The government's Economic Survey for 2006-07, tabled in Parliament on Tuesday by the finance minister, contains little that has not been known or anticipated. As a report card on the economy's performance during the year, it has been upstaged by the introduction of the ministry's mid-year review and outlook at the beginning of the winter session of Parliament, which comes about three months ahead of the publication of the Survey. The regular release of data on prices, trade, industrial performance, tax collection and expenditure numbers, has in turn led to an improvement in general awareness of the state of the economy. Nor can the Survey's contents be seen as a pointer to what the Union Budget might contain, because its prescriptions reflect little more than the perceptions of the ministry's economic division, rather than a broader consensus across the full range of ministries that would be responsible for the implementation of reform measures. | |
| Nevertheless, this year's Survey comes out in an environment which, in one significant respect, has changed dramatically in the last three months. Inflation has moved from being a minor irritant on the macro-economic scene to becoming potentially a crisis. It is well known that this has as much to do with failures of the agricultural production and supply system as with overheating. This is one of the issues likely to figure in Parliament during the current session; it is most likely the only one that will resonate with the public. Expect the opposition to go to town with it. So, what solutions does the government offer? |
| |
| In a word, none. To the credit of the finance ministry, it has been quite candid in admitting that finding immediate relief for the problems in the supply of several food items, including the staples wheat and pulses, is difficult. It does refer to several measures that the government has implemented over the past few months to induce improvements in supply, but these will take time to have an impact, whatever it might be. Of course, in the absence of any reliable short-term measures, this would have been an opportunity to ram home the criticality of structural changes in agriculture. However, the Survey has resisted the temptation to put that issue centre stage in its list of "issues and priorities". |
| |
| The Survey is of course useful as a statistical compendium. Some of the numbers also serve to highlight the areas crying out for reform. For instance, the average collection rate (revenue from customs and countervailing duties as a percentage of imports) has dropped to 10 per cent--and this is a more useful number than the so-called 'peak' customs duty rate that is focused on in the Budget. But there are also categories like man-made fibres where the collection rate is still as high as 34 per cent. This does point to areas for reform in terms of the total tax incidence on different sectors. |
| |
| The Survey assures the reader that the feel-good factor (other than inflation) is real and enduring, and this is a credible claim. It points out a few threats but dismisses them as being "limited". One can only hope that this is not an excuse for complacency and the inaction that it inevitably results in. Apart from dealing with inflation, several infrastructure sectors are crying out for a big policy push. The finance minister cannot obviously do this single-handed, but he can provide an impetus. |
| |
|
| |
