Economic Survey 2013 is lucid, bereft of brainwaves

The pre-Budget Economic Survey tells a story of self-inflicted economic pain, while being optimistic on growth reviving in the next fiscal. It calls for curbing the fiscal deficit and cutting down on wasteful subsidies to that end. But it clearly argues for protecting developmental expenditure so as to preserve growth, which means raising tax collections to reduce the deficit. The Survey also explicitly calls for augmenting tax revenues by broadening the tax base rather than by increasing marginal rates of tax. That should spell good riddance to all that talk of a new super-rich tax. The Survey makes a lot of sense when it stresses the need to boost savings as the right way to rein in the burgeoning current account deficit. The Survey makes it clear that gold imports can be curbed primarily by making financial investment avenues more lucrative. This could translate into additional incentives for household financial savings. Growth has been tardy because of a steep fall in investment, particularly by the private corporate sector. This, in turn, has two drivers. Inflation-constrained RBI has raised interest rates and policy paralysis has kept projects dangling for want of clearances.

Unlike last year, the key component of inflation this year is food grains: 17% in the third quarter. This, at a time when the government is sitting on stocks of 70 million tonnes of grain. The minister and top babus in the food ministry should be sacked forthwith, for creating food inflation and stalling investment and economic growth in general. The Survey is silent on the need to scrap state monopoly over coal, which is one factor in distorted coal linkage allocation and the principal factor in fuel shortage that is making 50,000 MW of power capacity lie idle. So is the Survey silent on the judicial curse that has laid the country’s mining sector barren and stunted telecom. The Survey is gung-ho on the role of the small and medium industry in creating new organised sector jobs. The RBI should heed the finding that a variegated banking system that allows for small, localised banks supports the small and medium sector. On the whole, the Survey captures the large picture rather well.