The Survey as a guide-post

By S. Swaminathan

The Economic Survey 1999-2000 placed in Parliament on Monday follows the hallowed tradition of the Government seeking to educate the members of Parliament on the economic backdrop of the Union Budget (scheduled for presentation today). Called the ``pre-budget survey'' for this reason, the document provides a fairly exhaustive assessment of the performance of the economy during the year so far with valuable pointers towards policy corrections needed in the different segments of the economy.

There is little doubt that the annual Economic Survey presents a wide assemblage of official data with different degrees of reliability. What is even more important, it provides in-house professional interpretation of trends in the economy which would facilitate understanding of the rationale underlying the Budget. But the fact that the Economic Survey is a product of the Economic Affairs division of the Finance Ministry does not necessarily impart a predictive value to the observations contained in the Survey.

Over the years, the actual experience has been that the prescriptive part of the Survey has rarely been the operational content of the Budget. It is as if the right hand of the Finance Ministry does not know what the left hand is doing! The reason is simple.

The Economic Survey deals with policy issues from the viewpoint of rationality. The Budget, in contrast, deals with the same issues in terms of what is pragmatic and politically viable. This dissonance has little to do with the complexion of the Government in office. It belongs to the realm of public policy where there is always a state of tension between what the civil servants (to avoid the pejorative term ``bureaucrats'') consider prudent and what their political masters consider expedient!

Old habits die hard

The convention is that the Government tables the Economic Survey in Parliament at the beginning of the Budget session to serve as a curtain-raiser for the presentation of the budget itself. By placing the Survey before Parliament just one day prior to the announcement of the budget, this year, the Government seems to have missed out the very purpose of the Survey which is to help MPs familiarise themselves with the working of the economy during the current year.

In the age of instant communication, it is pathetic that the Economic Survey does not contain data beyond December 1999. Even apart from such shortcomings, the question needs to be raised why the Survey cannot be released by the first week of February unless constitution pundits were to hold that the Economic Survey itself is a part of the Annual Statement of Accounts!

Clean bill of health?

The latest Survey more or less confirms the general expectation that overall economic performance during 1999-2000 would be satisfactory with a GDP growth rate of more than 5.5 per cent. The Advance Estimates of the Central Statistical Organisation have it that the GDP growth rate for the year would be 5.9 per cent (as compared to the Quick Estimate of 6.8 per cent for 1998- 99).

A steep decline in growth in Agriculture and Allied Sectors, from 7.2 per cent in 1998-99 to 0.8 per cent in the current year is, of course, a sobering reality. A drop in foodgrains production - from 203 million tonnes in 1998-99 to 199.1 million tonnes - is a major factor at work. But the counterpoise for the decline in the growth rate in agriculture is the turnaround in industry with a growth rate of 6.9 per cent as against 4 per cent in 1998-99. Although the growth in the services sector is somewhat stable at 8.2 per cent, ``financial services'' seem to have put up a gratifying growth rate of 10.5 per cent (6.1 per cent in 1998- 99).

Within industry, Manufacturing has shown a surge with a growth rate of 7 per cent (3.6 per cent in 1998-99). And so has construction with a growth rate of 9 per cent as against 5.7 per cent last year.

On the external sector the Survey generally sounds quite upbeat with forex reserves rising to the level of $ 32 billions, excluding gold and SDRs. A source of satisfaction is that the Current Account in the Balance of Payments is not expected to go beyond the range 1.6-1.8 per cent of the GDP despite the big increase in the oil import bill by $ 6 billions. That the export growth during April-December 1999 was around 12.9 per cent (as against import growth by 9 per cent) is itself a source of comfort.

What is however disconcerting is that despite a strong bid to lure foreign direct investments (FDI), the inflows continue to be a mere trickle at less than $ 3 billions.

What the doctor prescribes

The Economic Survey is both diagnostic and therapeutic. It holds that the fiscal situation is worrisome for the obvious reason that huge fiscal deficits of the Centre and the States have undermined the savings and investment performance in the economy and thereby the GDP growth rate. This apart, fiscal laxity has extracted a heavy penalty through high real interest rates. A medium-term programme for fiscal consolidation with an increase in the tax/GDP ratio is a logical answer.

There are radical initiatives needed including the re-definition of the functions of the Government, downsizing overextended wings of a bloated bureaucracy, and disinvestment of many ``low- performance constituents'' of the public sector. The Survey makes the eminently rational suggestion that the human resources strength of the country cannot be strategised except with increasing private sector investments in higher education, with an appropriate regulatory framework which would ensure that ``fly-by-night operators'' do not swarm the educational sector. It goes far beyond the tentative suggestions so far made by captains of industry whether they relate to labour policy or to small-scale industry. And that is the strength and the operational limitation of the Survey!

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