7%-plus Growth?

GDP growth in the Ninth Plan was about 5.4 per cent vs the targeted 7 per cent. According to the CSO advance estimate, growth in 2002-03, the first year of the Tenth Plan, may be just 4.4 per cent. True, the dip in growth is due to the last kharif season’s drought. But even if rain was normal, poor infrastructure, lack of aggregate demand and depressed investment climate would have constrained growth to around 6 per cent, well below the 8 per cent Plan target. If this target is to be considered seriously, this budget must vigorously push growth.

There are several ways it can do so. The first and foremost is to step up public investment. The last few budgets promised a lot but delivered little. The share of public expenditure in GDP has steadily declined since the mid-’90s, with no corresponding rise in private investment. Actual capital expenditure, especially in agriculture and infrastructure, has fallen short of budget estimates for long, as have tax revenues, while non-Plan expenditure has shot up. Jaswant must ensure that capital expenditure is not diverted. If there is a shortfall in revenue, efforts should be made to mobilise more funds rather than cut capex.

The present pattern of resource allocation and budgetary subsidies are not really conducive to growth in the long run. Agriculture needs a new strategy. Resources need to be diverted from traditional crops to promotion of food processing, biotech and non-farm rural activities. Jaswant must cut subsidy for cultivation of rice and wheat not only to save money but also to change the relative prices.

Resources from disinvestment should not be used as general revenue but only for new investments. We should disinvest first in unwarranted and unproductive public enterprises rather than the lucrative oil and telecom sectors. To promote private investment, the interest rate anomaly should be corrected, whereby consumption loans are cheaper than credit for investment in agriculture and infrastructure.

Finally, the budget mustn’t discourage household savings, the biggest contributor to growth in aggregate savings and investment. The Kelkar Committee recommendations for indirect taxes may be implemented but those for direct taxes must be modified to ensure that household savings and investments are not hurt.

What Should Be Done

• Cut subsidy on wheat and rice. Invest instead in modernising the farm sector.
• Disinvest useless PSUs first. Use money for public investment. At any cost, raise public expenditure.
• Don’t implement Kelkar report in toto. Modify suggestions on direct taxes.