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Govt. committed to disinvestment process

By Our Special Correspondent

NEW DELHI DEC. 3. The Union Finance Minister, Jaswant Singh, today labelled the rising fiscal deficit of the Central Government as a "major area of concern" and hinted that the situation could deteriorate in the remaining period of the current fiscal year unless corrective measures were initiated. However, he projected an economic growth of between five and 5.5 per cent for the current year, in line with the Reserve Bank's projection.

Presenting the first-ever mid-year review of the economy in Parliament, Mr. Singh outlined some of the corrective measures as a tax system with minimum exemptions in excise and sales taxes, a move towards value added tax (VAT), rationalisation of pension and other retirement benefits and revision in the interest rates on small savings in line with market-related developments. Besides, a reprioritisation of subsidies, through a rationalisation of prices of food, fertilizers, LPG and kerosene, has been suggested.

Mr. Singh, however, did not mention any tampering with exemptions in the case of income and corporate taxes in keeping with his policy of "more money in the hands of taxpayers and not to burden the lower middle class".

While presenting the mid-year review, he nevertheless made it clear that the document "does not purport to be either the budget or a forerunner to the budget" and should, therefore, not lend itself to speculation over the budget. The review treads the by-now familiar path of how the Indian economy has shown resilience in the face of the "most telling monsoon deficiency in two decades, a subdued world economic outlook accompanied by sluggish global trade and unsettling geo-political conditions". In April-June, the gross domestic product (GDP) grew by six per cent, a rate markedly higher than the 3.5 per cent registered in the corresponding period the previous year and despite a late arrival of monsoon, the supply position of foodgrains continued to be comfortable. Inflation remained low at around three per cent, accompanied by a strong balance of payments position with reserves at over $66 billion. "Growth projections for the current year continue to be between 5 and 5.5 per cent," the review said.

The estimates of growth at the beginning of the fiscal year were between six and 6.5 per cent.

In April-September, industrial production grew by 5.2 per cent compared with 2.4 per cent in the corresponding previous period with the turnaround in the capital goods sector being particularly striking. "Taken together with the higher growth in the manufacturing sector in the current year, the trends underline a distinct revival in industrial activity," the review said.

The fiscal deficit for the first half of the current year at Rs. 57,746 crores was only marginally higher than the deficit in the corresponding period the previous year. Revenue receipts increased by 15.9 per cent while total receipts increased by 12 per cent. In the same period (first six months), the aggregate revenue expenditure and capital expenditure increased by 13.5 per cent and 3.6 per cent. But the review warned that "the remainder of the year could, however, see some pressures on both revenue and expenditure as the unanticipated weakening of the growth momentum may effect revenue collections in the absence of appropriate corrective measures".

Adding a word of caution, the review said that though the prospects for the current year appeared brighter than the initial, rather subdued, estimates following the deficient monsoon, "any intensification of the conflict in the Gulf or West Asia, with ramifications on the international price of crude, delays in recovery of world trade and output and resolution of the Latin American debt problem impart uncertainty about the growth prospects of the Indian economy in the current year".

In terms of policy initiatives, the review suggested accelerating the structural reforms, rapid improvement in infrastructure, continuous progress in fiscal consolidation and accelerating investment for sustained growth and enhanced employment. In this context, the Finance Ministry has committed itself to public sector disinvestment and increased foreign direct investment and conceded that most of these initiatives required a political consensus and a sense of commitment towards reforms.

HIGHLIGHTS

Economy projected to grow between 5 and 5.5 per cent.

Foreign exchange reserves over $66 billion.

Industrial production up 5.2 per cent in the first half.

Agricultural and allied sector growth 4.4 per cent in the first quarter.

Inflation point-to-point at 3.3 per cent in the first half.

Exports up by 13.5 per cent, imports by 8.5 per cent in the first half.

Revenue receipts up by 15.9 per cent in the first half

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