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Human capital to power 9% growth: Economic Survey
Sanjeev Sharma/TNS

The report says

Gross fiscal deficit stands at 4.8% of the GDP Decline in FDI flow, a reason to worry Skill development, human capital to boost growth

New Delhi, February 25
The Economic Survey for 2010-11, presented in Parliament today by Finance Minister Pranab Mukherjee, states that the economy will grow by 9 per cent next year and the next level of growth will come from skill development and human capital. It also called for speeding up reforms in agriculture, infrastructure, banking, land acquisition, FDI and social sectors like education and health.

The Economic Survey, released just days ahead of the Union Budget, is a document presenting the state of the economy and its various components and is read carefully for signs of what to expect in the Budget. However, sometimes the survey ends up just being a prescription of what should happen in terms of policy and something entirely different takes place in the Budget.

The survey says that the gross fiscal deficit stands at 4.8% of the GDP down from 6.3% last year. The introduction of a Goods and Services Tax (GST) remains a top priority of the survey as it has done so in the past few years.

It is confident that with the initiatives to boost the higher education system, India will grow faster in the next two decades than it has at any time in the past. Inflation remains the dominant concern, as per the survey, and maintaining growth momentum with price stability, with an anti-inflationary monetary stance, will remain a key focus area of policy management.

On reforms in the banking sector, the survey has advocated granting new full banking licences for industrial houses, business houses and NBFCs with a provision for avoiding conflict of interest.

On FDI reforms, it has favoured a phased opening of foreign direct investments in multi-brand retail saying it could help address concerns of consumers and farmers, besides bringing technical know-how. Also, it has voiced concern over the decline in FDI flows “that are stable and productive”. It has also expressed concern over the fact that “majority of capital inflow is in the form of foreign institutional investors, which are volatile in nature” and says that FDI needs to be encouraged as compared to other capital.

The survey has paid immense attention to agriculture, which posted a surprisingly robust growth of 5.4 per cent this year. It says that capital investment in the sector both by public and private sector needs to be enhanced, targeted development of rainfed areas, linking the farmers to the market through a milk cooperative kind of model, investment in food processing, cold chains, packaging of processed foods, increasing livestock farming, fisheries, horticulture are among the prescriptions mentioned.

Batting for small businesses, it has stated that the medium and small enterprises sector is less favourably placed in availability of credit as compared to the larger industrial sectors and this bias needs to be corrected.

While calling for capacity addition in core sectors and removal of infrastructure bottlenecks, it has called for boosting R&D for India to become a manufacturing giant.

On infrastructure, it advocates huge capacity addition in a time-bound manner and given the recent controversies emphasis on the urgent need to streamline land acquisition and environment clearance for infrastructure projects.

For this, it has prescribed bringing parity between the compensation package admissible under the Land Acquisition Act (1894) and that applicable to land acquisition under the National Highways Act (1956) and setting up of a National Forest Land Bank, with clear paper work and titles to reduce approval time for forest clearance.

For the social sector, it has recommended better convergence of welfare schemes to avoid duplication and leakage and to ensure benefits reach to the targeted groups. There is scope for further improvements in the Mahatma Gandhi National Rural Employment Guarantee Scheme such as shifting to permanent asset building and infrastructure development activities, reducing transaction costs, better monitoring and extension of the scheme to urban areas.

It also calls for private sector participation in social sectors, such as health and education in the form of public-social-private partnership could be one of the possible alternatives for supplementing the on-going efforts of the government.

The survey has pointed out several risks on the balance of payments front. It says that the continuing sovereign debt risk in peripheral Eurozone countries could have a fallout for the Indian economy through reversal of capital flows and slowdown in exports.

On services, it has called for regulatory improvements as many domestic regulations and market access barriers come in the way of growth of this sector.