NEW DELHI: Stung by the falling 4.4 per cent growth this fiscal, the pre-Budget Economic Survey on Thursday endorsed the Kelkar Panel recommendations on tax reforms, besides taking serious note of the falling total receipts of Prasar Bharati, a sluggish FDI inflow into the country and inadequate tele density, especially as the telecom sector is touted to lead the path towards a total convergence era.
 

The report card of the country's economic health comes on a day when a group of ministers are at present discussing various ways to increase FDI inflow into the including and possible increase in FDI cap in various sectors, including DTH service.

Setting the reform agenda for the Budget, the 2002-03 Survey, tabled in the Indian Parliament, singled out the deteriorating fiscal situation as a "major challenge" and listed labour reforms, disinvestment, overhauling of regulatory regime including agriculture, and removal of infrastructural bottlenecks as other priority areas to achieve robust 8 per cent growth.

Taking note of the falling revenues of the public service broadcaster, the Survey noted that in the Budget 2002-03, a provision for a grant of Rs 9.14 billion has been made for Prasar Bharati to cover the gap in resources for meeting revenue expenditure in the non-Plan segment.

Further, a provision of Rs 1.07 billion has been made under revenue expenditure segment for the period mentioned.

In a clear to message to Prasar Bharati that it should pull up its socks, the Survey said that during 2001-02 total expenditure of Prasar Bharati (overseeing the functioning of Doordarshan and All India Radio) increased by 5.4 per cent over the previous year to Rs 17.58 billion.

The receipts decreased from Rs 7.11 billion in 2000-01 to Rs 6.98 billion in 2001-02.

The Survey also stated that the total commercial receipt of DD was Rs 6.38 billion in 2000-01 that decreased to Rs 6.15 billion in 2001-02.

Earlier this month, the director-general of DD, SY Quraishi, had admitted to indiantelevision.com that the organisation was "struggling" to meet its annual revenue target for the financial year 2002-03 ending 31 March, 2003.

LAGGING IN TELE-DENSITY:

Predicting an upbeat forecast for the telecom sector with lively competition between multiple private firms, the Economic Survey said the success in the sector notwithstanding, India lagged behind many other developing countries, including China, in teledensity.

"The number of phone lines per 100 persons of the population (teledensity) has improved rapidly from 3.6 in March 2001 to 4.9 in December 2002...However, this is still at a level which greatly lags behind other developing countries," the Survey 2002-03 said.

In particular, China started with a higher teledensity than India as of 1995 and obtained a higher growth over the following years, it said. Dubbing the telecom sector as the most striking success, it said: "Looking forward, the telecom sector will feature lively competition between multiple private firms, with a strong role for TRAI to establish pro-competitive policies."

Stating that the year witnessed continued progress in telecom policies, it noted growth of new telephone connections by 17 per cent and significant fall in long distance tariffs.

"A major shift towards mobile telephony is now apparent, where the share of cellular connections in the new connections during April-December 2002 stood at 63 per cent up from 43 per cent in the year-ago period," it said.

As on December 2002, equipped capacity of about 50 million lines and 40.5 million working connections were provided in the country. The survey also noted the two significant trends in the sector, one of improved role of private sector in providing telecom facilities and another of shift towards wireless technologies.

DEFICIT ESTIMATE RAISED:

The government raised on Thursday its central fiscal deficit estimate for the current financial year ending March to 5.5 per cent of GDP from an earlier estimate of 5.3 per cent.

It also hiked the 2001/02 fiscal deficit estimate to 5.9 per cent from an earlier projection of 5.7 per cent as part of the 2002/03 Economic Survey, an annual economic report card presented ahead of the Budget for the next financial year due on Friday.

The deficit revisions reflected changes to economic growth forecasts in which the government cut its 2002/03 growth estimate to 4.4 per cent. That compares with the economy's 5.6 per cent expansion the previous year. The growth revision was in line with government statistics agency data released earlier.

The survey said a possible US-led war against Iraq was unlikely to have a major impact on economic growth because of record foreign exchange reserves and strong domestic demand.

The survey urged fiscal reform by curbing revenue spending and boosting tax collections to cut a combined 10 per cent fiscal deficit. High interest and salary costs were curbing government ability to spend on infrastructure and social projects needed to achieve targeted eight per cent growth, it said.

TWO-PRONGED STRATEGY FOR AUGMENTING REVENUES:

Mooting a two-pronged strategy to augment revenues and restrain expenditure for fiscal consolidation, it said modernisation of tax administrations, broadening the base and restricting the exemptions are needed to improve revenue collections, essential for fiscal consolidation.

Admitting that drought would pull down the overall growth rate to 4.4 per cent this fiscal as against 5.6 per cent in 2001-02, the survey said revenues from recovery of user charges have to be tapped besides phasing out tax exemptions and plugging evasions.

The survey gives no growth projections for the next financial year but said growth recovery was already visible. However, without fiscal consolidation there was a risk that the pre-emption of resources by the government will crowd out the nascent recovery in private investment.

On the expenditure front, the survey said: "It is critical to contain the growth of wages, salaries and pensions. There is a need to revise the rate of interest on small savings mobilised by the government in line with movements in market related interest rates."

Any successful expenditure rationalisation and reprioritisation programme must address the issue of subsidies, through a rationalisation of the prices of food, fertilisers, LPG and kerosene, it said.

"There is a need to look into the whole issue of federal fiscal transfers, including the role of the Plans, gross budgetary support for Plans and why Plan expenditure affects the past of fiscal deficit and debt adversely," it said.

Concerned over the drought and low exports of farm products, the survey said what was needed was an overhaul of the regulatory regime in agriculture. A closely related issue was the question of labour market reforms and small scale industry reservation. Further, it was essential to restructure the tax system with a move to an impersonal and efficient tax administration with minimum interface between the assesse and the tax official and a system with minimum of exemptions in excise and states sales tax and a move to Value Added tax system by states from 1 April 2003.

While sluggish growth suggests counter-cyclical policies, there is a need to step up progress in fiscal consolidation as the fiscal deficit as proportion of GDP has gone up from 4.1 per cent in 1996-97 to 5.9 per cent in 2001-02 and from 9.5 per cent in 1999-2000 to 10 per cent in 2002-01 for the Centre and states together.

With India emerging as a surplus producer of a number of exportable agricultural products, including foodgrains in recent years, efficient management of the country's food economy has become a major policy issue, it said.

The Iraq war threat cast doubts over pace of global recovery, but the country's burgeoning foreign exchange reserves over $74 billion has made India as one of the top reserve-holding countries besides making it capable of financing higher import bills in the event of steep escalation in global oil prices or other exogenous developments.

However, prolonged conflict in West Asia is likely to affect the export prospects of several economies of developing Asia, due to their heavy dependence on the US economy.

Public investment has been partly constrained by increasing government consumption expenditure, which included expenditure on wages and salaries, commodities and services for current use, the Survey said.

The automobile sector, previously under a strict licensing regime, has been a direct beneficiary of competition and technology in the new liberal regime, it said adding consumer goods and telecommunications industries have also shown remarkable progress.

Amongst the priority areas requiring focussed attention are the elimination of illiteracy, reduction in infant and maternal mortality rates, eradication of diseases, provision of quality transportation facilities like roads, rail, ports and airports, reasonably priced power supply and safe drinking water and sanitation, it said.