closer to 7% of GDP once we add in the state governments' deficits and various off-budget items. If the losses of state electricity companies are also added in, the total deficit could cross 8% of GDP. India's public debt is also uncomfortably high at about 75% of GDP.
(The Economist)
Newspaper editorial
Should the Fiscal Responsibility and Budget Management (FRBM) Act be scrapped? For this law seems to be having the perverse effect of making the government hide more and more of its expenditure and not show it in the Budget. The finance minister can then claim that he is meeting FRBM targets, when in truth he is not. Scrapping the law might encourage more honest budgeting. Business Standard
Sectoral Reforms
Agriculture
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Industry
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32
Retail
Financial sector
Pensions
The existing formal pension channels dont cover unorganised sector workers. Given the dismal levels of penetration of financial services, a majority of Indian people are not contributing towards their oldage security.
The Pension Bill could bridge that gap, and give people greater control over their retirement benefits.
Pensions ( Cont..)
But the Left has been a stumbling block
In 1981, Ronald Reagan launched the 401K plan in the US. The US pension industry, which was $60 billion then, is today a $9 trillion industry, with most of the money invested in equities.
Under the shadow of the Left, the government has not moved on increasing FDI limits from 26% to 49% in insurance .
The same will require just five days in the US, six days in Singapore and 48 days in China.
According to a World Bank 2007 survey, Ease of Doing Business, India is ranked 177th out of 178 countries in enforcing business contracts.
Education
Higher education is a dark spot. Though FM has enhanced allocation for education, he hasnt done much for higher education. Starting a few IITs is not going to make much difference to the country. Bold steps are called for to open the sector. While steps have been announced to invest in skills development and education, clearly they are timid. Nandan Nilekani, Economic Times, March 1
We are very keen to do more in these areas but we have our resource constraints. So we cannot do everything at one go. Manmohan Singh, Economic Times, March 1
Conclusion
Generous grants, compression, righteous rule and succour to the downtrodden are the hallmarks of good governance. P. Chidamabaram in his Budget speech
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