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THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS
B U S I N E S S

Survey calls for harmonious
Centre-state fiscal reforms

New Delhi, February 25
Concerned over the fiscal deterioration of state governments, Economic Survey 2004-05 has said fiscal consolidation cannot be sustained without the active involvement of the states.

Push for power reforms
New Delhi, February 25
The government is determined to push reforms in power sector with full throttle while winning over the Left parties on this issue. It has assured the Leftist parties to continue subsidised power to the agriculture sector and liberal funds for the rural electrification.

Industry welcomes thrust on reforms
New Delhi, February 25
The industry today welcomed the overall thrust on reforms as spelt out in the Economic Survey (2004-05).

Bad monsoon, oil prices blamed for inflation
New Delhi, February 25
Economic Survey 2004-05 today attributed the steep increase in the rate of inflation to exogenous factors such as deficient monsoons and volatile global crude oil prices.


Graphic: State of the Indian Economy


EARLIER STORIES

 

Survey for review of FDI policy
New Delhi, February 25
Economic Survey 2004-05 today called for further liberalisation of the foreign direct investment (FDI) policies as such investment triggers technology spillovers, assists human capital formation and contributes to international trade integration.

Nobel laureate Amartya Sen addresses a press conference at the Kolkata Press Club on Thursday. Subsidy in some areas must: Amartya
Kolkata, February 25
Addressing a crowded press conference at Kolkata press club last evening, the Nobel laureate, Dr Amartya Sen, lashed out at the government decision to ban subsidy on certain priority sector items. The subsidy has been a necessity in the under-developing economic situation in the country, particularly in areas like agriculture, healthcare and rural development works, pleaded Dr Sen.


Nobel laureate Amartya Sen addresses a press conference at the Kolkata Press Club on Thursday. — ANI photo

Syndicate Bank to expand abroad
Ludhiana, February 25
Upbeat on the government decision of granting autonomy to public sector banks, Syndicate Bank is gearing up to exploit new opportunities that it expects in the form of expansion of its operations, both domestic as well as overseas.
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Survey calls for harmonious Centre-state fiscal reforms
Tribune News Service

New Delhi, February 25
Concerned over the fiscal deterioration of state governments, Economic Survey 2004-05 has said fiscal consolidation cannot be sustained without the active involvement of the states.

The survey projected a marginal decline in fiscal deficit to 4.4 per cent of GDP in 2004-05 from 4.6 per cent a year ago due to a sustained reforms drive and suggested the government to undertake major tax reforms and curtail wasteful expenditure to carry forward the process.

“Sustaining the reform process in tax and expenditure regimes is a sine quo non for achieving the targets set under the FRBM Act,” it said. Fiscal deficit, which came down from 6.6 per cent of GDP in 1990-91 to 4.1 per cent in 1996-97, started rising continuously to reach 6.2 per cent in 2001-02.

Fiscal reforms at the Centre and states should be complementary and there should be “harmonisation” of fiscal reforms policies at both ends, the survey said. “The proposed introduction of state-level Vat is a welcome step in the move towards harmonising tax structures across state”, it said adding that establishing a national common market for goods and services would require “carrying forward this process of coordination”.

The survey voiced grave concern over the rising internal debt situation of states. Outstanding liabilities of states as a proportion of GDP shot up to 29.4 per cent (2004-05) as per budget estimates. In addition, another worrisome feature of state finances is the rapid growth in off-budget borrowings.

The survey indicates that outstanding guarantees of states governments, which increased from 4.4 per cent of GDP in 1995-96 to 7.5 per cent in 2002-03, was a major cause for concern. “Many of these guarantees have been given to special purpose vehicles, whose liabilities will ultimately revert to the state governments”, the survey said.

The survey also calls for further simplifying and streamlining the present tax system. “The higher tax revenues have to be realised not through increasing tax rates, but through innovative changes in policies, procedures, laws and dispute settlement mechanism that help overcome the problems associated with the present complex system”, it said.

The tax base needs to be widened through increase in the share of services in tax revenues, removal of exemptions that do not conform to the established principles of tax policy, and an enforcement mechanism that is “non-discretionary, transparent and effective”.

