06 June 2004, The Financial Express

New Delhi, June 5 Economists have advised finance minister P Chidambaram to give a big push to public investment to accelerate agricultural and industrial growth without worrying too much about increasing fiscal deficit. What is important is employment generation as spelled out in the common minimum programme (CMP), growth and higher taxation will automatically take care of fiscal deficit in the medium term.

Dr BB Bhattacharya of the Institute of Economic Growth (IEG) suggested to the finance minister at the customary pre-budget consultation meeting on Saturday, “there is no need to be fussy about fiscal deficit”. He wanted the minister to step up investment in agriculture and infrastructure.

Dr Bibek Debroy, FE columnist and director, Rajiv Gandhi Foundaton, in his presentation, pitched for labour market reforms on a broader sense without actually carrying out radical changes in Industrial Disputes Act, which covers only 2.4 per cent of the total workforce.

Dr Debroy also urged the minister to redefine “profit-making PSUs” and favoured disinvestment of state-owned enterprises that are vulnerable to global competition.

Both Dr Bhattacharya and Dr Debroy opined against lowering of the interest rates on small savings scheme. Dr Bhattacharya said that interest rates on deposits should be increased to prop up savings rate in the economy. He added efforts should be made to restore credibility of financial institutions like UTI and stock markets in the eyes of investors.

Dr Bhattacharya said private companies should be provided fiscal incentives to invest in agri infrastructure. He also asked the minister to rationalise subsidies and encourage higher education to promote IT, biotech and other forex earning sectors.

To carry forward the reforms, Dr Debroy said the Centre had to take responsibility to rehabilitate the states, most of which were virtually bankrupt. In this context, he said early introduction of value added tax was necessary.

National Institute of Public Finance & Policy (NIPFP) director Govinda Rao suggested that service tax base should be expanded. Earlier, Dr Rao had headed a committee on service tax which had favoured a generalised tax on services, to be integrated with value-added tax.

In another recommendation pertaining to the rationalisation of customs duty, Dr Rao said, it would be better to get rid of special excise duties.

The NIPFP director was also in favour of redefining profit-making PSUs. Tax reforms and better tax administration alone could help mop up more revenue, he said. Dr Rao pointed out the case of last fiscal, when the tax-GDP ratio increased by 0.6 per cent without hike in rates.

Mr Pradeep Mehta of the Consumer Unity & Trust Society (CUTS), a non-government organisation, suggested that the government can save about Rs 2,00,000 crore and contribute to the national income by 8.9 per cent if wastage could be curbed. He also suggested that minister should hold consultations with consumer groups as was the past practice. Mr Chidambaram, this time had not invited consumer activists and scientists for pre-budget consultations.

He said that while the government spoke about achieving 7-8 per cent growth over the next few years, hardly anyone spoke about how national income could be increased and accelerated by efficiency and savings. Transmission and distribution losses in the power sector are to the tune of 1.5 per cent of the gross domestic product, while non-merit subsidies cost Rs 20,600 crore, he said.