How to kick start the economy

THE NDA Government has at last woken up to the realities of the situation and recognised the need for kick starting the economy with a big step up in``public investment and enabling also private investment to ride on the back of higher public investment". At a marathon meeting of Cabinet Ministers on September 4, it was decided that larger funds should be provided for the railways to implement programmes relating to track renewals and construction of bridges, while additional generating capacity for 1500 MW is to be created with an outlay of Rs.6,000 crores. A sum of Rs.2,500 crores will be spent on the construction of roadways in the current financial year.

The outstanding issues were discussed later threadbare at the meeting of the reconstituted Trade and Industry Council. A 14 point programme has been adumbrated, which aims at mobilisation of resources in various ways, utilisation also of the vast land resources owned by the Government, the railways and other departments for augmenting the pool of funds. In the next five years, the total outlays visualised is Rs.75,000 crores on specified projects. In this manner, it is hoped that the deceleration in industrial growth noticed for the second year in succession and problems experienced by the industrial sector in raising output will be tackled. But there is no denying the fact that the emphasis has to be on implementing projects in the infrastructural sectors with the Government and entrepreneurs in the private sector coordinating their efforts.

Poor shape of Centre's finances

The finances of the Central and State governments are in bad shape, as the growth in tax revenues has not been on the targeted basis in the face of rising non-plan expenditure. While many States are having bulging deficits and feeling compelled to even prune Plan outlays, the Central Government, for its part, may have serious upsets in calculations about tax collections in the current financial year. Apart from the fact that the fiscal deficit had risen uncomfortably to Rs.125,000 crores in 2000-01, there is the prospect of a further big rise under this head and it may not be surprising, if the fiscal deficit balloons to Rs.135,000-Rs.140,000 crores against the Budget estimate of Rs.1,16,314 crores. The Cabinet Committee has been appointed for identifying projects that are capable of being implemented at a fast rate for securing quick results. It is also being speculated in industry and stock market circles whether an effort will be made by the Union Finance Minister to secure additional resources with the presentation of a Supplementary Budget. The Railways have already sought to gather Rs.6,000 crores in five years with the levy of cesses for passengers travelling in various classes.

However, any move to augment tax revenues by the Union Finance Ministry should not have a discouraging effect, as the automobile, cement, steel and other industries are already encountering difficulty in utilising their capacity and functioning on a reasonably remunerative basis. The representatives of the automobile industry have actually asked for special incentives for stepping up sales, while the producers of cement have suggested that projects for construction of cement concrete roads and the like should be taken up. There is no dearth of suggestions from various quarters.

Stimulating investment

But the question is, as stated above, how to evolve a strategy for augmenting the pool of resources with the active functioning of the stock markets and increase in outlays by profitably functioning public sector enterprises like the National Thermal Power Corporation (NTPC), Bharat Heavy Electricals (BHEL), Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC) , Gas Authority of India (GAIL) and the like.

The slump in the stock markets is severe due to the jobbing operations of FIIs, scams of Unit Trust of India, financial institutions and select brokers besides the unhelpful attitude of the Securities and Exchange Board of India (SEBI). The BSE index has nosedived by 48 per cent to 3198.40 (September 7, 2001) from the peak of 6150.69 touched on February 14, 2000. The losses sustained by mutual funds, small investors and others have to be recouped with the bourses staging a recovery with the new measures proposed to be adopted by the Union Finance Ministry.

Ample funds with banks

It is probable that the Union Finance Minister may not be averse to an enlargement of the fiscal deficit for productive purposes though the preference is likely to be to aid the efficient public sector enterprises to obtain funds mainly through borrowing initially from the scheduled commerical banks (SCBs) and financial institutions. The former particularly is in a position to expand credit substantially on a lower interest basis with proper safeguards. A net decline in bank investments cannot be contempleted, as the Centre has to borrow more in the coming months, even if it succeeds in minimising its commitments by helping the public sector enterprises to secure their own resources. In this way, the demand for capital goods, steel, cement, commercial vehicles and other products, whose offtake has been not satisfactory, can be stimulated. But sustained progress can be ensured only if entrepreneurs in the private sector can get their resources in various forms with active functioning of secondary and primary markets.

The Securities and Exchange Board of India should relax restrictions on trading for genuine purposes by eliminating the rigours of rolling settlement system and the complete ban on badlas. The Union Finance Minister is aware of the importance of lively bourses even while effectively checking earlier malpractices with a close monitoring of speculative and manipulative transactions.

What is needed for the Indian economy at the present moment is a new deal from the lines adopted by the U.S. President Franklin D. Roose Velt in the Thirties. There is an embarrassing plenty of foodgrains and sugar with a record output of sugarcane, while almost all the industries except those in the infrastructure sectors have excess capacity. On present indications, the growth in the gross domestic product (GDP) may be only around 5 per cent against the estimate of 6.0-6.5 per cent against 5.2 per cent and 6.4 per cent in the two previous years.

Healthy external sector

On the foreign trade front, a negative trend has emerged in respect of exports, as these were lower by 1.87 per cent at $13.61 billion in April-July 2001 against $13.87 billion comparably. The trade deficit has, of course, declined marginally to $3.35 billion from $3.37 billion as the outgo on oil imports was lower by 6.23 per cent at $5.12 billion against $5.46 billion and non-oil imports rose by only 0.58 per cent.

It remains to be seen whether the retrograde trend in exports will get reversed and a serious bid will be made to achieve a growth rate of at least 8 per cent in the whole of 2001-02 against 19.83 per cent in 2000-01. The only redeeming feature is the comfortable balance of payments position.

The current account deficit was only 0.5 per cent of GDP against 1 per cent in 1999-2000. The deficit under this head in 2001-02 also may be less than 1 per cent, as software exports will be rising even with a slowdown in the U.S. economy and elsewhere and the additions to forex reserves has so far been more encouraging than in the previous year.

Sinews of economy have to be utilised

If there is a revival in the stock markets and FIIs increase their purchases of listed securities and foreign direct investment also happens to be on a larger scale, foreign exchange assets may reach new high levels.

Thus, the problems confronting the economy within the country have to be imaginatively tackled. Otherwise, the struggle being experienced by the Planners in achieving a new trajectory growth in GDP by 8 per cent in the Tenth Plan cannot materialise.

The potential for strident growth has been underlined by McKinsey in its report submitted to the Prime Minister, as it has confidently stated that even a growth rate of 10 per cent can be realised by the Indian economy, if all barriers were removed and the second generation reform measures were implemented meaningfully.

P. A. Seshan

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