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President calls for tough economic measures

Expressing concern over the growing fiscal deficit, President K R Narayanan today stressed the need for adoption of tough economic measures in the coming financial year, including downsizing the government, reduction in government expenditure and subsidy provided on various goods and services as well as curbing the rise in non-plan expenditure.

Addressing both houses of Parliament at Central Hall, he said India can truly hope to achieve more than seven per cent growth in the coming years, if the country achieved fiscal consolidation by taking difficult economic decisions.

He said in view of the upturn in the economy during the current financial year, the reform process has to be accelerated by modernizing the tax system and improving the tax-to-GDP ratio. The programme of disinvestment and restructuring of Public Sector Undertakings also needs to accelerated, Narayanan said.

Pointing to the growing fiscal deficit, Narayanan said, ''This is undoubtedly the most challenging macro-economic management problem faced by us''.

''The deficit reduces public investment, crowds out private investment, raises interest rates and generates inflationary pressure. The burden of interest payments continues to be large at above four per cent of GDP, accounting for about two-thirds of tax revenue of the central government net of states' share,'' the President said and added that subsidies on non-merit goods have to be brought down in a phased manner.

Listing out the achievements in the current financial year, Narayanan said the government had started implementing medium-term economic agenda, which includes revamping the Telecom Regulatory Authority of India, promotion of IT industry and enactment of the insurance regulation and development authority act.

He said the government has also re-designed the foreign direct investment policy, ensuring an automatic route for FDI clearance in all major areas except a small list.

''A major milestone in tax reform was achieved with the introduction of a uniform rate of sales tax throughout the country from January 1, 2000. This was made possible by close co-operation between the Centre and states'', Narayanan said and added that stock indices have also shown an upward trend.

Narayanan said economic growth in 1999-2000 is expected to be around six per cent while inflation remained well under control. Foreign currency reserves stood at a comfortable level of around 32 billion dollars.

On the financial position of states, Narayanan said state government finances have shown signs of rapid deterioration in nineties. In the previous year (1998-99), a very high gross fiscal deficit of states was noticed, amounting to over Rs 750 billion, touching a level of 4.3 per cent of GDP.

The central government has also initiated necessary measures in consultation with states, to seek policy reforms aimed at fiscal correction and consolidation to bring about long term sustainability of fiscal position, he added.

''If sacrifices are to be made for achieving this challenging goal (vibrant economy), they are well-worth making because the long term rewards of restructuring will benefit all Indians and will far outweigh the temporary costs'', Narayanan said while stressing the need for containment of fiscal deficit.

On the WTO, the President said India has always pursued its mission for greater equity and symmetry in trade relations and for avoidance of linkage of trade with extraneous issues.

''Economic integration cannot advance if the interests of poor are ignored. As a developing country, India is sensitizing other member nations in reality'', he said and pointed out that India will continue to work for the establishment of a rule based, non-discriminatory multilateral trading system, which is fair and equitable to all nations.

Narayanan said the government is committed to implementing the social and economic agenda with an aim to expand economy and ensuring growing employment and rising income for all citizens.

''Unless India's GDP grows at a brisk rate of seven to eight per cent, there is no way we can banish poverty and underdevelopment'', he said and emphasised that higher growth alone will ensure large resources for social sector.

UNI

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