Survey wants check on fiscal deficit

By Our Special Correspondent

NEW DELHI, FEB. 28. While recounting the positive developments on the economic front during 1999-2000, the Economic Survey for the year has extensively focussed on the soft underbelly of the country's economy which requires urged attention. The Survey was presented in both Houses of Parliament today.

The Survey confirms that the gross domestic product (GDP) is expected to grow by 5.9 per cent this year, that the performance of the infrastructure sectors, manufacturing and construction had improved and the inflation rate had dropped to international levels of two to three per cent. The balance of payments had survived the twin shocks of the East Asian crisis and the Pokhran tests and reserves had increased by $ 2.4 billions till January 2000. Export performance was on par with better performing economies and the restoration of the confidence in the industry was evident in the rise in the stock markets during 1999. Primary issues had increased by almost 46 per cent during the first nine months of the fiscal year.

The list of concerns, on the other hand, is headed by the burgeoning fiscal deficit. The Survey points out that the gross fiscal deficit of the Centre and the States had declined from 9.2 per cent of the GDP in 1991 to 6.2 per cent in 1996-97.

However, in recent years it climbed back to 8.5 per cent in 1998- 99 and is expected to rise further this year.

While projecting that the foodgrains output could end up at 199.1 million tonnes in the current year, down from 203 million tonnes in 1998-99, the Survey said public investment in agriculture had declined even as real private investment in agriculture was rising.

There was a need for a shift in emphasis of public support for agriculture from subsidies to investment in rural and agricultural infrastructure and effective research extension, the Survey suggests.

On the industrial front, the Survey notes that even as the index of industrial production (IIP) showed a firm recovery with 6.2 per cent growth in April-December 1999, there was cause for concern. For instance, while the growth of domestic capital goods production remained reasonably good, it was decelerating (implying fresh investments were slowing down).

Imports of capital goods, on the other hand, had fallen sharply. Also, growth in disbursements by development financial institutions had decelerated, while that by investment institutions had accelerated.

However, growth of sanctions, which also reflect future investment decisions, decelerated in both cases.

Similarly, while primary issues had risen by 46 per cent during the year, reflecting mobilisation of resources from the market for investment, foreign direct investment (FDI) had declined for the second successive year.

The Survey also found that despite the sharp fall in inflation during the calendar year 1999, there was a sharp rise in real interest rates because of the substantial segmentation and rigidities in the markets.

In 1999, the monthly inflation remained below five per cent continuously for 11 months and below four per cent for eight months. Still, continuance of high interest real rates suggests that expectation formation mechanisms based on historical experience have not fully taken account of the structural effects of economic liberalisation on the inflationary process, the Survey says.

On savings and investments, it provides data for 1998- 99 when gross domestic savings fell sharply to 22.3 per cent of the GDP.

This 2.4 per cent drop in the savings rate resulted from a 1.4 per cent decline in public savings and a one per cent decline in household savings in physical form (that is, direct investment). Corporate savings also declined to 3.8 per cent of the GDP from 4.3 per cent in 1997-98.

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