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Economy to grow 5-5.5% in 2002-03: Govt

The government on Tuesday forecast that the economy would grow by 5-5.5 per cent despite widespread drought in the country and promised to accelerate economic reforms including divestment and foreign direct investment.

Identifying four key areas for emphasis, Finance Minister Jaswant Singh said in the mid-year economic review, presented in Parliament, that structural reforms, fiscal consolidation, accelerating infrastructure and employment oriented investment needed to be pursued.

The review, made by the government for the first time, gives indication over the shape of government policies that would be announced in the next Budget.

He, however, admitted that fiscal deficit was higher than the target set in the Budget. Amid the controversy over sell-off process, the finance minister said: "Divestment is an integral part of the reform process. It has proceeded by building up a political consensus across a wide spectrum of opinion."

Stating that divestment should be taken up essentially to unlock the productive potential inherent in public sector units, Singh said it should not be "viewed purely from revenue perspective".

Asserting that acceleration of FDI was a high priority, he said proposal by a high-powered committee (headed by N K Singh) is now being considered by the Group of Ministers and would be given importance.

The review gives the broad contours of the macroeconomic policy initiative needed to be taken in the forthcoming Budget to push up growth.

"Divestment is an integral part of reform process. Divestment has proceeded by building up a political consensus across a wide spectrum of opinion," the review said underplaying sharp differences within the government on the privatisation process.

Stating that divestment should be taken up essentially to unlock the productive potential inherent in PSUs, the review said it should not be "viewed purely from revenue perspective".

Asserting that acceleration of FDI was a high priority, it said proposal by a high-powered committee (headed by N K Singh) was now under consideration of Group of Ministers and would be given importance.

Giving reasons for a low 5-5.5 per cent growth this fiscal, the review said the late arrival of the monsoon, combined with deficient or scanty rain, weakened the growth momentum in the second quarter.

"High international oil prices, uncertainty about recovery of world growth and trade, and a tense situation on the western border, combined with imponderables arising from the situation in Gulf and elsewhere compounded this weakness," it said.

Singh said indicators suggested better fiscal management during the current year as the fiscal deficit for the first half (April-September) at Rs 57,746 crore (Rs 577.46 billion) was marginally higher than the corresponding figure in the previous year.

The review, however, cautioned that there could be some pressure on both revenue and expenditure. "Unanticipated weakening of growth momentum might affect revenue collections in the absence of appropriate corrective measures."

"Expenditure management would also pose larger challenges from enhanced food subsidies on account of higher farm support prices, higher fertiliser subsidy from augmented retention prices, larger subsidies resulting from distribution of LPG and kerosene at below market prices and unanticipated expenditure on drought relief," it said.

Revenue receipts had increased by 15.9 per cent in the first half of current fiscal while total receipts increased by 12 per cent, it said.

While aggregate revenue expenditure increased by 13.5 per cent during this period, the capital expenditure (which denote productive investment) increased by a meagre 3.6 per cent, it added.

The review said the fiscal deficit in April-September increased by 0.8 per cent constituting 42.6 per cent of the budgeted fiscal deficit for the year and added government borrowed Rs 1,88,549 crore (Rs 1,885.49 billion) during this period against the internal debt target of Rs 253,023 crore (Rs 2,530.23 billion) for 2002-03.

A total of Rs 120,695 crore (Rs 1,206.95 billion) out of the total borrowing this year so far had been utilised for repaying past debt, it added.

Outlining the future strategy, the review said labour market reforms was a related issue to the structural reforms and added "accessing the global market with consumer goods of quality at competitive prices, produced both in large and small scale establishments operating under flexible labour markets should be the goal."

The review admitted transportation bottlenecks and unreliable and expensive power supply were two impediments that needed redressal and said "power sector reforms, though progressively satisfactory, need to be accelerated by enacting the Electricity Bill."

While dubbing the telecom sector as a major success story, it said more reforms aimed at providing benefits of rapid convergence between telecom and IT to users in more efficient and cheaper ways would flow from the enactment of the Communication Convergence Bill, 2001.

Stressing on improving corporate governance for revival of capital market, the document said this was critical for boosting investment and required effective regulation by Sebi, which was recently given more powers.

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Mid-term Economic Review 2002
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