The rise in expenditure in states have largely been attributed to growing spending on wages, pension, interest, losses of PSUs, lower transfer of funds from Centre and slower growth in tax revenues as the major cause of fiscal woes of states.

The gross fiscal deficit of states mounted to Rs 1,11,852 crore till 2003-04 from a meagre Rs 18,787 crore in 1990-91, according to the survey. Outstanding liabilities of states stood at a staggering Rs 9,13,103 crore in 2003-04 from Rs 1,60,075 crore in 1993-94.

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Push for power reforms
Tribune News Service

New Delhi, February 25
The government is determined to push reforms in power sector with full throttle while winning over the Left parties on this issue. It has assured the Leftist parties to continue subsidised power to the agriculture sector and liberal funds for the rural electrification.

Meanwhile, the total electricity subsidy bill is estimated to surge to Rs 36,000 crore during 2005-06 from Rs 7,449 crore during 1991-92. It includes subsidy to the agriculture sector amounting to Rs 25,377 crore. The commercial losses of the power utilities are expected to reach Rs 22,013 crore in 2005-06 from Rs 4,117 crore in 1991-92.

The Economic Survey for the year 2004-05 released by Finance P. Chidambaram in the Lok Sabha today indicated that the government had decided to continue with the electricity reforms by the previous NDA government under the Electricity Act 2003. It asserted that a continued focus on open access and level playing field for the present and future participants would be required to obtain competitive conditions.

It notes that during April-December 2004, it has increased by 6.5 per cent as compared to 3.4 per cent in the corresponding period last year, touching 437.9 billion KWH. During 2004-05, the power generation is anticipated to touch 583.8 billion KWH, a growth of 4.6 per cent over the last year.

The Left parties have been demanding the review of electricity reforms while seeking to continue with the subsidised power for the agriculture sector and weaker sections besides Central support for the rural electrification.

Referring to a study by the Central Electricity Authority (CEA), it observes that India has an estimated unutilised hydro power potential of more than 1,50,000 MW. Out of these, Power Ministry has identified 162 most promising projects spread over 16 states, with an aggregate capacity of 50,560 MW.

The power reforms have, however, helped improve the financial health of the state electricity boards and Central power generation companies. The government is expecting to achieve financial closure of eight independent power agreements worth 10,000 MW capacity and proposed investment of Rs 33,000 crore by this month end.

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Industry welcomes thrust on reforms
Tribune News Service

New Delhi, February 25
The industry today welcomed the overall thrust on reforms as spelt out in the Economic Survey (2004-05).

President of Federation of Indian Chambers of Commerce and Industry (Ficci), Mr Onkar S Kanwar, said the stress laid on labour reforms is heartening. The need for such reforms has become imperative in view of the proposal for lowering duties to Asean levels, he said.

President of the Confederation of Indian Industry (CII) Sunil Kant Munjal said the Survey has indicated that the economy is on a growth path.

Mr Munjal said the growth performance in 2004-05 is especially creditable due to high global oil and steel prices and the rather weak agriculture performance on account of deficient rainfall.

Mr Munjal also welcomed the Survey’s emphasis on investment in agriculture and infrastructure and its stress on improving the investment climate by simplifying procedures and relaxing entry-exit barriers.

President of PHD Chamber of Commerce and Industry (PHDCCI) K. N. Memani said priority should be to take urgent steps to build a strong political consensus to put economic reforms on fast track.

President of Associated Chambers of Commerce and Industry of India (Assocham) M. K. Sanghi has hailed measures enunciated in the Economic Survey for speeding reforms in labour laws, FDI in retail, insurance and coal, describing them as prudent and pragamatic to lead to India to higher growth.

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Bad monsoon, oil prices blamed for inflation
Tribune News Service

New Delhi, February 25
Economic Survey 2004-05 today attributed the steep increase in the rate of inflation to exogenous factors such as deficient monsoons and volatile global crude oil prices.

At the same time, however, it remained silent on any projections on the price line in the coming fiscal year.

