The Economic Survey 2007-08, while upbeat on the over $1 trillion economy, has prescribed a flurry of possible reforms that would help to sustain growth at nine per cent, and reach double-digit levels in future
from the estimated 8.7 per cent for the year 2008.The survey had a touch of the French President, Mr Nicholas Sarkozy, as it recommended increasing the workweek to 60 hours from the current 48, and a daily limit of 12 hours to meet seasonal demands through overtime. President Sarkozy also wants the French to work more and produce more.The survey, which was tabled in Parliament on Thursday by the Union finance minister, Mr P. Chidambaram, noted that the economy had achieved a higher trajectory of growth in the past five years, but “the challenge to maintain growth has become more complex because of the increasing globalisation of the world economy and growing influence of global developments, economic as well as non-economic.” It noted that infrastructure constraints are more binding and there is “heightened urgency” to augment and upgrade infrastructure, both physical and social, and in particular in the areas of power, ports and roads.Mr Chidambaram summed up the outlook for 2008-09 with the phrase “optimism with caution as the watchword.” He said: “There are a number of things going in favour of India. We need to capitalise on these opportunities while at the same time responding to the evolving situation in the global economy in a manner that our growth story is not affected.”The slew of reforms suggested by the survey include private sector
entry into coal mining, phasing out controls on sugar, fertiliser and drugs, raising foreign equity in insurance to 49 per cent, allowing of foreign equity in all retail trade and allowing 100 per cent FDI in greenfield private agricultural rural banks.The survey stressed the need for “unprecedented amounts of capital with macroeconomic stability”, and said this would need public-private participation. It suggested that the government should provide incentives and motivation so that PPP could perform at its best.Talking of the two inter-related macro-economic challenges the country faces in maintaining high GDP growth on a sustained basis, the survey zeroes in on the two “I”s: inflow of capital and inflation. Capital inflows, it said, had spurted to an average four per cent of GDP, which was far in excess of current account financing requirements. This leads to large accumulation of reserves and a buildup of pressure on prices. Foreign exchange reserve accumulation was of the order of $ 15.1 billion in 2005-06 and $36.6 billion in 2006-07. So the excess of capital inflows has risen to 7.7 per cent of GDP in the first half of 2007-08, and foreign exchange reserves increased by $91.6 billion to $290.8 billion as on February 8, 2008.The survey notes that foreign capital chases growth as a profitable investment opportunity. However, if growth opportunities are stifled by infrastructure bottlenecks, credit squeeze, inflation etc., and do not materialise, this huge inflow will see accumulation of reserves and will put pressure on the Indian rupee to appreciate. The Reserve Bank spends Rs 8,200 crores to sterilise dollar inflows. The composition of capital inflows is also changing, with debt inflows, primarily external commercial borrowings (ECBs), shooting up to $16.2 billion in 2006-07.The Indian economy seems to be in a challenging cycle of huge inflows of capital and the problems of plenty and it is bending under the weight of plenty. How and why did the deceleration of the economy or moderation of industrial growth start? Almost all sectors, except for electricity, transport, hotels, communications and other services, were down. The deceleration in agriculture was due to the slackening in growth of the rabi crop.Manufacturing and construction decelerated by 2.5 percentage points in 2007-08. Cement and steel key inputs for construction also decelerated to 7.4 per cent and 6.5 per cent respectively in April-December, from 10.8 per cent and 11.2 per cent in the previous year. There was also a deceleration of growth of revenue-earning freight traffic by the Railways, passengers handled at airports and bank credit in April-November 2007-08. In short, the outlook for growth is slower, but it can be accelerated through reforms. This will be one of the biggest political challenges for the Manmohan Singh government.
Gold at home makes us richNew Delhi, Feb. 28: India is glittering. Indians have grown richer by $50 billion in the past two months even as the world witnessed a stock market meltdown across bourses, leaving many on the Forbes list poorer by billions of dollars. Over the past four years, Indians have seen their net worth soar by $320 billion — a return that would do Warren Buffet or George Soros proud. The secret to this new-found prosperity when investors worldwide are ruing their falling fortunes is India’s craving for gold.
(FROM
http://www.deccan.com/home/homedetails.asp#Faster%20reform%20plan%20unveiled)
