November 20, 2002
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Money > The Economy: Mid-Year Review - I November 20, 2002 |
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A healthy report card is in the offingP Vaidyanathan Iyer in New DelhiEven as Finance and Company Affairs Minister Jaswant Singh busies himself preparing a mid-term review of the economy, his ministry's action taken report for the April-October period reveals that the uncertainties plaguing the financial markets have been more or less taken care of. For the economic division in North Block under newly-appointed Chief Economic Advisor Ashok Lahiri, there are a number of macroeconomic indicators which clearly signal an economic upturn. The CEA is working overtime to give a fair picture of the fisc to the finance minister who is scheduled to present his mid-term review in Parliament along with the supplementary demand for grants early December. Recovery is evident in industrial production with the index of six infrastructure industries posting a 6 per cent growth in the first half of this financial year compared to 1.5 per cent during April-September 2001. The gross domestic product grew at a year-on-year rate of 6 per cent in the first quarter, exports at $ 23.97 billion in the first half are up 13.5 per cent, foreign exchange reserves crossed the $66 billion mark and inflation for the week-ended November 2 at 3.12 per cent continues to be below 4 per cent. To top it all, Moody's Investor Services said it would review India's foreign currency ratings for a possible upgrade. Senior finance ministry officials say that Jaswant Singh would present quite a comprehensive picture of the Indian economy in his mid-term review. Not only will it look at the finance ministry's actions objectively, of why a particular course was chosen given the circumstances, but it will also look at tax-GDP trends, the expenditure pattern this year, revenue shortfalls anticipated, and the road ahead. Jaswant Singh's review is expected to take the form of a 30-page mini-survey of the economy. Nonetheless, the growth prospects for the full financial year, do not reflect as rosy a picture as it did for the first quarter. While recasting the GDP growth figures downwards to 5.5 per cent in his first supplementary demands for this year in July end, the finance minister had projected that the services sector would grow at 6.9 per cent and industrial output at 5.9 per cent. He was also optimistic about a 3.5 per cent growth in agriculture. But, the drought _ the worst in the last few years _ has queered the pitch for high growth. The poor monsoon in parts of the country have raised concerns about a significant drop in agricultural growth. According to some preliminary Confederation of Indian Industry estimates, kharif food grain output is expected to fall 18 per cent in the current year. The expected food grain output of 90.8 million tonnes is the lowest since 1997-98. While it is felt that the impact of low foodgrain production on GDP growth would not be significant, the finance ministry too believes that the impact on the fisc because of the drought would be marginal. Officials claim that the unutilised funds to the tune of almost Rs 11,000 crore in various Plan schemes and the National Calamity Contingency Fund would be enough to take care of the states' demands for drought relief. A quick look at the various steps taken by the finance ministry since the Budget was presented shows a healthy report card. A one-time settlement scheme for small and marginal farmers has been announced, 51 items including 10 agricultural implements dereserved, postal rates revised, 32 agri-export zones set up, a new corporation for agricultural insurance approved, the issue of securitised power bonds for states resolved, and five tourism circuits identified for development. In the financial sector too, administered interest rates have been cut, an asset reconstruction company set up, the foreign exchange allowance for individuals raised from $5,000 to $10,000, prepayment of external commercial borrowings freed, flexibility in deposits and citizens allowed to keep foreign currency deposits up to the amount earned or retained from travel expenses. Institutional issues have also been vigorously pursued by the ministry in the last three months. The Unit Trust of India restructuring proposal has been approved and an ordinance to strengthen the capital markets regulator, the Securities and Exchange Board of India, has been issued. The IDBI restructuring package has been approved by the Cabinet and a lasting solution for IFCI with the institution being converted into an asset reconstruction company is being hammered out. According to the ATR prepared by Jaswant Singh, next on the anvil is corporatisation of stock exchanges, on-line trading in debt-market securities and a pension structure for organised and unorganised sectors. The activity steps outlined after this related to improving effectiveness in the RBI for monitoring and supervising banks, FIIs and cooperative banks. Also, interest rate derivative trading and a commodities future market particularly in plantation crops are likely to be introduced soon. However, the government's position on issues like divestment and labour reforms are ambiguous. Privatisation of state-owned companies has suddenly hit a roadblock with the Centre realising only 25 per cent of its total divestment receipts of Rs 12,000 crore (Rs 120 billion) budgeted for the current financial year. Infrastructure inefficiencies and inflexible labour law regulations continue to plague Indian industry. State finances remain in a mess with the Centre's efforts to work out a Rs 90,000-crore (Rs 90 billion) debt-swap programme being rejected by the states. What is most worrying for Jaswant Singh is the huge shortfall in revenue collections this year too. According to initial estimates, there will be a shortfall of at least Rs 15,000 crore (Rs 150 billion) this year. The Central Board of Direct Taxes expects to mop up about Rs 82,000-84,000 crore (Rs 820-840 billion) while the budget estimate is Rs 91,000 crore (Rs 910 billion). Even in indirect taxes, the current revenue growth of about 15 per cent falls short of the required 21 per cent growth for the full year, indicating a shortfall of Rs 7,000 crore (Rs 70 billion). As far as government expenditure is concerned, on the non-Plan side, certain ministries and departments have shown a disconcerting increase vis-a-vis the corresponding period last year. For example, in the ministry of agriculture, the increase is of the order of Rs 170 crore compared to the corresponding period last year, constituting 81 per cent of the budget estimate (BE). In the ministry of communication and information technology, it is to the extent of 135 per cent of the BE. Bunching in Plan expenditure by ministries also looks inevitable. The booking in case of at least 20 departments and ministries is as low as between 1-17 per cent. While the RBI has projected that the government will overshoot its borrowing target by Rs 15,000 crore-Rs 20,000 crore during the current financial year, the finance ministry is still hopeful that it would keep it within the BE. The fiscal deficit target of 5.3 per cent of the GDP for 2002-2003 is, however, likely to be breached given the shortfall in revenue. Overshooting of expenditure too on account of drought is likely given the pressure from the states. Powered by ALSO READ:
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