“Quick monetary and fiscal measures taken by the RBI and government, coupled with a slight easing of global petroleum prices, inflation has been on a declining trend and stood at 5.01 per cent on February 5 compared to 6.1 per cent a year ago”, the Economic Survey said.

In the current year, annual point-to-point inflation in terms of the Wholesale Price Index (WPI), after accelerating from 4.5 per cent in April 2004 to a peak of 8.7 per cent in August, has been on a decelerating trend since September 2004.

However, because of the higher inflation in the early part of the year, the 52-week average inflation rate of 6.5 per cent in January this year, was higher than 5.5 per cent registered a year ago. Average annual WPI inflation, which decelerated from 10.6 per cent in the first half of 1990s to 4.1 per cent during 2001-02 to 2003-04, reversed in 2004-05 with pressure on prices across all groups of commodities. Consumer Price Index (CPI) for industrial workers, which is considered as a more appropriate indicator of general inflation stood at 3.8 per cent in December, 2004, lower than average WPI inflation of 6.7 per cent during the same period.

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Survey for review of FDI policy
Tribune News Service

New Delhi, February 25
Economic Survey 2004-05 today called for further liberalisation of the foreign direct investment (FDI) policies as such investment triggers technology spillovers, assists human capital formation and contributes to international trade integration.

The survey also expressed concern over the imbalance between short-term portfolio investment (FIIs) and long-term FDI investments.

“India’s capital account in recent years has gained far more strength from short-term FDI flows. This necessitates revisiting FDI policy and identifying constraints impeding FDI inflows. Procedural simplifications are likely to encourage much greater FDI inflows”, the survey said.

Aggregate foreign investment flows experienced a rapid rise during 2003-04. While FDI increased only marginally (by around $ 200 million), net portfolio flows witnessed an eleven-fold increase accounting for nearly 77 per cent of net foreign investment inflows.

On FDI policies, the survey said that FDI contributes to higher economic growth. The benefits from FDI do not accrue automatically and evenly across countries and sectors.

“In order to reap the maximum benefits from FDI, there is a need to establish a transparent, broad and effective enabling policy environment for investment and to put in place appropriate framework for their implementation.

Such as environment must provide incentives for innovations and improvement of skills and contribute towards improved competitiveness”, the survey said.

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NPA cut can help reset lending rates
Tribune News Service

New Delhi, February 25
The Economic Survey 2004-05 today said the continuing reduction in the non-performing assets (NPA) levels and interest expenditure should enable banks to set the lending rates on a more realistic basis.

It also pointed out that the declining role of Development Financial Institutions (DFIs) poses a challenge to banks in meeting the long-term requirement of funds.

“Adherence to the FRBM Act stipulations is likely to reduce the exposure of commercial banks to government paper and enable banks to undertake long-term financing to the commercial sector. For this, banks need to hone up their skills in project financing”, it said.

Non-food credit grew by over 24 per cent till January 21 and in absolute terms, the incremental non-food credit stood at Rs 1,94,688 crore, the highest growth witnessed since 1996-97, it said.

The introduction of the Benchmark Prime Lending Rates (BPLRs) has, to an extent, addressed the problem of downward rigidity of lending rates. 

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Caution over poor infrastructure
Tribune News Service

New Delhi, February 25
Economic Survey (2004-05) today cautioned that inadequate infrastructure and procedural bottlenecks could impede industrial growth.

“The outlook for the industrial sector will further brighten if constraints like infrastructure bottlenecks and shortages, labour market rigidities, entry and exit barriers, land acquisition and multiple stages and levels of approvals are removed”, the survey said.

Further, there is also a need for improved Centre-state interface for better coordination between Centre and state governments, it said. The survey also appreciated the economic reforms process and the sound fundamentals of the economy. It said India is ready for a big push as the growing interest of foreign investors is coinciding with the riding confidence of domestic private investors.

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Stress on role of pvt players
Tribune News Service

New Delhi, February 25
The Economic Survey for 2004-05 presented to Parliament today emphasised on further opening up of three core infrastructure sectors - road network, telecom and urban development - for private players while projecting a mixed picutre of progress in these sectors so far.

While the telecom sector presented a rosy picture with tele-density increasing from 2.32 to 8.2 per cent since the Telecom Policy was implemented in 1999, progress in the much-hyped National Highway Development Project (NHDP), launched by the previous NDA government seemed to have been slowed down, it indicated.

Work on the Golden Quadrilateral (GQ) project of 5,864 km connecting Delhi-Kolkata-Chennai-Mumbai and North-South and East-West corridors of 7,300 km, which were to be completed by 2004 had been lagging, as per the survey report.

Under the Pradhan Mantri Gram Sadak Yojna (PMGSY) for rural areas, also launched by the NDA Government with fully Central funded scheme, the survey has identified 1.70 lakh remote villages which had not been connected with any road network since independence.

It said that there was immediate need of constructing a road network of 3.69 lakh km in rural areas across the country with huge expenditure of Rs 1,33,000 crore to provide some sort of connectivity to these villages.

In the telecom sector, the survey emphasis on attracting more FDI minimising the role for Government to achieve the target of providing 250 million phone connections by 2007, which at present stood over 88 million.

The survey said that FDI was the only source to achieve higher tele-density the country as it still legged far behind of two developing nations - Chania and Brazil - in terms of expansion of telecom network tele-density of over 42 per cent. Between 1999 and August 2004 a total of 926 FDI proposal with Rs 41,368 crore were approved by the government, it said.

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Futures market requires regulation
Tribune News Service

New Delhi, February 25
The development of an efficient commodity futures market, where major agricultural commodities are traded, requires the establishment of a sound regulatory framework, Economic Survey 2004-05 tabled in Parliament today said.

“Convergence between commodity futures market and other derivatives markets would induce economics of scale. It would help in the utilisation of capital investments and institution building, which has already taken place for the derivatives market, for the purpose of agricultural sector,” the Survey said.

It said the commodities market has introduced various innovations which would increase efficiency of agricultural marketing in the country.

The Survey said there are several gaps in the agricultural credit like inadequate provision of credit to small and marginal farmers, paucity of medium and long-term lending and delimited deposit mobilisation and heavy dependence on borrowed funds by major agricultural credit purveyors.

“These have major implications for agricultural development as also the well-being of the farming community. Efforts are, therefore, required to address and rectify these issues,” it said.

The Survey expressed concern over the decline in the share of the agricultural sector’s capital formation in GDP from 1.92 per cent in the early 1990s to 1.28 per cent in the early 2000s is a matter of concern.

This declining share was mainly due to the stagnation or fall in public investment in agriculture, it added.

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Sustained high growth can tackle poverty
Tribune News Service

New Delhi, February 25
Calling for “vast improvement” in efficacy of poverty alleviation schemes, the Economic Survey has said that higher levels of expenditure on social sectors could be sustained by refixing priorities in expenditure and rationalising subsidies.

The Economic Survey, which was tabled in Parliament today, said rationalisation of subsidies would release resources which could be better targeted at the poor through specific social sector programmes.

It said sustained economic growth was a guarantee for tangible social sector development. “Adverse macro economic imbalance and high inflation affect the poor and vulnerable segments of population adversely... it is important that the high growth rate of economy is sustained over a longer period.”

The Economic Survey said availability of resources alone cannot guarantee social sector development. “The efficacy of a large number of government programmes on the ground would have to be vastly improved. An efficient management and improved delivery are essential to implement most social sector programmes through decentralised system of Panchayti Raj institutions,” it said.

Pointing to UNDP’s Human Development Report, it said though India was grouped among the countries in the “medium” category, some components of human development indicators for health and education continued to lag behind.

It said the Central Government expenditure on social services, including rural development had increased from Rs 18,240 crore in 1995-96 to Rs 52,090 crore in 2004-05. It said the 10th plan had set a target of reduction in poverty ratio by five percentage points.

The Survey said National Rural Employment Guarantee Bill had been introduced in Parliament in December 2004 for which an outlay of Rs 13,466.40 crore has been provided for 2004-05.

About health, it said the plan outlay for Central sector schemes during 2004-05 was pegged at Rs 2208 crore, about 55 per cent of which continued to be spent on Centrally-sponsored disease control programmes. Expressing concern at the growing AIDS infections in the country, the Survey said nearly 5.1 million people in the country were living with HIV\AIDS by the end of 2003.

Referring to the National Population Policy,2000, the Survey said the long-term objective was to achieve population stabalisation by 2045 at a level consistent with the requirements of sustainable economic growth.

“Under the mandate of NCMP, the expenditure in the health sector is proposed to increase from 0.9 per cent of GDP to 2-3 per cent of GDP over the next five years,” the Survey said.

Regarding welfare of persons with disability, the Survey said mentally challenged children and those having cerebral palsy and severe hearing impairment will be provided scholarship for education in classes IX and X. 

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Package for SSI on anvil
Tribune News Service

New Delhi, February 25
After revamping the agricultural credit, the government is formulating a new package for small enterprises that would comprise measures to provide adequate credit, incentives for technology upgradation, infrastructure and marketing facilities. It will be announced shortly.

A legislation is also planned to integrate the small and medium enterprises and to free them from “inspector raj,” said the Economic Survey 2004-05 released here today. The legislation may be brought in the ongoing Budget session itself.

Over the past five years, the small- scale industry (SSI) sector has registered a continuous growth in the number of units, production, employment and even exports. Job opportunities in the informal sector has increased to 2.83 crore in 2004-05 from 2.72 crore during the previous year, registering a growth of 4.2 per cent, said the Economic Survey. 

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Subsidy in some areas must: Amartya
Subhrangshu Gupta

Kolkata, February 25
Addressing a crowded press conference at Kolkata press club last evening, the Nobel laureate, Dr Amartya Sen, lashed out at the government decision to ban subsidy on certain priority sector items.

The subsidy has been a necessity in the under-developing economic situation in the country, particularly in areas like agriculture, healthcare and rural development works, pleaded Dr Sen. But this does not mean that dependence on subsidy could continue for an indefinite time, he clarified.

At the meet-the-press series organised by the Press Club on the occasion of its silver jubilee celebration, Dr Sen was honoured with a life-long honorary membership of the club and a gold-plated replica.

The Nobel laureate argued in favour of FDI and other foreign investments in India for its quick -wide development in industries which would help solving the present acute unemployment problem. Even China has made tremendous development in the recent times in the industrial and other sectors with foreign investment.

He stressed that the coalition partners in the UPA and others supporting from outside, should narrow down their political differences on the question of the country’s development.

Dr Sen applauded the land reforms and social welfare works in Bengal, which could be an example to the rest of the country. He was dissatisfied with the poor performance of the Left Front government on healthcare, education, and unemployment.

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Syndicate Bank to expand abroad
Shveta Pathak
Tribune News Service

Ludhiana, February 25
Upbeat on the government decision of granting autonomy to public sector banks, Syndicate Bank is gearing up to exploit new opportunities that it expects in the form of expansion of its operations, both domestic as well as overseas.

Executive Director of the bank Kamalakar M. Shet, who was in the city today to inaugurate an e-banking branch of the bank, disclosed that the bank was awaiting clearance from the Reserve Bank of India (RBI) on setting up representative offices in South Africa and Dubai. Besides, the bank also plans to start an office in Singapore.

Talking to The Tribune, Mr Kamalakar said the autonomy granted to public sector banks was awaited for over 13 years.

Brushing aside opposition by bank employees on grounds that autonomy to banks would result in a ‘hire and fire policy’, he said it was only a misapprehension.

Mr Shet said Syndicate Bank, which has nearly 1,800 branches, was planning 127 more branches in the country this year. It also plans to cover 70 per cent of its branches under core banking solutions by the end of June 2006.

About the bank’s tie-up with Bajaj Allianz Life Insurance Company and United India Insurance for bancassurance, he said more such tie-ups would be considered.

“With interest rates moving southward, the bank aims to increase non-fund based income. Non-fund based income generating sources like bancassurance, credit and debit cards would be the focus,” he said.

He said to promote rural and agro-based industry, the bank has got approval from the RBI for providing venture capital. It will also focus on self-help groups.

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